An increase in the excise duty charged on both agricultural and auto diesel will be required for Ireland to meet the emissions reduction targets set out in the Programme for Government.

This stark finding, which could pile €500m in additional charges on the farm sector if fully acted on, is included in the latest papers produced by the Government’s Tax Strategy Group.

The paper on Climate Action and Tax notes that excise levels on agricultural diesel or marked gas oil is 13.8c/l compared to 51.5c/l on auto diesel.

In addition, it states that a significant excise gap exists between auto diesel and petrol.

The EPA has projected that Ireland’s emissions from transport and related activities could reach 11m tonnes of CO2 equivalent by 2030

The Tax Strategy Group report describes these preferential excise rates as subsidies, which will ultimately need to be phased out for Ireland to reduce fossil fuel usage.

The EPA has projected that Ireland’s emissions from transport and related activities could reach 11m tonnes of CO2 equivalent by 2030, but the Government aims to reduce this figure to almost 6m tonnes by the end of the decade.

“Phasing out fossil fuels subsidies such as those mentioned above, in tandem with support measures which incentivise the use of greener fuels and technology, will be necessary in the journey to a carbon resilient future,” the Tax Strategy Group paper states.

The paper argues that equalising the excise rates between auto diesel and petrol remains a “valid option” for the Government given the challenge to reduce carbon emissions.

Cost

Given that around one billion litres of green diesel are sold in Ireland each year, equalising excise rates between agricultural diesel and petrol could potentially cost the farm sector around 50c/l or up to €500m a year.

While the paper repeats proposals from previous years regarding possible excise increases of 1c/l to 2c/l over five to 10 years in the case of auto diesel, no definite framework or timescale is outlined regarding changes to the rate of excise on agricultural diesel.

The Tax Strategy Group comprises senior civil servants who advise Government on national taxation policy.