IRHA welcomes CET U-turn

The Irish Road Haulage Association (IRHA) has welcomed the Government’s decision to shelve its plans to introduce a Carbon Energy Tax at the beginning of next year. John Loughran reports.

Former Environment Minister and new Transport Minister Martin Cullen

Former Environment Minister Martin Cullen was forced into an embarrassing climb down recently when it was announced that the Government had decided to shelve its plans for the introduction of a Carbon Energy Tax (CET).

Cullen, who had led the campaign for the introduction of the so-called green tax, in response to Ireland’s commitment under the Kyoto Protocol, was forced into a U-turn when his plans for the introduction of the tax failed to get the support of his Cabinet colleagues.

Former Finance Minister Charlie McCreevy, who had grave misgivings about the tax, said the Government, felt a carbon tax "is not an appropriate policy option", but claimed Ireland would still meet emissions targets.

McCreevy, in one of his last political announcements before leaving for his post as EU Commissioner for the Internal Market, said environmental benefits gained would not justify a carbon tax and energy efficiency initiatives would be brought in instead.
He said the carbon tax as proposed had been just one element of its approach to meeting Ireland's Kyoto commitments – reducing CO2 emissions by nine million tonne a year.

Former Finance Minister Charlie McCreevy

Opposition parties rounded on the Government, over its decision to scrap the proposed tax, claiming the U-turn would cost the Irish taxpayer hundreds of millions of euro in penalties from the EU for not meeting greenhouse gas emissions targets set under the Kyoto Protocol.

Fine Gael's Environment spokesman Bernard Allen warned that plans to abandon the tax had to be measured against penalties imposed for failing to meet Kyoto commitments. "If agreed commitments are not met, Ireland will have to pay fines up to £1.45 billion by 2008 and up to £4.3 billion by 2012. This is equivalent to over £1,000 a year for every man, woman and child in Ireland," he claimed.

The Green Party's finance spokesman Dan Boyle labelled the U-turn a "cynical political move", claiming while it was being sold as avoidance of an extra tax, it "puts the interests of fuel-heavy big business before the average consumer".

The Labour Party said the announcement effectively left Ireland without any strategy for dealing with carbon dioxide (CO2) emissions. The party's Finance spokeswoman Joan Burton said after seven years of discussion, the Government had run away from consequences of climate change.

"This leaves the Minister for the Environment, Martin Cullen, with a lot of egg on his face - not for the first time - given that his department has been an enthusiastic champion of climate change strategies," Ms Burton said at the time.

However, the IRHA warmly welcomed the Government climb down,. The road freight industry was one of the sectors that would have been most affected by the controversial tax and had lobbied intensely for exemption in consideration of the amount of fuel purchased by road haulage operators.

The IRHA had argued that hauliers had no alternative but to fuel their vehicles with diesel as no viable alternative is freely available on the market. To that end the CET represented a double form of taxation, which would yield no environmental benefits.

In a submission to the Government in June, the IRHA stated that licenced hauliers contribute a total of £367 per 1000 litres of diesel purchased to the exchequer. Based on an average consumption rate of 50,000 litres per vehicle per annum that equates to £18,350 of diesel duty per vehicle per annum. This figure did not take into account road tax, PRSI payments and corporation tax made by Irish hauliers.

A survey conducted by BDO Simpson Xavier on behalf of the IRHA earlier this year found average net margins of 3.6% in the industry. The survey also concluded that fuel costs accounted for 30% of total turnover.

The IRHA’s submission stated: "It is clear from the survey that if CET is imposed it will seriously reduce any return made by the majority of licenced Irish hauliers, restrict their ability to reinvest in their business (including new trucks), and cause many licenced hauliers to reconsider whether they will stay within the licensed industry."

Even at the lowest proposed tax rate per tonne of CO2 at £7.50 the proposed CET would have added 2.8 cent per litre, an increase of 3.5%, or £1,400 extra fuel cost per vehicle per annum. The highest proposed tax rate per tonne of CO2 at £25 would have added 9.3 cent per litre, an increase of 11.2%, or £6,000 per vehicle extra fuel cost per vehicle per annum.

The IRHA contended that the introduction of a CET would not result in a change in behaviour in the road haulage sector. Irish road hauliers are non-discretionary users of diesel fuel and thus their demand is inelastic as opposed to private users.

The IRHA said the introduction of a CET would further undermine the competitiveness of the sector and would result in little or no environmental benefit. To that end hauliers should receive a rebate for any CET paid on diesel fuel. This scheme should be similar to the exemption scheme enjoyed by the Irish fishing fleet and the public transport companies in relation to fuel excise duties.

Reacting to the Government’s U-turn IRHA communications director Jimmy Quinn described the decision to shelve the proposed tax as “a triumph of common sense over ideology.

He added: “It has saved hauliers from further financial burden, which they can well do without, given the current disastrously high cost of energy. Licenced Irish road hauliers are non-discretionary users of diesel fuel and thus their demand is inelastic as opposed to private users. Diesel fuel is the raw material of the haulage industry."

Quinn said the IRHA was fully committed to playing its part to help Ireland meet its commitments under the Kyoto Protocol and stated the IRHA had made a number of very positive suggestions to the Government to that purpose.

"Being an island nation on the periphery of Europe, we need all the competitive advantage we can get. It's now worth considering the grant aiding of Euro 3 or Euro 4 engines in the transport sector to foster a greater awareness of better emissions,” he affirmed.