Carbon Tax in Ireland: What it is & how much it costs

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The carbon tax in Ireland increased in May 2021. This increase has affected energy bills and other expenses. So what is the carbon tax? How does it work and by how much did it increase? Read on to find out.

How does the carbon tax work in Ireland?

The carbon tax is a tax applied to fossil fuels, such as gas, coal, oil, petrol, diesel and peat. These fuels emit carbon dioxide, or CO2, which is one of the main culprits behind global warming since it reflects heat and traps it in the Earth's atmosphere.

The theory behind a carbon tax is that levying charges against users of carbon-emitting fuels will do the following:

  1. Act as a financial disincentive to using fossil fuels as an energy source.
  2. Encourage an uptake of renewable energy.
  3. Provide financing for offsetting CO2 emissions and investing in renewable technology.

The carbon tax has been a source of controversy in some countries where it has been implemented, with citizens and representatives calling on the government to tax the large corporations responsible for carbon pollution instead of the people.

Timeline of the carbon tax in Ireland

Let's have a look at the history of the carbon tax in Ireland:

  • 2020 — The carbon tax in Ireland is first introduced at €15 per tonne of CO2.
  • 2012 — The carbon tax is increased to €20 per tonne.
  • 2013 — The carbon tax is introduced for solid fuels at a rate of €10 per tonne.
  • 2014 — The amount of the carbon tax on solid fuels is increased to €20 to match other taxed fuels.
  • 2020 — The carbon tax is increased to €26 per tonne. The tax on auto fuels increases to €33.50 in October.
  • 2021 — The 2021 Budget includes an increase in the carbon tax on the remaining fuels to €33.50. This takes effect in May.

How does carbon dioxide contribute to global warming?

Combusting fossil fuels not only releases heat, but it also converts the carbon present in those fuels into carbon dioxide, which is then released into the Earth’s atmosphere. Carbon dioxide emissions can remain in the upper atmosphere for approximately a century, during which it traps heat emitted from the Earth’s surface.

It is this process which is responsible for global warming and climate change. While one might think that in Ireland, with our inclement climate, we would welcome a hike in temperatures, the consequences for Ireland, and the world, could be serious if action is not taken.

What could happen if we don’t cut down on our carbon emissions?

Air samples taken from ice cores show that over a period of 800,000 years, the amount of CO2 in the atmosphere was 300 ppm (parts per million) at its highest point. Currently, the concentration of CO2 in our atmosphere is nearly 420 ppm.

According to the Department of Public Expenditure and Reform, Irish households use 7% more energy than the average EU household. They also emit 60% more carbon dioxide.

As a society, we have become increasingly dependent on processes that release carbon. Unfortunately, the road to reducing our greenhouse gas emissions could have an additional cost in terms of lost income and harm to the economy as some lucrative sectors will be heavily impacted (such as agriculture).

There is no longer any doubt of the severe consequences to be faced if an effort is not made to get greenhouse gases (of which carbon dioxide is the main culprit) under control. The heat generated by soaring levels of CO2 is being absorbed by the oceans, and as their temperatures rise and the polar caps melt, sea levels are rising and coastlines are eroding.

The melting of the ice caps and thawing of underwater sediment is also releasing large amounts of methane into the atmosphere, thus adding to existing greenhouse gases and speeding up global warming.

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How much is the carbon tax in Ireland?

As of 1 May 2021, the carbon tax on coal, peat, kerosene and natural gas and is levied at €33.50 per tonne of CO2 produced. It was previously set at €26 per tonne of CO2 produced. For deisel and petrol, the tax was already set at €33.50 per tonne of CO2 produced. This increase took place in October 2020.

How much does the carbon tax cost me on my gas bill?

gas flame and bill

Gas providers currently charge 6.88 cents per kWh of gas consumed to cover the carbon tax. For the average household, which consumes 11,000 kWh of gas per year, that's an extra €58.85 a year, or €6.31 a month (including VAT).

Our article on understanding your utility bill should clarify any further queries you have about the items listed on your gas bill.

How much does the carbon tax cost me on petrol and deisel?

The carbon tax on petrol and diesel is set at €33.50 per tonne of CO2 produced. The previous cost of a litre of diesel increased by €0.025, and the cost of petrol increased by €0.021. The overall cost of the carbon tax on each of these fuels is around 8.4 cents per litre.

The table below shows how much the average driver will spend per year on the carbon tax.

