Government to introduce carbon windfall tax

Energy minister Eamon Ryan has announced that the government plans to recoup some of the profits big electricity generators have made through the EU's emissions trading scheme (ETS).

Electricity generators are entitled to at least 90% of their carbon allowances free of charge over the period 2008-2012. However, generators have been able to sell these credits at a profit. The government now plans to re-coup much of this via a carbon windfall levy, which will be included in the Biofuels Obligation Bill that's making it's way through the final stages of the Oireachtas.

Eamon Ryan said: "As in any fiscal measure you must be careful to ensure that we do not distort the market, or discourage investment, particularly as our single electricity market has been functioning extremely well to date."

"This levy is essential if we are to reduce Ireland's overall energy bill. Having discussed it with those in the industry, I am satisfied that it will function effectively." 

A department spokesperson told Construct Ireland that the department is essentially trying to recover the windfall gains made by our large electricity suppliers, such as the ESB, Bord Gais, Bord na Mona and Viridian. The levy only deals with the electricity sector, and will not effect other sectors such as the cement industry that received free emissions trading credits.

The levy will vary from electricity generator to electricity generator, and will be levied quarterly. It will be based upon each company's carbon emissions, multiplied by the average price of carbon over that quarter, adjusted by a further percentage rate. This rate has been set in the legislation at 65%, though the minister for the environment has the power to review this. The levy will cease at the end of 2012, when carbon allowances will be auctioned and windfall gains will cease.

A department spokesperson added: ""The rate was chosen for a number of reasons. Without going in to too much detail, it is extremely difficult to derive a precise value for the gains accruing to each individual electricity generator, as the structure of the single electricity market means that carbon allowances may have a differing value for individual generators. Further complicating this issue is the fact that a generator may have had to purchase a portion of the carbon allowances that they are using. Needless to say if a generator has had to purchase allowances on the market then they will not be earning windfall gains on that portion of their allowances. Setting the rate at 65% allows us to recover a substantial portion of the windfall gains accruing to generators, while not punitively recovering sums that may be in excess of their windfall gains."

Full details are available from this PDF document.