Opinion: tax measures can influence the behaviour of individuals and companies when it comes to taking action to reduce carbon emissions
With Budget 2022 just around the corner, Ireland finds itself at the confluence of some major crises: a global pandemic, housing crisis and the one with the most momentous consequences, the climate crisis. The IPCC reported in August that it will not be possible to limit global warming to 1.5 degrees unless there are immediate and significant reductions in greenhouse gas emissions.
In July, Ireland made a commitment in law to reach zero carbon emissions by 2050 and a 51% reduction in 2018-level carbon emissions by 2030. While these goals are ambitious, the performance has been poor so far, with Ireland ranked 39th out of 57 developed countries for progress in climate protection by the Climate Change Performance Index.
It is clear that we should expect some tax measures in Budget 2022 that will support Ireland's climate action goals and assist in reducing carbon emissions. Taxation measures can be used to influence the behaviour of individuals and companies in two main ways. Firstly, it can penalise an undesirable behaviour or activity. An example of this is the introduction of plastic bag levy in 2002.
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From RTÉ Archives, Ray Kennedy reports for RTÉ News on the successful introduction of the plastic bag levy in 2002
The problem with this type of measure is that it is only suitable when there is an affordable and reliable alternative to the behaviour or activity that is being discouraged. Excise duties and VAT on petrol and diesel account for more than the price before taxes. Increasing these would have no real impact on car usage or emissions because the alternatives are not affordable or practical in all circumstances. Electric cars remain expensive with few charging stations and lower miles per charge when compared with a tank of diesel or petrol. Public transport does not serve every location adequately.
The second way tax can be used to change the behaviour of individuals and companies is through incentivisation. This type of measure has the effect of reducing tax for the individual or company that engages in the desired behaviour. An example of this is the bike to work scheme.
Reducing carbon emissions requires a change in the purchasing and usage behaviour of individuals and companies, as well as the development of innovative, accessible, affordable and suitable alternatives to the emission creating activities. For this reason, I would favour incentive type tax measures that act not just upon the purchasing behaviour of the users but also assist and incentivise those companies that will provide the suitable alternatives in the future.
From RTÉ Radio 1's Brendan O'Connor Show, motoring journalist Geraldine Herbert on electric cars and how to avoid "range anxiety"
In the short to medium term, there must be a focus on minimizing car journeys. Government should take advantage of the working from home phenomenon arising during the pandemic and introduce a significant Income Tax credit for employees working from home. Complementary to that would be the introduction of accelerated capital allowances on equipment provided by employers to employees working from home.
Income Tax relief could also be made available for monthly or annual public transport passes, and tax measures could be used to stimulate the upgrade of our public transport systems. Revising the Home Renovation Incentive scheme to provide a tax credit for home improvement that reduces the carbon footprint of the home could be introduced.
While the actions of individuals will be important in reducing emissions in the years to come, much of the reductions in emissions will be achieved through large scale projects and the actions of companies. Government should be examining all options to remove any tax barriers from the development of renewable energy sources. This could include the exemption from Capital Gains Tax for land sold for wind farms and other renewable energy generators. It could include tax credits for companies that supply renewable energy and tax incentives for innovation in the area of sustainability.
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From RTÉ Radio 1's The Business, Val Cummins from Emerald Floating Wind discusses the potential of harnessing wind for energy
Moving to renewable energy is a massive undertaking and will have to be financed. Government should consider tax reliefs on investments in renewable energy companies. An Income Tax relief could be given to individual investors in these companies, similar to the current employment and investment incentive scheme. Dividends from these companies could be exempted from Income Tax and gains on the sale of their shares exempted from Capital Gains Tax.
A societal shift is required for Ireland to meet its carbon emissions reduction targets. The measures above are just a few potential tax measures out of many potential tax measures that may be required to achieve these goals. To be effective, any tax measures introduced must be supported by broad, consistent government policies.
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From RTÉ One's Claire Byrne Live, Dr Paul Deane from UCC compares how much electricity data centres use against the electricity demands of a house, school and hospital
Recent news that the country may suffer from electricity shortages for the next five winters and more carbon-intensive electricity generation capacity may be required to bridge the shortfall is a setback. The fact that the shortfall is in large part due to the electricity usage of data centres, the development of which is a government policy objective, highlights how environmental measures including tax measures can be undermined by other elements of government policy. Tax measures promoting the adoption of electric cars are rendered ineffective if the electricity powering the cars is generated by high carbon generating plants.
The race is on to save the planet for future generations. In his speech to the UN Security Council, Taoiseach Micheál Martin described climate change as the defining challenge of our generation. I hope to see the introduction of measures appropriate to the magnitude of the problem, starting with Budget 2022.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ
