Dáil Éireann Debate, Thursday - 26 February 2026
293. Deputy Pa Daly asked the Tánaiste and Minister for Finance if he has considered a review of the carbon tax, with a focus on fairness, affordability and rural impact; and if he will make a statement on the matter. [15702/26]
Amharc ar fhreagraCarbon Tax is an environmental tax based on the polluter pays principle. It is applied to fuels on the basis of the level of carbon dioxide emitted when combusted. This means that the financial impact is higher on those fuels with a heavier carbon footprint.
Ireland's carbon tax trajectory provides for gradual increases in the carbon tax rate on an annual basis, providing a clear long-term signal to industry and society alike that our future involves a move away from fossil fuels. By maintaining the trajectory of annual carbon tax rate increases, our commitment to transitioning to a carbon neutral economy is reinforced.
The carbon tax trajectory is an important part of Ireland’s overall commitment to tackling climate change. The need for society and the economy to decouple from fossil fuel dependence is even more apparent in recent times given the previous levels of volatility in international fuel markets. The best way of insulating our economy and society from fuel prices shocks is to reduce our dependence on fossil fuels.
To counteract any potential regressive impact of carbon tax and to give effect to the Programme for Government commitments to protect the vulnerable, a targeted package of social protection interventions has been developed. This package is informed by ESRI research commissioned to ensure that the carbon tax policy is progressive and prevents fuel poverty.
Analysis undertaken using SWITCH, the ESRI tax and benefit model, to simulate the impact of the carbon tax increase and the compensatory welfare package estimates that the net impact of the combined measures is progressive. Half of households are better off due to the measures part-funded by additional carbon tax funds, with households in the bottom four income deciles benefitting the most.
As of Budget 2026, the Government has allocated over €4.2 billion in carbon tax revenue for the climate and just transition measures since 2020. ESRI analysis consistently shows the lower income deciles are better off as a result of the social protection measures funded by the increased carbon tax.
With regard to review of the carbon tax, as the Deputy may be aware, the Carbon Tax is reviewed annually in the Tax Strategy Group papers. The Tax Strategy Group papers are published in advance of the Budget to facilitate informed discussion. The latest version is available on my Department's website at: assets.gov.ie/static/documents/TSG_2510_Energy_Environmental_and_Vehicle_Tax_UPD.pdf Annually a distributional analysis of the overall Budget tax and welfare package including the specific impact of the carbon tax policy is assessed in the Budget Publication Beyond GDP - A Quality of Life Assessment. This document is available on the budget website : www.budget.gov.ie.
Separately, the Department of Public Expenditure, Infrastructure, Public Service Reform and Digitalisation issues an annual publication on Budget Day titled The Use of Carbon Tax Funds, which contains detail on the allocation of Carbon tax funds, and includes information on the programmes funded from Carbon Tax amounts. The most recent version is available at the link below with all previous versions available on the www.budget.gov.ie website under Budget Publications for each respective year. www.gov.ie/en/department-of-public-expenditure-infrastructure-public-service-reform-and-digitalisation/publications/budget-2026-the-use-of-carbon-tax-funds/
