Commission on Taxation: Carbon tax

The report of the Commission on Taxation can be downloaded:

This thread is on their proposals for a carbon tax. Others will open threads on other aspects of the Commission on Taxation.

The Commission on Taxation proposes a carbon tax. Here are some crucial elements:

Level: Roughly equal to the CO2 permit price in the EU Emissions Trading Scheme (€15.24/tCO2 today)

Scope: Non-ETS CO2 only

Revenue: Earmarked

On the level of the tax, with the carbon tax equal to the permit price, we reduce carbon dioxide emissions at the lowest possible cost. This is good. At the same time, the level of the tax is set by the market rather than by some politician. This is good too. There is the worrying suggestion of a floor to the tax, but this is fine as long as that floor is set low.

Scope: CO2 in the ETS is exempted as it should. Taxing CO2 in the ETS would be double regulation, and every tonne of CO2 reduced in Ireland would be emitted elsewhere in Europe. Non-CO2 greenhouse gas emissions are exempted too. This is the only pragmatic way forward at the moment, although economic theory strongly recommends that this exemption should be phased out at the earliest opportunity.

Revenue: The Commission on Taxation got it wrong here. They recommend that tax breaks for energy efficient capital be continued, and that companies in a voluntary agreement on energy efficiency. The tax break is double regulation. The Accelerated Capital Allowance on energy efficient equipment should be abolished. The voluntary agreements on energy efficiency should also be abandoned. Voluntary agreements are a weak policy instrument. The CoT essentially allows industry to choose between two regulatory regimes.

By the same token, the CoT does NOT recommend that other energy subsidies be abolished — particularly the Greener and Warmer Homes. Again, this is double regulation, unnecessarily increasing the cost of emission reduction and introducing distortions and opportunities for rent seeking. This is an opportunity missed.

The CoT does recommend that VAT on energy-efficient goods be lowered. This is triple regulation!

34 replies on “Commission on Taxation: Carbon tax”


Its seems as though not only will the Greener and Warmer Homes Schemes remian, but some of the revenue raised from the carbon tax will be channeled towards them (see below)

“We also suggest that the recycling of carbon tax revenues to fund energy efficiency incentives for business and households would be appropriate.”

1. Given that the tax will effect the poorest the most and given that fuel poverty if a real issue, what do you think is the best way to redistribute the burden?

2. Also an increase in the cost of energy will clearly make the benefits of installing energy efficient products greater. But in the long run they have outweighed the costs for many years. State intervention has been required because of other barriers facing individual house owners.

For example the costs of most energy efficient measures are lagre and occur up-front, while the benefits can take years/decades to accrue. Also the benefits to the individual are often less than that to the rest of society.

Therefore some form of subsidy or even just low interest loans might be a better form of catalyst than slapping on a tax. What are your thoughts around this?


Poverty is a real issue and should be tackled heads on. In this particular case, part of the carbon tax revenue should be use to increase/not decrease benefits.

If there are barriers to the adoption of environment-friendly technology, then these should be targetted. However, if the “barrier” is that the return on investment is too low, then these technologies should not be implemented.

A tax on emissions is a better instrument than a subsidy on specific technologies, because it targets the problem directly and it stimulates all solutions (rather than just the politically-favoured ones, as in the case of subsidies).

If the emission tax does not provide sufficient support for your favourite technology, then you should either
(1) adjust your assessment of what technologies should be favoured; or
(2) argue that the price of carbon should go up.

Mind you, €15/tCO2 = $80/tC, while the estimated externality is only $60/tC (if you stretch the literature:

Given that the new tax when implemented will only offer a helping hand towards meeting international targets what do you consider to be the least worst types of policies to augment the tax with a view to compliance with say the 2020 20% target? Purchasing tradeable permits first I assume, what comes second?

Import of tradable permits comes first, second and third

Not a whole lot can be done in Ireland, as 2020 is pretty close — anything that involves large infrastructure (Metro north, Moneypoint replacement) or new technologies (electric cars) is off the table

That leaves behavioural change. Behaviour changes only slowly when it is driven by preferences, but behaviour can change very rapidly in response to changes in regulation.

It would help to abolish the current privileges of peat-based electricity, to have competition in the Dublin bus market, to enforce traffic rules that protect cyclists, and to shift the tax burden from owning and buying a car to using it (as also proposed by the CoT).

