Dáil Éireann Debate, Tuesday - 11 July 2023
202. Deputy Pádraig O'Sullivan asked the Minister for Finance if consideration will be given to reducing excise duty on hydrotreated vegetable oil as a low emissions alternative to diesel; and if he will make a statement on the matter. [34119/23]
View answerThe application of excise duty on fuel in Ireland is governed by European Union law as set out in Directive 2003/96/EC, commonly known as the Energy Tax Directive (ETD). The ETD prescribes minimum tax rates for fuel with which all Member States must comply. ETD provisions on mineral oils are transposed into national law in Finance Act 1999 (as amended). Finance Act 1999 provides for the application of excise duty in the form of Mineral Oil Tax (MOT) to liquid fuels used for motor or heating purposes.
MOT is comprised of a non-carbon component and a carbon component with the carbon component being referred to in legislation as the carbon charge but more commonly as the carbon tax. The non-carbon component of MOT is often referred to as “excise”, “fuel excise”, “fuel tax” or “fuel duty” but it is important to note that both components are part of MOT which is an excise duty. MOT law specifies rates of taxation for certain fuels and uses. Standard rates apply to fuels used for propellant purposes including in road vehicles. Reduced rates apply to fuels used for all other purposes, such as heating. Full details on current MOT rates are published on the Revenue website at www.revenue.ie/en/tax-professionals/tdm/excise/excise-duty-rates/energy-excise-duty-rates.pdf.
Where a liquid that is not specified in MOT law is used as a motor or heating fuel, “substitute fuel” rates apply. A substitute fuel used in place of auto-diesel attracts the auto-diesel rate of MOT and petrol substitutes are taxed at the MOT rate applicable to petrol. Substitute fuels used for reduced rate purposes, attract the Marked Gas Oil rate of MOT. Some substitute fuels are of synthetic origin but those that are produced entirely from biomass are regarded as a biofuel for MOT purposes and qualify for a partial relief from MOT. Section 100(5) of Finance Act 1999, which has been in place since 2012, provides that biofuels, such as hydrotreated vegetable oil (HVO), are relieved from the carbon component of MOT. The table below summarises current MOT rates applicable to substitute fuels. It also details the effective MOT rate on substitute fuels that are produced from biomass, i.e. biofuels, net of the carbon tax relief.
|
Substitute fuel use |
Non-carbon component of MOT |
Carbon component of MOT |
Total MOT(i.e. Non-carbon plus carbon) |
Effective MOT on biofuel (i.e. Non-carbon rate only) |
|
Instead of petrol |
€419.89 |
€112.23 |
€532.12 |
€419.89 |
|
Instead of auto-diesel |
€336.29 |
€129.81 |
€466.10 |
€336.29 |
|
Non-propellant purposes such as heating |
€8.81 |
€131.47 |
€140.28 |
€8.81 |
As the rates above indicate, biofuels such as HVO benefit from significantly lower MOT rates due to the carbon tax relief. This tax treatment is intended to promote a higher level of biofuel usage and supports the Government’s commitment to incentivising more environmentally friendly alternatives to fossil fuels. As the carbon component of MOT is fully relieved for biofuels, these fuels are not impacted by the ten-year trajectory of carbon tax increases which was introduced in Finance Act 2020. This means that, as annual increases in the carbon tax take effect, the differential in tax costs between biofuels and fossil fuels will continue to widen, further incentivising the uptake of biofuels.
