Fossil fuel subsidies rose to €4.9 billion in 2023

Fossil fuel subsidies rose to €4.9 billion in 2023, according to newly released data from the Central Statistics Office (CSO), up from €4.7 billion in current prices in 2022 and €2.8 billion in current prices in 2021. In 2022 and 2023, a number of temporary measures were implemented in response to rising energy prices. These included direct subsidies to households and businesses to reduce energy costs, as well as tax rate reductions on fossil fuels such as petrol and diesel. The total amount of fossil fuel subsidies resulting from these measures was estimated at €1.1 billion in 2022 and €1.6 billion in 2023.

Key Findings

• Fossil fuel subsidies were €4.9 billion in 2023, up from €4.7 billion in 2022 and €2.8 billion in 2021. 
• Direct fossil fuel subsidies such as Household Energy Credits accounted for 23% of total fossil fuel subsidies in 2023. 
• Indirect subsidies such as the VAT rate reduction on natural gas accounted for 77%.
• Net energy taxes on petrol and road diesel were 53 cent per litre and 46 cent per litre, respectively. In 2021, before the temporary excise rate reductions were introduced, net energy tax on petrol was 63 cent per litre and net energy tax on road diesel was 53 cent per litre.
• Consumers buying petrol paid an average effective rate of €225 per tonne of carbon dioxide emitted in 2023, an increase of €5 per tonne on 2022 and a 16% reduction on the 2021 rate of €269.
• The average effective carbon rate on road diesel for consumers was €170 per tonne of carbon dioxide in 2023. This was an increase of €6 per tonne on 2022 and a drop of 13% from €196 per tonne in 2021.

A Policy-Climate Mismatch

The Programme for Government commits to radically reducing reliance on fossil fuels and to achieving a 51 per cent reduction in emissions from 2018 to 2030, and net-zero emissions by 2050. Ireland failed to meet its 2020 target of a 20 per cent reduction in greenhouse gas emissions under the EU Effort Sharing Decision and will have to purchase emissions allowances from other Member States to meet the shortfall. In order to meet our 2030 targets every measure in the Climate Action Plan will have to be fully implemented. Given challenges in implementing previous climate policies it is reasonable to question whether every measure in the plan will be implemented by 2030.   

Fossil fuels and renewable energies

Despite progress in generating renewable energy, Ireland is highly dependent on imported fossil fuels for energy, and our import dependency was 73 per cent in 2023. This runs contrary to our targets of reducing emissions, increasing renewable energy, and eliminating our dependence on fossil fuels. In 2023, renewables made up 15.3 per cent of final energy consumption, an increase on previous years, but still below our targets of 45 per cent by 2030 as set out in the National Energy and Climate Plan (NECP).  In light of the current energy crisis, its impact on the cost of living, increasing our share of renewable energy must be an immediate policy and investment priority and we welcome the commitments on renewables in the Programme for Government.  An OECD Environmental Review of Ireland recommends that Ireland gradually remove remaining tax exemptions and rebates that encourage wasteful fuel use in agriculture, fishery, heating and transport. A review of fossil fuel subsidies is a vital first step.

The value of fossil fuel subsidies in Ireland is substantial (€4.9bn in 2023). By ending environmentally damaging tax breaks and investing this money in renewables, renewable energy infrastructure, people, communities and regions that will be most affected by climate adaptation.

The European Commission assessment of Ireland draft NECP includes a number of concerning observations. The assessment notes the lack of a clearly identified contribution to the 2030 renewable energy target among the four scenarios presented in the NECP and this makes it difficult to assess the level of Ireland’s ambition. The assessment also notes that the draft NECP contains a limited set of objectives and targets and policies and measures in the energy security dimension. Finally, the assessment notes that the issue of a socially just transition could be better integrated throughout the NECP by considering social and employment impacts of proposed policies. Government has much work to do to ensure our energy targets and policies and measures to support implementation of same. 

Fossil fuel subsidies were $7 trillion or 7.2 percent of global GDP in 2022 and are expected to increase to $8.2 trillion by 2030. The vast majority of these subsidies (92 per cent) reflect an undercharging for environmental costs and foregone consumption taxes. Eliminating these subsidies and raising fuel prices to their fully efficient levels would reduce projected global fossil fuel CO2 emissions to 43 percent below baseline levels in 2030 in line with the 25-50 percent reduction in global GHGs below 2018 levels needed by 2030 to be on track with containing global warming to the Paris goal of 1.5-2C.  It would also generate approximately $4.4 trillion, which would go a long way towards closing the SDG investment gap.

Nationally, the subsidising of fossil fuels by the Exchequer is another example of policy incoherence. In 2023, €4.9 billion was not collected by the Exchequer due to direct subsidies and preferential tax treatment of fossil fuel activities in Ireland, this compares to €4.7 billion in 2022 and €2.8 billion of revenue foregone in 2022 and 2021, respectively. Direct fossil fuel subsidies accounted for 23 per cent of total fossil fuel subsidies in 2023 compared to 22 per cent in 2022 and 10 per cent in 2021 as a result of temporary energy supports for households and businesses. While indirect subsidies arising from revenue foregone due to tax abatements accounted for 77 per cent, compared to 78 per cent in 2022 and 90 per cent in 2021. The excise exemption for jet kerosene accounted for €606 million in 2023, increasing from €553 million in 2022 and €272 milliom in 2021. Government must act on the recommendations of the report on the impact of aviation taxation in Ireland and abolish the Jet Kerosene exemption. In 2022, Government raised €2.6 billion in energy taxes, of this just €0.7 billion was spent on environmental subsidies related to energy and air emissions, while fossil fuel subsidies were €4.7 billion. Taxation policy must be aligned with our national climate targets. 

A study by the ESRI (219) found that budgetary cost of these subsidies was over six times higher than the entire carbon tax revenue of the Government in 2017. The value of these subsidies is substantially higher than the allocation to Just Transition and biodiversity in Budget 2022. Eliminating these subsidies means that government has a wider fiscal space available in terms of climate policy. Government can alleviate adverse climate change impacts by removing these subsidies rather than levying new environmental taxes or increasing the existing environmental tax rates/levels.

Policy Priority

• Commit to reviewing all fossil fuel subsidies in 2025 and set out a roadmap to remove fossil fuel subsidies by 2030.