“I thought the Greens were cheering gas price cuts last week???”

Politicians want the price of stuff to be at a given level, but for that level to contain as much tax as possible. Ergo, if the retail price is going down, that introduces scope to tax it more 🙂

Sadly, no escape clauses: this tax will remain even if global temperature trends the other way or Ireland meets it carbon reduction goals through economic decline.

Is there a book or web site that explains this global warming caused by CO2 in a mathematical way. I see countless hand waving type arguments but wonder if the actual final 100% compete climate model exists and is codified in one place that can be inspected.

Why not just tax energy? If you insist on the carbon tax, tax energy imports as Ireland does not produce much fossil fuel domestically.

The trading back and forth of carbon is a kind of scam that will create a huge class of wealthy traders that are really trading nothing imo. Not only are the huge salaries of the traders repugnant, but they represent a transfer of wealth from people living a low carbon lifestyle to those living a high carbon lifestyle.

Just a couple of quick back of the envelope calculations to put this in perspective. If we use an annual consumption of 20,500 kWh for the typical gas household and 3,300 for the typical electricity household, with the prices decided by the CER from 1 October and the current prices in Britain (incl. VAT), the Irish households will be paying Euro 173 more for gas and Euro 143 more for electricity than the British households.

SEI uses 0.196 kgCO2/kWh for gas consumption and 0.776 kgCO2/kWh for electricity consumption. Using Richard’s CO2 price of Euro 15.24/tonne, typical Irish households will pay an additional Euro 62 carbon tax on gas and an additional Euro 39 on electricity.

I realise that all the usual arguments will be trotted out – higher costs of getting gas to Ireland, higher costs in Ireland due to low population densities and a dispersed population, fossil fuel dependency, prices too low in Britain to incentivise investment in generation, etc., but, insofar as these have any relevance, there are still significant explicit and implicit taxes in irish gas and electricity prices. Irish consumers are being taxed enough already – both explicitly and implicitly. They have all the price incentive in the world to be energy efficient (and reduce CO2 emissions) – and this may be seen in Ireland’s international ranking on energy intensity.

Before applying an additional tax it would make far more sense to review the level and incidence of explicit taxation and to strip out the implicit taxes. We could then have a sensibly based carbon tax, lower final prices, and a lower general price level which would enhance competitiveness.

Electricity is in the EU ETS. Electricity will not be affected by the carbon tax.

Other than that I agree. Ireland is not only among the most energy-efficient economies in the world, but energy efficiency has improved faster here than elsewhere. While a carbon tax is the right policy in principle, other components of the energy price need to be looked at carefully. New taxes cannot wait, however.

Thanks, Richard.

I stand corrected. I’m pleased, however, that you accept that other components of the energy price need to be looked at carefully. I’ve been looking at them carefully for six years to see how they might be reduced efficiently, but, unfortunately, most of the other people I’ve encountered who look at them seem to spend their time seeking to justify these components and their excessive size.

I understand your preference for a carbon tax. I still retain a preference for trading with a carbon tax as a supplementary measure. It probably boils down to whom do you trust less: inept politicians or dodgy traders.

One of the components of wholsale electricity prices in ireland that needs to be looked at (well before the anomaly dissapears) is the fact the full cost of carbon being bid in by electricty generators to set the wholesale price, yet only incurring a fraction of the full carbon cost. I vaguely remember simon coveney of fine gael mention some sort of carbon windfall tax to address this issue…. Would be a timely resurrection,.

Joseph C,

You have a valid point. In this second phase of the EU ETS electricity generators have been allocated free emission allowances (EUAs). And these are usually in excess of the amount they require if they manage their plant portfolio and bulk puchases to minimise CO2 emissions. They will no longer receive free allowances in the next phase from 2012. Until then, though, they can sell their surplus allowances and generate a ‘windfall’.

Last year, the ESB proposed donating its windfall of Euro 300 million to reduce. This was seized on by the CER which, alone, has the power to set prices. The ESB has deigned not to persist with this ‘benevolence’ and it will revert to pocketting the windfall. It would be far better to tax this windfall away.

But this windfall will disappear. The other explicit and implicit taxes are embedded in energy prices and will continue unless they are challenged and reformed or stripped out.

I haven’t read all the posts but, as Jim Power mentioned on the radio earlier, to not much comment, unless I’m missing something, for something that’s suposed to be “revenue nuetral”, I reckon that I could be €4k WORSE OFF next year, IF the Govt. adopted most of the Commission’s ideas.

