Carbon Tax in Ireland: Is It Increasing in 2023?

The carbon tax increased on 12 October 2022. This increase will not reach household bills until April 2023, according to the Budget 2023, but it’s still vital to know exactly how the carbon tax affects you and what it goes to fund in Ireland. Read our comprehensive carbon tax guide to find out more!

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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 and extreme heat waves 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. The carbon tax is different from the PSO levy which is levied on electricity customers.

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 was 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 increased to €33.50 in October.
• 2021 — The May 2021 Budget included an increase in the carbon tax on the remaining fuels to €33.50.
• 2022— The Carbon Tax was raised from €33.50 to €41 from 1 May 2022. After the Budget 2023, the tax is due to rise again from 12 October 2022.

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.

See Which Countries Reduced Their Emissions in 2022

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.

How Much Is the Carbon Tax in Ireland?

As of 1 May 2021, the carbon tax on coal, peat, kerosene and natural gas was levied at €33.50 per tonne of CO2 produced. It was previously set at €26 per tonne of CO2 produced. For diesel and petrol, the tax was already set at €33.50 per tonne of CO2 produced.

With the announcement of the Budget 2023, the carbon tax is due to go up by €7.50, from €41.00 to €48.50. This increase will initially hit transport fuels from 12 October 2022 and will only start affecting household heating from May 2023. 

How Much Does the Carbon Tax Cost Me on My Gas Bill?

Gas providers currently charge €0.841 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 €92.51 a year, or €7.71 a month (including VAT). The carbon tax also has an indirect effect on the price of your electricity as well since the added costs can be passed through.

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 Diesel?

The carbon tax on petrol and diesel is set at €41 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 €0.105 cents per litre.

How Much Does the Carbon Tax Cost Me on Other Fuels?

If you use home heating oil, you're paying around €103 per fill towards the carbon tax (for a 900-litre tank). The carbon tax for coal currently comes in at about €4.30 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 2023?

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. It then increased again in 2022 to €41 and the latest Budget 2023 will see an additional increase for 2023 to €48.

While this increase will affect fuel costs from the 12 October 2022, the increase will not affect household heating bills until May 2023. 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.

How Does the Carbon Tax Relate to 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. With the cost of living now making life a lot more difficult, there are other reasons why it should be decreased at least temporarily.

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.

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 homes 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 so you can compare electricity prices.

*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: February 2023

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?

A carbon tax of €41 per tonne of CO2 means adding on the following amounts to previous carbon tax charges:

• €93 a year to natural gas bills
• €4.30 for a bag of coal (40kg)
• €0.93 on a bale of peat briquettes
• €103 on a tank of heating oil

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

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