Liquid fuels, such as petrol and diesel, are subject to an excise duty called Mineral Oil Tax (MOT), which is comprised of two excise components, one carbon and the other non-carbon. The carbon component is more commonly referred to as carbon tax. The non-carbon component is sometimes referred to as “excise”, “fuel excise” or “fuel duty”.
Petrol and diesel are also subject to the National Oil Reserves Agency (NORA) levy, the rate of which was recently cut from €20 per 1,000 litres to a nominal rate of €1 per 1,000 litres. The NORA levy is administered by NORA which is under the remit of my colleague, the Minister for Climate, Energy and Environment.
Value Added Tax (VAT) also applies and is charged on the full consideration, inclusive of MOT and the NORA levy.
With regard to MOT, Ireland’s excise duty treatment of fuel is governed by European Union law as set out in Directive 2003/96/EC, commonly known as the Energy Tax Directive (ETD). The ETD prescribes minimum rates of taxation with which all Member States must comply. Both the carbon component and non-carbon component of MOT are taken into account for the purposes of complying with ETD minimum rates.
Under the ETD, diesel used for non-propellant purposes may be taxed at reduced rate of excise. If a reduced rate is applied, the fuel must be marked to distinguish it from auto-diesel to which a higher, standard rate of excise applies. Ireland applies a reduced rate of MOT to non-propellant diesel, which may be used in agricultural tractors, in machinery, for heating and other non-propellant purposes. Such diesel is marked with prescribed markers and is referred to as Marked Gas Oil (MGO) or farm/agri/green diesel.
Current MOT rates per 1,000 litres, reflecting the two recent cuts to rates on petrol, auto-diesel, and MGO, along with the relevant ETD minimum rates, are set out in the table below.
|
Fuel type
|
MOT non-carbon
|
MOT carbon
|
Total MOT
|
ETD min
|
|
Petrol
|
€338.58
|
€164.30
|
€502.88
|
€359.00
|
|
Auto-diesel
|
€181.11
|
€190.04
|
€371.85
|
€330.00
|
|
MGO
|
€0.00
|
€172.14
|
€172.14
|
€21.00
|
In complying with the ETD minimum for auto-diesel, the Diesel Rebate Scheme (DRS) maximum rebate must be taken into account. I recently made temporary changes to the DRS to increase the repayment cap from €75 to €120 per 1,000 litres. This increased cap applies to fuel purchased from 1 January to 31 June this year.
In relation to VAT, the VAT rating of goods and services is subject to EU VAT law, with which Irish VAT law is obliged to comply. In general, the EU VAT Directive provides that all goods and services are liable to VAT at the standard rate, unless they are exempt from VAT or fall within the categories of goods and services listed in Annex III of the EU VAT Directive, to which Member States are permitted to apply lower VAT rates subject to certain rules.
The supply of motor fuels such as unleaded petrol and auto-diesel (white diesel) are not included in the categories of goods and services on which the EU Directive allows a lower rate of VAT, and therefore they would fall to be taxed by Member States at their standard rate of VAT – which in Ireland is currently 23%.
In addition, the Directive allows that a Member State may retain certain long-standing VAT arrangements that they had in place, subject to strict conditions including that the terms of the historic arrangement cannot be extended. Therefore, on this basis, Ireland is permitted to retain its long-standing application of its reduced VAT rate – which is currently 13.5% – to the supply of certain fuels such as Marked Gas Oil (green/farm diesel) for agricultural use.
In accordance with the Directive this arrangement is treated as a ‘parked’ rate, which means that it cannot be reduced below 12%. If Ireland were to cease the application of the parked rate to these supplies, then under the terms of the Directive these products would have to be subject to the standard rate of VAT.
As the Deputy will be aware in July 2023 the Commission published the revised EU ETS Directive which includes the EU Emissions Trading System II (ETS2). The EU ETS 2 is a new, separate carbon trading scheme that will operate alongside the existing EU ETS (ETS1) to cover emissions from road transport, buildings, and additional sectors.
The revised Directive includes a provision for an optional derogation for EU Member States who already apply carbon tax to the road transport and buildings sectors.
In light of the fact that Ireland operates a carbon tax in these sectors, in December 2023 Ireland requested a derogation under Article 30(e)3 of Directive 2023/959. Further detail on the ETS 2 and its interaction with the carbon tax is available on the website of the Department of Climate, Energy and Environment at the following address: www.gov.ie/en/department-of-climate-energy-and-the-environment/policy-information/eu-and-international-climate-action/#eu-emissions-trading-system-ii-ets-ii-buildings-road-transport-and-additional-sectors.
The Recovery and Resilience Facility (RRF) was established by the EU Commission in 2021 to assist Member States with economic recovery following the COVID-19 pandemic. The RRF finances reforms and investments in EU Member States made from the start of the pandemic in February 2020 until 31 December 2026. EU payments to Ireland under the Recovery and Resilience Facility are linked to specific green and digital reforms, including the carbon tax trajectory, as set out in Ireland’s National Recovery and Resilience Plan. The required milestones for carbon tax involved implementation of increases in the carbon tax rate between 2021 and 2025 and have been fully achieved.