Revenue Neutral my @r$e !!!!

How are indigenous Irish companies not covered by ETS expected to be able to compete with multinationals who will continue to receive over 90% of their allowances for free from the state. While I accept that multinationals will leave if cost of doing business here rises too much this does not seem lto be a valid reason to let smaller indigenous businesses go to the wall.


I am totally in favour of reducing the effects of global warming. I am not however too enamoured by the idea of selling allowances.

When looked at right at this moment, it should not impact Ireland too much going forward.

What I see, and feel free to correct me if I am wrong, is that the carbon credit market has all the makings of a new speculators bubble.

Treated virtually the same as a commodity. To me, logic dictates that as the CAP is gradually lowered, carbon credits will become scarcer with each passing year.

A recipe for a commodity which is guaranteed to rise in price over time.

Again, please feel free to enlighten me if I am wrong. However, I do not see any mechanisms in the EU legislation that will prevent speculation.

That makes me feel a bit uncomfortable. I do not believe something as vitally important as the need to reduce greenhouse gases should be open to abuse by speculators.

Not only will we be paying to help reduce emissions, but we will end up subsidising specultors who cannot lose.

Why don’t you start with Wikipedia?

I don’t want to see the start I want to see the end product. I don’t even want an explanation or history. Is there a web site with every line of code used to produce the final result. Is there a version that individuals can run and modify? Open Source?

The recent failure of the Boeing 787 wing, which used the same finite element modeling used in climate modeling might also indicate limits to computer modeling.

Anything can and has been taxed: hearths, windows, urine, income, wealth, roads etc.
Since the world is getting cooler, since 1998, and the possibility of a solar mimnimum, lasting 59 years is growing, even the AGW liars are now saying the world may cool for a decade ….. Sounds very like bank lending being the engine of growth to me!

We need more taxes. Just to pay for the interest on the NaMa bailout of the land grabbers and banks.

@Old fossil
A carbon tax falls disproportionally on the non-traded sector, and therefore affects international competitiveness only indirectly. Our main trading partners also face stiff emission reduction targets, and may well use policy instruments that are more expensive than a carbon tax. The competition is likely to see a steeper increase in energy prices. More importantly, energy costs are a fraction of labour costs, so shifting the tax burden from labour to emissions would actually improve competitiveness.

“geo8rge Says:
September 8th, 2009 at 5:30 am
Why don’t you start with Wikipedia?”

Carbon trading and carbon taxation are an entire scam.

There is no climate change “model” worth the name.

Just ask “What is the optimum percentage range for CO2 in the atmosphere?”

Thank you for your reply. However my concern is where a company whose emissions are below the threshold to be included in the ETS has to compete directly with a company in the scheme. In the event (unlikely it seems) that taxes on labour are reduced the large company will benefit to the same extent as the small company. As the large company has received the emissions allowances for free an artificial market distortion has been created.In declining markets it is likely that the large company will use it’s windfall gain to gain market share resulting in job losses in smaller,indigenous firms. From my own experience I think it is an over generalisation to say that in the non traded manufacturing sector energy costs are a fraction of labour costs or is it not in Ireland’s long term interest to have any energy intensive small industry?

@Old Fossil
Fair point. The obvious solution is to auction permits in the EU ETS.

There is little energy-intensive industry in Ireland. It’s in Ireland’s interest to have high-value-added industry, regardless of energy-intensity.

As I understand it widescale auctioning of permits won’t happen before 2012 at the earliest (and not even then if large industry has any thing to do with it). In the meantime its curtains for any of us who work in small energy intensive industries in this country and to what end I wonder.

The high cost of utility’s has been a factor in Ireland loosing inward investment in manufacturing over the past few years. ( e.g. decisions on Intels newer fabs ect are going to Israel, the US & China, whats left in Leixlip is becomming older technology.)

At a time when costs need to be reducing to make ireland compeditive and attractive to do business in the governmant look at ways of raising taxes and bleeding an already overtaxed populace dry..

this carbon tax is a ruse to increase revenue and nothing else. A few TD’d on bicycles in dail eireann are happy and will now vote NAMA in.

Instead of raising taxes through sham reports & recommendations the governmant should have been looking at their expenses and where they could cut expenditure.

