Ireland Budget 2022: government must act now on decarbonisation

Speaking as the Irish government delivered its budget for the coming year, Garrett Monaghan of Pinsent Masons, the law firm behind Out-Law, said that Ireland now needed to “double down and deliver” on energy transition.

“The 2022 budget is marked by a strong carbon thread, and in introducing a carbon tax and related provisions, the Irish government is arguably being consistent with its wider carbon mitigation, demographic growth and energy transition agenda,” he said.

“Wider acceptance of the inevitable impact of a carbon tax across the economy will require tangible positive outcomes; the key test being Ireland meeting its 2030 climate targets. Specifically, the government needs to demonstrate that the carbon tax revenues will be deployed in line with the recent significant policy and legislative moves to deliver unprecedented amounts of new renewable and gas-fired generation, energy storage and grid infrastructure,” he said.

The government announced its intention to invest the proceeds of the carbon tax on fossil fuels into a national energy efficiency retrofitting programme, targeted at households in or at risk of ‘fuel poverty’, alongside other social welfare initiatives to ensure a just transition to a low carbon-based economy. The tax, currently €33.50 per tonne of carbon dioxide emitted by that fuel, is due to increase by €7.50 each year until 2030.

A new income tax break, announced at the budget, will be made available to households who sell surplus electricity back to the grid that they produce via ‘microgeneration’ facilities, such as domestic rooftop solar panels. The government will also increase vehicle registration tax (VRT) rates for the most polluting vehicles, and extend the €5,000 VRT relief available on the purchase of an electric vehicle until the end of 2023.

Changes were also announced to the accelerated capital allowance (ACA) scheme for energy efficient equipment. The scheme will be extended to cover hydrogen-powered vehicles and refuelling equipment, while equipment directly operated by fossil fuels will no longer qualify. Gas-powered vehicles and refuelling equipment will be covered by the scheme for a further three years.

Both finance minister Paschal Donohoe and public expenditure minister Michael McGrath stressed in their budget speeches that climate change is “one of the most important issues of our time”.

“Studies have show that carbon taxation is likely to be the single most effective climate policy which can be pursued by the government; although it is not the only one and will not deliver the required emissions reductions on its own,” said Donohoe.

Ireland has set a target of 80% of the country’s electricity coming from renewable sources by 2030, of which 5GW should be offshore wind. Yesterday, it opened a long-awaited consultation exercise on the terms and conditions for the first auction to supply electricity from offshore wind under the Renewable Electricity Support Scheme (ORESS 1). The Commission for Regulation of Utilities recently published a decision paper setting out its proposals for connecting the first phase of offshore wind generation projects to the grid.

Last month, at its annual offshore wind energy conference, industry body Wind Energy Ireland warned that it was unlikely that Ireland would meet its target without urgent action to reform the marine planning system, strengthen the electricity grid and speed up delivery of the first ORESS 1 auction.

Ireland’s Climate Action and Low Carbon Development (Amendment) Act 2021, announced alongside last year’s budget, was signed into law in July. The act effectively puts the country’s energy transition on a statutory footing, containing provisions to cut carbon emissions and transition to a “climate neutral economy” by the end of 2050.

The Act also introduces the concept of five-yearly carbon budgeting, containing emissions limits for key sectors of the economy. The first carbon budget, based on the recommendations of the Climate Change Advisory Council, will be published shortly, alongside a climate action plan, public expenditure minister Michael McGrath said.