9 Oct 2020

Budget 2021 expectations and the commitment to a ‘greener’ Ireland

By Deirdre Hogan

EY Ireland Tax Partner

Passionate about building relationships. Firmly believes people still do business with people. Enjoys working with purpose. Excited about innovation. Loves to run.

9 Oct 2020

This article was co-authored by Lorraine McCann, Climate Change and Sustainability Services Leader.

The announcement of the Climate Action and Low Carbon Development Bill by the Government this week signals a very clear intent that Ireland will ‘build back better.’ We are now legally bound to achieve net zero emissions by 2050. This builds on the existing commitment to reduce greenhouse gas (GHG) emissions by an average of 7% per year out to 2030, as indicated in the Programme for Government.

The Bill also introduces a system of successive 5-year, economy-wide carbon budgets starting in 2021 and it strengthens the role of the Climate Change Advisory Council in proposing carbon budgets. To what extent we will see a focus on that in this year’s budget, remains unclear. Eamon Ryan and the Greens are in government, so even with the focus on COVID-19, we should expect there to be a much greener agenda.

The carbon tax was increased from €20 to €26 per tonne in the 2020 budget. This increase was somewhat underwhelming. The impact on the average household was negligible and the impact on lower income households was offset by a credit. To effect real behavioural change there must be a tax incentive for people to move away from a reliance on higher carbon emitting fuels. This will only be achieved if the carbon tax imposed by Government is sufficiently high that people really feel it and are motivated to change.

Given the new coalition arrangement with the Green Party, a greater increase is likely in the upcoming budget. The national Climate Action Plan outlines a target to increase the carbon tax to €80 per tonne by 2030. The expectation is that carbon tax will increase again, possibly within the €30-€35 per tonne bracket.

However, everything is more unpredictable because of COVID-19, but we should not see any back tracking on the green agenda. If the Government is serious about reducing GHG emissions, the annual carbon tax increases would need to be more aggressive than those observed in the past.

We are already paying a carbon tax on our gas bills, petrol, diesel, coal and briquette purchases, and through the PSO levy for electricity. As the carbon tax continues to rise, we will undoubtedly start to feel the pinch.

Carbon pricing is just one part of the solution, however it’s still open to question if the budget will offer more by way of direct incentives to get business and society to be more sustainable. There will be something around incentives for business but exactly what those are is still unclear. We do expect the increase in carbon tax to continue to be ring-fenced to protect the vulnerable, enable a just transition and invest in low-carbon alternatives.

It will be important, given current economic circumstances, that the money earned from carbon tax is, in its entirety, allocated to implementing the climate change plan. Supporting those industries that are to be phased out, supporting lower income families (given the regressive nature of carbon tax) and focusing on the regional impact of the climate change plan is vital.

There will be huge costs to the Exchequer if we don’t meet our emissions targets. We already have a mandate to achieve 20% emissions reductions by 2020 (from a 2005 baseline), and a 30% reduction by 2030 under EU regulations. Failure to reach these will result in fines. It will cost Ireland significantly in the medium to long term if we don’t meet our targets. We are so far behind in meeting them already that we really need to step up this year. Decarbonisation not a choice we have anymore, it’s a requirement.

Five-year carbon budgets and a cap on GHG emissions will undoubtedly put pressure on the public and private sectors to respond and implement measures to ensure compliance. Organisations should now be thinking about the following critical areas:

  • Measuring and assuring your GHG emissions
  • Reporting your GHG emissions publicly
  • Understanding the risks associated with rising carbon prices

It will be a business imperative going forward that GHG emission management systems, KPIs and targets are put in place to track performance and align with the national GHG emissions reduction targets. 

Summary

To what extent we will see a focus on reducing greenhouse gas emissions in this year’s budget, remains unclear. The Greens are in government, so even with the focus on COVID-19, we should expect there to be a much greener agenda.

About this article

By Deirdre Hogan

EY Ireland Tax Partner

Passionate about building relationships. Firmly believes people still do business with people. Enjoys working with purpose. Excited about innovation. Loves to run.