Urgent reform of motor tax needed to ensure emissions targets are met, says advisory body

A review of motor taxation across all vehicle categories must be urgently undertaken by the Department of Finance to meet critical carbon emission reduction targets that are currently off track, the Climate Change Advisory Council has warned.

The review is required by the end of Ireland’s first carbon budget in 2025 to ensure taxation policy, “is aligned with climate objectives, promotes energy efficiency and minimises negative impacts on society”, the independent body said in its annual assessment of the transport sector.

The review should include vehicle registration tax; motor tax, excise duty, carbon tax, fuel pricing and “distance-based charges”, it said.

It “should ensure households and businesses are incentivised to choose zero-emission vehicles at the point of purchase and encourage reductions in fossil fuel use. More immediately, as part of Budget 2025, the Government should revise the taxation of company cars to further incentivise the adoption of battery-powered electric vehicles (BEVs)”.

Reliance on expensive, imported fossil fuels needs to end if the sector is to reduce its emissions

—  Climate Change Advisory Council

The report published on Thursday, highlighted transport emissions increased last year and “even with the full implementation of proposed policies and measures the sector will exceed its emissions ceiling” – a legally-binding target under carbon budgets agreed up to 2030.

“Reliance on expensive, imported fossil fuels needs to end if the sector is to reduce its emissions,” it adds.

The Republic may need to introduce higher taxes for larger, heavier cars to help make up some €1.5 billion in lost revenue per year as motorists switch to EVs, the Government’s Tax Strategy Group concluded last year. While such a move would have the biggest impact on SUV drivers, congestion charges were also an option in replacing the tax stream from cars that run on fossil fuels, it advised.

It also highlighted EU proposals for gradual extension of “electricity tax” to residential customers as part of possible options for replacing fossil fuel tax revenues. Subsequent motor tax changes in the 2024 budget, however, were modest with changes to benefit-in-kind for employees with a company EV and an extension of VRT relief for BEVs. A planned increase in fuel excise charges was deferred.

Increased transport emissions last year was driven by a rise in demand for petrol and diesel (7.7 per cent and 1 per cent respectively), “underlining the need for urgent measures to drive the uptake of more efficient vehicles in the sector”.

This is especially the case given the decline in BEV sales this year, the council said. “Without increased EV uptake, Ireland is at risk of being further locked into a carbon-intensive transport system, while consumers may be left with carbon-intensive combustion engine vehicles,” it said.

Re-allocation of road space for sustainable travel and denser development “are also essential to deliver the change required in this sector”.

[ Carbon emissions from aviation can’t be swept under the carpet ]

It acknowledged a 24 per cent increase in public transport use last year, a significant increase in new rural bus service provision and a 20 per cent average fare reduction on public bus services which should be continued.

Council chair Marie Donnelly said: “Significantly reducing transport emissions will be crucial if Ireland is to achieve its national climate objectives. People must be supported to make sustainable transport choices. For this to happen, urgent delivery of efficient and low-cost public transport at both a national and regional level are required.

“We want [the] Government to conduct an urgent and full review of taxation in the transport sector to ensure that taxation policy for households and businesses drives emission reductions while at the same time is progressive and protects the most exposed to change,” she added.