Energy & Climate Measures

This was a Budget dedicated to addressing cost of living concerns and the rise in energy costs was a constant theme of the minister’s speech. As the minister noted, “the wholesale price of natural gas is now around eight times its average level in the years preceding the war in Ukraine”. Electricity prices have increased by a similar amount because natural gas is used to generate around 50% of Ireland’s electricity and all generators receive the price set by the most expensive generator.

The European Commission has asked each Member State to reduce gas consumption by 15% between August 2022 and March 2023 through fuel switching, temperature limits and information campaigns. Ireland has received an exemption from this target due to its limited connection to the Russian gas system, however Minister Eamon Ryan has accepted the Commission’s recommended reduction level as something we should aim to achieve to help reduce prices. 

In reality, Ireland is facing not one, but two, energy crises as it is also facing a short to medium term shortfall in generating capacity, currently projected to continue until the winter of 2025. This means that ultimately there may be insufficient generation to meet demand. 

This situation is a result of: 

• Ireland’s relatively strong electricity demand growth of over 10% in the last decade; 
• a lack of investment in additional dispatchable (on-demand) generation over this period; and 
• a reduction in the availability of existing dispatchable generation due to the age of the powerstations and maintenance deferred during Covid-19. 

The Commission for Regulation of Utilities (CRU) is managing a security of supply programme of work to address the situation. Key aspects include the provision of additional and emergency generating capacity, extending the operation of older generators and demand side mitigation measures. The CRU has proposed recovering €100m of the €478m cost of the security of supply projects from customers in the year from 1 October 2022. The proposal is that €70m of this will be recovered through an increase in network charges levied on the largest consumers of electricity while €30m will be recovered from a wider cohort of consumers. 

In his Budget speech, the minister recognised that Irish businesses will experience significant increases in their energy costs over the winter months and noted clearly that “the Government will help”.

Governments across Europe have adopted a range of policies to help homes and businesses cope with these price increases and the Irish proposal as outlined in the Budget is to provide businesses with financial support of up to €10,000 per month to help fund rising energy bills. This has been named the “Business Energy Support Scheme” and is expected to cost the State €1.2bn.

The scheme will be administered by the Revenue Commissioners and will be open to businesses who carry on a Case I trade, are tax compliant and whose average unit price has increased by over 50% compared to the same bill period in 2021. The relief will be calculated on the basis of 40% of the year-on-year increase and subject to a €10,000 per month limit (and an overall cap). The scheme is subject to EU Commission approval and further details on the operation of the scheme are awaited. 

In his Budget speech, the minister referred to the work underway at an EU level to impose a windfall tax on profits made by fossil fuel energy generators and a price cap on non-gas generators of electricity (such as wind farms and solar farms). He stated that Ireland aims to be part of this EU-wide response, but if EU measures do not materialise, Ireland would seek to bring forward its own measures. 

We await the outcome of further talks at EU level later this month. 

The minister announced that carbon tax rate would increase from the current rate of €41 to €48.50 per tonne of CO2. The application to autofuels will be from 12 October with other fuels coming into scope from 1 May 2023. Carbon tax revenues will be used to fund future measures including those supporting retrofitting and sustainable transport. The National Retrofit Plan published in February 2022 refers to the investment of €5bn of carbon tax revenues in the retrofitting of 500,000 homes by 2030. 

The increase in carbon taxes for autofuels results in a two cent increase in the cost of petrol and diesel, but this is offset by a two cent reduction in the National Oil Reserves Agency levy which means that the price at the pumps should not be affected.