Electricity tax has emerged as a potential sustainable revenue alternative for the future, offering significant financial benefits while addressing environmental concerns. Currently, electricity tax rates are relatively low, with various exemptions and reliefs in place. However, by increasing the tax rate per megawatt-hour (MWh) to €2, €5, or €10, an additional annual revenue of €4m, €16m, or €35m could be generated.
Moreover, removing the household exemption at the current rate could yield an estimated €3m per year. These increases, although impacting the average household bill, have the potential to provide a substantial boost to tax revenues.
At the same time, there exists an ‘excise gap’ between diesel and petrol tax, resulting in foregone revenue of approximately €400m annually. To address this, equalizing excise rates is advocated for environmental and public health reasons by gradually increasing the non-carbon component on diesel. However, the removal of the Diesel Rebate Scheme may lead to increased costs for the haulage and transport sectors, potentially affecting consumers.
Careful consideration is needed to strike a balance between environmental concerns and the economic impact of these tax adjustments.
What is it?
The current electricity tax rate of €1 per MWh for business and non-business uses, along with the available reliefs, results in low yields in tax receipts. Various exemptions are provided for the domestic residential sector and power generated from renewable sources. However, these reliefs contribute to the overall low revenue generated from electricity tax.
Increasing the tax rate to €2 per MWh could potentially yield an additional €4m per year, while raising the rates to €5 and €10 per MWh could generate €16m and €35m respectively. Additionally, removing the household exemption at the current rate could result in an estimated €3m per year.
It is important to consider the potential impact on average household bills, with an estimated increase of €9.50, €23.80, or €47.70 per year if the rates were increased to €2, €5, or €10 per MWh.
Potential Benefits
One potential advantage of implementing new taxes on electricity is the potential for increased funding for public services and infrastructure. By introducing higher tax rates on electricity consumption, the government can generate additional revenue that can be allocated towards improving public services such as education, healthcare, and transportation.
This increased funding can also be used to invest in infrastructure projects, such as the development of renewable energy sources and the expansion of electric vehicle charging networks. Additionally, the implementation of electricity taxes can help promote sustainability and reduce carbon emissions by encouraging individuals and businesses to use energy more efficiently and shift towards cleaner energy sources.
Overall, the potential benefits of electricity taxes include enhanced public services, improved infrastructure, and a transition towards a more sustainable and environmentally friendly energy system.
Implementation and Impact
Implementing new taxes on electricity consumption can have significant implications for government funding, public services, infrastructure development, and environmental sustainability. The potential impact of increasing the electricity tax rate to €2, €5, or €10 per MWh should be carefully considered.
Increasing the rate to €2 per MWh could generate an additional €4m per year, while rates of €5 and €10 per MWh could yield €16m and €35m respectively. However, it is important to note that these increases would result in an estimated impact of €9.50, €23.80, or €47.70 per year on an average household bill.
Furthermore, removing the household exemption at the current rate could yield an estimated €3m per year. These measures would contribute to the replacement of fossil fuel revenue and support the transition towards a more sustainable energy system.
