The Irish Carbon Tax: A Lost Opportunity?

Under the Kyoto Protocol Ireland is committed to ensuring that its greenhouse gas emission levels are at or below 113 per cent of 1990 levels for the years 2008–2012. Irish emissions have already exceeded this limit by approximately 10 to 15 per cent and must be reduced if the Kyoto Protocol targets are to be met. In this context, and drawing on relevant theory and research, this paper discusses the rationale for, and the potential impact of, government intervention in the market for carbon dioxide (CO2) emissions. The use of a Carbon Tax as a policy tool in reducing CO2 emissions is examined from both economic and taxation perspectives. Particular attention is paid to the Irish National Climate Change Strategy formulated in 2000 and the consultation process on implementing a Carbon Tax initiated by the Department of Finance in 2003. In September 2004 the Irish Government decided not to implement the proposed Carbon Tax. Submissions from interested parties on the carbon tax consultation process are reviewed against the rationale for implementation of such a tax. The body of evidence presented in this paper supports the implementation of a Carbon Tax—suggesting that the decision not to implement such a tax may have been a lost opportunity. The paper argues that a well‐designed Carbon Tax for Ireland, a simple levy on a close proxy for emissions, would be effective in influencing taxpayer behaviour bringing about a reduction in Ireland's CO2 emissions and supporting the polluter pays principle. In the absence of a carbon tax Ireland's Kyoto target is unlikely to be met and the consequent financial penalties will fall on all taxpayers. The paper concludes that the Irish Government should revisit this decision.