The budget introduced a carbon tax, with immediate effect on transport fuels, after the winter on some heating fuels, and after due deliberation on other heating fuels. I’ve long argued for a carbon tax. I would have set the carbon tax 67 cents lower at €14.33/tCO2. Like the government, I would have ignored the advice of the Commission on Taxation and levy the tax at the point of retail.
I would not have exempted coal and peat. I do not think that direct imports from the North would be substantial. Coal and peat emit more carbon dioxide, per unit of heat, than any other fuel. Coal and peat should be taxed most, not least.
At the same time, the government has increased the budget of its energy programmes by 13% to €105 mln. The SEI has yet to release its long-finished evaluation of the performance of these programmes in the past. With a carbon tax in place, there now is double regulation. The carbon tax induces people to invest in emission reduction, and they will get a government subsidy on top if they use the government-favoured technology. The Climate Bill is rumoured to put a domestic cap-and-trade system on top.
People who have had their homes insulated at the taxpayers’ expense will continue to be entitled to a fuel allowance (which may well go up).
The carbon budget had some bad news. According to the provisional estimates of the EPA, emissions in 2008 fell by 1% compared to 2007. The ESRI forecast for 2008 is -4%. The EPA has not released their estimates, so I am not sure what is going on. If emissions do not fall in the middle of a recession, that must mean that energy use is sticky downwards (unlike wages). This will make emission reduction even harder than we thought.
Despite that, the Climate Bill is rumoured to extent the target of a 3% annual emission reduction from 2012 to 2020, and to have an 80% emission reduction by 2050. A future government can of course pick a new target.
Returning to the budget, energy research will see its funding increase by 176%.