Ireland's State of the Environment Report 2024

326 Chapter 12: Environment and Energy 10. Subsidies and taxes Taxation, operating in conjunction with other measures, provides the government with an important climate action policy lever. Fiscal measures such as price signalling and the gradual removal of fossil fuel subsidies support the move away from heavily polluting fossil fuels and towards more sustainably fuelled transport, heat and industry. A range of policies, including demand management, is needed to meet the necessary reductions and underpin the transition to a low-emission and ultimately net zero economy. Fossil fuel subsidies The International Energy Agency’s World Energy Outlook 2022 (International Energy Agency, 2022) highlights that recent direct fossil fuel subsidies and below-market energy prices reduce or remove incentives for energy efficiency and disproportionally benefit wealthier households and businesses, and are a burden on public finances. The EU and its Member States have a long-standing commitment to phasing out potentially environmentally harmful subsidies, including fossil fuel subsidies. Such subsidies include tax exemptions/reductions for specific goods or groups. The CSO provides an analysis of fossil fuel subsidies in Ireland (CSO, 2023), including direct and indirect subsidies. These direct subsidies include those provided for fossil fuel exploration, production and consumption, with a significant focus on lower income households and groups (Table 12.2). The CSO estimates direct fossil fuel subsidies at €300 million per annum for 2017-2021, on average. Additional direct subsidies were introduced following Russia’s invasion of Ukraine in February 2022, as fossil fuel prices soared, including direct electricity payments to households, reduced VAT on electricity and natural gas, and decreases in excise rates on road petrol and diesel. Higher fossil fuel prices have the hardest impact on poor people. These recent subsidies were not targeted to any income group and apply to all householders and fuel users. It is important to ensure that climate policies and fuel taxation measures are targeted to the most vulnerable, helping to achieve a just transition. Table 12.2  Direct fossil fuel subsidies, 2017-2021 DIRECT FOSSIL FUEL SUBSIDIES 2017 2018 2019 2020 2021 Total 357.8 309.6 268.7 290.6 284.8 Fossil Fuel Production Petroleum exploration and production promotion and support scheme 2.1 1.2 1.4 2.1 0.9 Science Foundation Ireland fossil fuel R&D funding 1.3 1.3 0.8 0.2 0.0 Fossil Fuel Consumption PSO levy: electricity generation from peat 117.8 65.5 25.5 31.4 7.7 PSO levy: security of supply – – – – – Electricity allowance 110.2 108.6 105.7 104.9 115.7 Gas allowance 20.6 19.3 21.2 20.9 22.1 Fuel allowance 90.5 96.1 96.0 116.2 126.3 Other supplements (including heating) 5.8 7.7 7.7 4.9 4.1 Fuel grant for disabled drivers /passengers 9.5 10.0 10.5 10.0 8.1 – Scheme not in operation or no relevant payments made Source: CSO, 2023