Carbon Tax on Auto Fuels
Fuel type Average km per year Average litres/100km Average spend on carbon tax
Petrol 17,000 5.5 litres €79
Diesel 24,000 4.6 litres €93

How much does the carbon tax cost me on other fuels?

If you use home heating oil, you're paying around €65 per fill towards the carbon tax (for a 900-litre tank). The carbon tax for coal currently comes in at about €2.88 per 40kg bag. Peat briquettes are charged at around 60 cents extra per bale.

Including the carbon tax charges for auto fuels and natural gas, all of these charges raise over €400 million a year for the Irish government.

Will the carbon tax go up in 2021?

The carbon tax has become a polemic issue in Ireland, with environmental advocates calling for an increase and groups representing the more vulnerable members of society calling for reductions or abolishment.

The carbon tax increased from €26 per tonne of carbon dioxide to €33.50 per tonne on 1 May 2021. For petrol and diesel, the tax had already increased to €33.50 per tonne in October 2020.

This means that the average household will see their annual gas bill increase by around €20 per year. Nearly €80 of your gas bill will go towards the carbon tax, up from the previous rate of around €59 per year.

Recommendations in the Government’s Climate Action Plan point to further increases until the carbon tax reaches €100 per tonne of CO2 by 2030, the next emissions reduction target deadline in the Paris Agreement.

With the ever-increasing costs of already-expensive home heating fuels, further pressure on people’s wallets via this tax means it is certainly unpopular.

Clarity and communication over what the government intends to do with the vast amount of money the carbon tax will raise will be crucial to public acceptance. One would expect the bulk of the money to be used for carbon offsetting and reforesting.

Equally important is negating the impact of the carbon tax on more vulnerable members of Irish society and ensuring access to reasonably priced heating for all.

The carbon tax and fuel poverty

Government ministers against increases in the level of the carbon tax have cited fuel poverty as one of the main reasons for stabilising or decreasing the carbon tax.

TDs, such as Bríd Smith, have called upon the Irish government to explore alternatives, such as an increase in taxation on the profits of companies that provide oil and gas.

gas flame

Former TD Denis Naughten suggested that reducing electricity costs would encourage the public to invest in renewable electric heating systems (for which we recommend going on a nightsaver tariff). It is currently much more expensive to heat your home with electricity than it is with gas, but Mr Naughten’s proposal could warrant consideration in the future.

The construction of the Celtic Interconnector, which will supply Ireland with electricity from France, is scheduled to be finished in 2025. It could open up the expensive Irish electricity market to downward pressure on pricing.

In the meantime, Irish homeowners could also make use of one of the SEAI’s home energy grants to upgrade to a more efficient home heating system or to make improvements in their home to reduce their heating expenditure.

As always, the easiest and fastest way to make the most significant savings on your home energy bills is by switching providers every 12 months. We also recommend paying via direct debit for your energy, as PAYG (pay as you go) tends to be the most expensive payment method.

In the table below, you'll find the cheapest electricity and gas offers per Ireland's largest suppliers.

Cheapest Duel Fuel Offer per Supplier
Supplier Best offer Price per year
Bord Gáis Energy 40% Electricity discount
40% Gas discount
Electric Ireland 22% Dual fuel discount €2,132.00
Energia 39% Electricity discount
38% Gas discount
PrePayPower Standard €3,216.38
SSE Airtricity 33% dual fuel discount €2,168.23
Compare Dual Fuel Offers Call  01 903 6528  Ad  Mon - Fri: 9 am - 6 pm

*Figures are for illustrative purposes only. Calculations based on average consumption figures for an urban home with a 24-hour standard meter. All discounts and cashback have been applied. Last updated: July 2022

Customers can also save money on their bills through collective switching, also known as collective bargaining. Head to our Collective Switch guide for more details on this money-saving method.

How does the carbon tax increase affect your wallet?

With the increase of the carbon tax, how much of a hit will Irish citizens’ pockets take?

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A carbon tax of €33.50 per tonne of CO2 means adding on the following amounts to previous carbon tax charges:

  • €20 a year to natural gas bills
  • €0.75 for a bag of coal (40kg)
  • €0.18 on a bale of peat briquettes
  • €17 on a tank of heating oil

This brings the total amount of carbon tax on solid and liquid fossil fuel to:

  • €76 a year to natural gas bills
  • €3.63 for a 40kg bag of coal
  • €0.78 on a bale of peat briquettes
  • €84 on a tank of home heating oil

Energy terms can be confusing. Head to our Gas & Electricity Glossary for help understanding energy jargon.

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