While Brian Cowen and Brian Lenihan continue to insist that there will be no new budget for 2009, Eamon Ryan announced that a carbon tax may well be introduced this year. It was on Morning Ireland, so he may have misspoken and meant that it will be announced this year for introduction in 2010.
Another remark is deeply worrying. Ryan mentions a “floor price”. The only price around in this context is the carbon price at the Emissions Trading Scheme. This is an EU wide market. If the Irish government is to guarantee a minimum price, it would have to buy up permits from all over Europe. That would blow another big hole in the budget.
A floor price in Ireland can also be guaranteed by a domestic carbon tax. This is double regulation: a price instrument (tax) on top of a quantity instrument (permit trade). Such a tax would bring in revenue. It would not reduce emissions, however, as any tonne avoided in Ireland would be emitted elsewhere in the EU. The tax is purely redistributive, from the private to the public sector. This would of course raise the cost of energy in Ireland, and thus hurt our competitive position. See Tol (2007) for more detail.