Tax breaks and incentives across a range of areas from transport fuels to company cars and property investment are having a negative impact on climate change, air quality and land pollution in Ireland, a study has found.

The research, carried out by the Economic and Social Research Institute (ESRI) on behalf of the Environmental Protection Agency (EPA), examined the environmental effects of 142 existing and potential fiscal measures including reduced tax rates, tax exemptions, tax allowances and direct subsidies.

It found that the most widespread impact was on climate change and carbon emissions, with 98 measures having an impact, in most cases negatively, and that a reconfiguration could help Ireland reduce harmful emissions.

The report examined three fiscal measures in detail; the difference in excise rate between petrol and diesel; the zero value added tax (VAT) rate on fertiliser; and the rebate scheme on diesel excise for the haulage industry.

Removing these measures would reduce carbon emissions by 1.1 per cent, toxic nitrogen oxides (NOx) emissions by 1.3 per cent and particulate matter (PM) air pollution by 1.5 per cent.

NOx and PM emissions from diesel have been linked to the premature deaths from heart and lung disease and strokes of thousands of humans each year.

The report also noted there was a strong case for increasing taxes on the aviation sector to minimise the pollution caused by air travel. This could be done through a proxy airport tax, the ESRI suggested.

Bike-to-work scheme

While some tax breaks such as the bike-to-work scheme had reduced car use and by extension transport pollution, others such as the regime of company-car-related benefit in kind taxation worked in the opposite direction.

The ESRI said it could not assess the environmental impact of company cars here due to lack of data on the number and type of company cars and their annual mileage.

However, it noted that in the UK, the tax breaks for company cars were bigger for cars with lower emissions while in the Republic the tax break was bigger the more the car was driven, effectively incentivising pollution.

“ Much of the discussion around setting taxes and reforming tax systems focuses on the need to achieve a revenue target, the distributional consequences and their effect, as well as the degree to which the tax system distorts the economy,” the report said.

Burden of taxation

“ In recent years there have been calls for environmental tax reform, whereby the burden of taxation is moved from income and profit towards activities that have negative environmental effects in order to reduce negative externalities and thus improve efficiency,” it said.

The report’s author, Edgar Morgenroth, said the way the tax system is configured at the moment does not incentivise the reduction of environmental impacts.

He said while car ownership was taxed, the usage is taxed much less. “A very large chunk of the taxation is VRT and car tax, which has nothing to do with usage,” he said.

“You end up paying a lot of tax simply for having a car whereas as you should be paying for using it – this could be done by shifting more of the tax burden onto fuel,” he said. A congestion charge is another way of doing it, he said, noting the congestion measures in London has shifted people’s behaviour.