Fossil fuel subsidies must be halted in Ireland

Some €2.4 billion in direct subsidies and revenue foregone supported fossil fuel activities in Ireland in 2018, according to the CSO, an increase of 8 percent in 2017

Jennifer Whitmore

Policy coherence is important. A government always has many priorities across different areas, yet it is important that the achievement of one policy goal is not undermined by contradictions in other areas.

Meeting Ireland’s climate obligations under various agreements, including the Paris Agreement of 2015, involves more than setting emissions targets and drafting enforcement legislation. It also involves examining people and companies’ behaviours and the ways, explicit and otherwise, those behaviours are encouraged.

It is alarming that government policy continues to encourage environmentally damaging carbon-intensive activities in a number of ways, including increasing pollution and carbon emissions, and environmental depletion.

While the term “Fossil Fuel Subsidy” may not be familiar to many, these subsidies are becoming an increasing focus of environmental lobbyists.

Fossil Fuel Subsidies (FFSs) are defined as any policy measure that lowers the cost of fossil fuel exploration or production, artificially lowers the price of energy, or subsidies the activities or profits of energy suppliers.

For example, a tax break on fossil fuel exploration makes such exploration cheaper and so is a subsidy to the industry.

These FFSs are seen by many as an indirect or covert way to encourage the burning of harmful fossil fuels that, under other circumstances, might not be economically viable.

Earlier this week the Central Statistics Office released its report on Irish Fossil Fuel Subsidies. It found that in 2018, €2.4 billion in direct subsidies and revenue foregone (due to preferential tax treatment) supported fossil fuel activities in Ireland. This was an increase of 8 per cent on 2017.

I’m not sure which is worse: that our government is subsidising harmful fossil fuels to the tune of more than €2 billion annually, or that the amount is still increasing. The figure was €1.4 billion in 2000 and has been on an upward trend since. In fact, it has never been higher than it is in this latest report.

Some of this subsidisation is direct spending, and while the portion of these direct subsidies that was previously devoted to subsidising peat-powered electricity has thankfully been removed in the last couple of years, it is still distressing that approximately €300 million was being spent directly to encourage the burning of fossil fuels in 2018, on top of €2.1 billion in indirect subsidies.

Most of these indirect subsidies are by way of tax breaks which, as they are revenue for the state that is being foregone, are just as costly as direct spending but do not show up the same way in the government budget or accounts. This gives them a more surreptitious character.

Alarmingly, that €2.4 billion does not include a further roughly €1.6 billion spent supporting other potentially environmentally damaging activities, including in the areas of intensive agriculture practices and air transport. Small amounts of this may be justified, but much of it is not.

Ireland is not alone. Using a definition of FFSs around finding “the true cost” of energy consumption – including undercharging for environmental costs like carbon emissions, local air pollution, traffic congestion and so on, as well as failure to fully apply standard rates of consumption tax – annual global subsidies for the fossil fuel industry are estimated at more than US$5 trillion by the IMF.

Here in Ireland, though, the biggest part of government supports for fossil fuel occurred through exemptions in the tax code. For example, last year the Nevin Economic Research Institute estimated that if the government removed unjustified preferential excise treatment for auto-diesel, marked gas oil, kerosene, aviation fuel and fuel oil and treated them the same as unleaded petrol, approximately an extra €2 billion could be collected in tax.

These tax expenditures and reliefs represent a major contradiction within our policy system. While on the one hand we levy taxes and subsidise certain industries and activities to encourage more sustainable behaviour, we maintain a raft of policies that contradict these goals by supporting fossil fuel use.

This lack of coordination across government policy is worrying. The money being foregone on such tax reliefs would be far better invested in electrifying our public transport network and encouraging renewable energy production. And while welfare spending to alleviate fuel poverty is certainly right and necessary, a more ambitious long-term strategy to improve the energy efficiency of Ireland’s housing stock is required.

We like to think of Ireland as being a leading voice in advocating for strong climate action. However, evidence suggests we are way off track to achieve our environmental goals, and that public policy out of sync with the Paris Agreement. Improved policy coherence is required, and soon.

Note: This article is a re-post of the original posted on the Business Post Website.