12 February 2021
Fossil fuel subsidies. You’ve probably heard about them on podcasts, through catching up with the news or at climate events.
But what do they look like here in Ireland, and how do they take shape?
So we spoke to one of their social and economic analysts, Colette Bennett, to find out more.
Right off the bat – what are fossil fuel subsidies?
In a nutshell: they’re preferential tax treatment.
That means that either the tax isn’t charged as an attached expenditure or that there’s a tax incentive allocated to them.
They can also be around the production of fossil fuels, or they can be in relation to their consumption.
Ireland’s fossil fuel subsidies clocked in at €2.4 billion for 2018, which is an increase of 8 per cent from the previous year.
Another thing that’s important to note here – subsidies can either be direct or indirect.
The former type of subsidies directly affects the bills of households, so that would include fuel allowances and the PSO levy. They made up only about 12 per cent of our total subsidies in 2018, or €0.3 billion of this €2.4 billion figure.
The remaining 88 per cent of our subsidies are classified as indirect, and they’re applied industry-wide, clocking in at €2.1 billion for 2018.
So for example, the state is not collecting taxes on certain fuels, like jet kerosene. There’s a tax exemption on this, so it’s an indirect subsidy to the fossil fuel industry because they don’t have to pay the tax.
Right. So what have recent trends or developments been in these subsidies?
According to Colette’s analysis, fossil fuel subsidies have increased by 71 per cent from 2000 to 2018, and the vast majority of this increase can be seen on the indirect side of things.
While lower income household subsidies have remained relatively steady, according to Colette, they haven’t risen at the same level as the indirect set of subsidies.
Let’s dig into the numbers here to flesh this out. Direct subsidies have grown from €100 million in 2000 to €300 million in 2018. While that’s an increase for these subsidies, it’s not at the same rate of increase as indirect subsidies.
In 2000, indirect subsidies came in at €1.3 billion. By 2018, they had climbed up to €2.1 billion.
Another thing Colette highlighted to us is that in 2016, an exemption on oil and gas production was introduced.
In 2016 the total amount of revenue foregone (meaning money that was not collected for tax purposes) in that area amounted to €50.2 million, and two years later it climbed up to €90.6 million.
And just going back to what we said at the top – between 2017 and 2018, we saw fossil fuel subsidies increase by 8 per cent alone.
These increases are not necessarily because there was a hike in rates, Colette tells us, it’s more to do with the type of transport we’re using.
So for example, we can see in the CSO data that there’s an excise duty foregone on auto diesel. In 2010, that number was at €240.6 million, but by 2018 it’s up to €390.1 million.
“There were more cars on the road between 2010 and 2018, and that would explain the difference in that revenue that’s given up on auto diesel,” Colette told The Green News.
And what industry is getting the biggest piece of the subsidy pie?
International aviation is exempt from Excise Duty, Carbon Tax and the NORA Levy, so the industry’s total subsidies amounted to €626 million in 2018. That’s up from €580 million in 2017, and from €419.5 million in 2010.
“To give that some context – the total expenditure of the Department of Communications, Climate Action and Environment in 2018 was just €552 million,” Colette said.
The effective carbon rate on jet kerosene was just €0.10 per tonne of carbon dioxide emitted in 2018. compared to petrol’s rate which is around €258.
“The burden of this carbon dioxide taxing system is resting on households,” Colette told us.
Social Justice Ireland have repeatedly called for the imposition of a tax on jet kerosene, and environmental journalist John Gibbons has previously called for a 33 per cent per litre tax on aviation fuel that he argues generate almost €10 billion of revenue within the European Union.
“While it is acknowledged that the aviation industry has experienced a negative impact due to the pandemic, a recent report suggests that there are over $140 billion of assets under the management of Irish-based lessors of aircraft and aviation equipment,” Social Justice Ireland said in their blog post.
Jet fuel continues to remain exempt from taxation in the EU, and was essentially exempt from EU policies until a 2003 EU Directive was brought in allowing fuel to be taxed for domestic aviation subject to a bilateral agreement among member states.
Airlines, however, are still allowed to avoid paying tax on commercial aircraft fuel and no member states have agreed to increase taxation on kerosene or gas oil since the Directive came into effect.