The elephant in the room is the public sector pay bill. Examine those public jobs that are essential and keep them on their normal working hours. Put everyone else on a 3 day week saving up to 40% on pay, those under a certain pay level can sign on for 2 days a week.the rest are earning a sufficient level to be ok. Meanwhile benchmark public sector pay against similar economies.(i.e downwards)

The unions wont like it, but the alternative of job losses they will not like either. This is taking place in the private sector already.

Plus to bring my post back on topic it will reduce the carbon footprint of the civil service clogging up the streets and possibly provide more free flowing traffic during the week.

Old Fossil
You have a point. The cost of shipping goods such as food around the world is less carbon intensive and less costly, as it is done in huge quantities, than moving the goods bought from shop to home or moving it beyond a certain distance within the state! Consumers bear the cost unltimately, not businesses, unless they are very inefficient. The bringing in of multinationals does not help your argument though as if cost benefit analysis has been correctly done, there are far more benefits such as money earned by consumers of that indigenous business.

I agree but until Ireland becomes energy independent imports must come down! The international markets are being dominated by other countries eg China for PV solar, but what chance there is for innovation in Ireland will be helped by the spur of demand! Electricl fusion, non neutron prioducing, with diect electrical out put, no steam or liquid sodium, is already underway in the States. And don’t forget cold fusion which is also suitable for Irish researchers. Water contains deuterium and tritium naturally. All hydro has to be able to harvest these. Ireland is rich in rain I seem to recall!

Richard Tol
The commission report is not very artistic. Past Revenue Comissioners who were Inspectors of Taxes, as Frank was not, he was Customs, might have been stronger, to give them their due, they were morally defective but very clever men (100% so far, sadly). There has been a growing technical deficit in Revenue as talent was driven out and exams abolished and numbers run down, believe it or not!
It is one thing to increase tax rates, another to police them with equity. But in a low tax banana republic, that is an unaffordable luxury! 90% of the talent is on the outside or will be over the next five years given the very odd age structure in Revenue. Definitely a case for more intellectual input. Tax laws are enormous in length and technical history. Simplification is the enemy of special pleading? Long overdue but always delayable as we have an industry in avoidance!

@Pat Donnelly:
“Past Revenue Comissioners who were Inspectors of Taxes, as Frank was not, he was Customs, might have been stronger, to give them their due, they were morally defective but very clever men (100% so far, sadly).”

The past commissioners may all have been men, but Josephine Feehily is not.


Carbon Emission Target Nonsense

It was with bewilderment that I listened to the RTE news on Friday the 12th of March 2010 about what science boffins working for the EU had to say about Ireland’s Carbon Dioxide emissions.
‘They’ stated that Ireland was not going to meet its targets and would have to purchased additional Carbon Credits to pay for not reaching these targets, WHAT?, did I hear them right?, a country that is shedding jobs at the highest rate in the nations history, a country that has little if no industry to speak off, and a country that has one of the lowest population densities in Europe is not going to meet is targets.
This in my humble opinion is absolute nonsense, that would mean in order to meets these targets Ireland would have to shed even more jobs which would curtail the spending power of the newly unemployed and their Carbon Footprint as ‘they say, that the remaining industry in the country has to cease its activites and that even the population would have to reduce reproduction dramatically in order to reduce their direct Carbon Dioxide contribution via breathing, and yes ‘they’ have in the past mentioned that the large population of the world was effecting climate because of the its Carbon Dioxide output.
When is this nonsense going to stop, Climategate, Amazongate, Himalayagate and all the other gates the are being opened are highlighting the fact that Man – Made Global Warming is based on flawed, manipulated and some might say fraud science, science that has led the people of Ireland to be saddled with a Carbon Tax which will grind the people of this nation further in poverty and hardship.
Our government and the people in this country have to start challenging the EU on this Global Warming, Carbon Footprint, Carbon Credits nonsense now and not in a few years time when its too late.
People need to realise that the whole Carbon Credit trading scheme was divised by banks, the very same banks that caused the whole credit swap derivitives bubble that collapsed plunging the world in economic meldown

Article by Declan Cullen

@Declan Cullen:
“a country that is shedding jobs at the highest rate in the nations history, a country that has little if no industry to speak off, and a country that has one of the lowest population densities in Europe is not going to meet is targets.”

Couldn’t we just shoot some cows? Then some landowners could stop pretending to be farmers.


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