Ireland is falling critically short of 2030 emissions reduction target.
PwC’s 2023 Climate Action Pre-Budget Submission calls for innovative tax measures to support Ireland’s decarbonisation journey in advance of Budget 2023
The Environmental Protection Agency (EPA) feedback is that Ireland is falling critically short of its emissions reduction target of 51% by 2030. Ireland, along with many countries, has vowed to make significant commitments to achieve net zero carbon emissions by 2050. These efforts need to continue in face of the current uncertainties.
“Government will have the challenging task of balancing the commitment to climate action with the requirement to allocate funding towards cost of living and a myriad of other social, business and economic priorities”
Climate change remains one of the biggest challenges of our generation and needs to be tackled head-on alongside mounting economic risks and a cost of living crisis. Public finances are a critical aspect for funding our National Development, ensuring a Just Transition and stimulus funding of specific projects which support a sustainable future.
However, aspects of climate change mitigation will need to be funded by private investment and entrepreneurs that will stimulate activity and develop the green economy. There will also be opportunities for collaboration through public and private partnerships.
Against this background, PwC has launched its 2023 Climate Action Pre-budget Submission “Keeping the climate challenge in focus” reflecting on progress since last year’s Budget and proposing a suite of tax policy measures to keep the climate challenge in focus during unprecedented times. Key proposals are in the areas of infrastructure, investment and entrepreneurship – to help fund climate action – supporting decarbonisation and the environmental taxes and incentives regime. In addition, the Submission sets out key considerations to ensure a Just Transition, focusing on the allocation of carbon tax revenues.
“Against a backdrop of a highly uncertain near-term fiscal outlook, high inflation and rapidly increasing cost of living, the overall Budget 2023 package set out in last week’s Summer Economic Statement of €6.7bn is welcome,” said Peter Reilly, Tax Policy Leader, PwC Ireland.
“However, Government will still have the challenging task on 27 September of balancing the commitment to climate action with the requirement to allocate funding towards cost of living and a myriad of other social, business and economic priorities.
“At the same time, tax policy is a critical lever available to the Government in our fight against climate change. From tax incentives to encouraging investment in particular areas or the imposition of taxes to discourage certain behaviours and fund a just transition for all, a positive change can be influenced throughout society and business.
“While the impact of Covid-19 and the war in Ukraine have resulted in unprecedented challenges, in light of the impact of climate change on humanity, it must remain at the top of the agenda.
6 climate action ideas for Budget 2023
Rebecca Greene, Energy Tax Policy Leader, PwC Ireland, said that climate action is not the sole responsibility of any individual or particular group.
She said a collective effort to fundamentally transform our economy and society is needed which also ensures a Just Transition for those most vulnerable.
“A key plank of our 2023 Climate Action Pre-Budget Submission is to ensure that Ireland is considered a prime location for inward investment while fostering a strong indigenous business sector that is focused on decarbonisation. The key pillars we have highlighted are in the areas of our offshore wind potential, leveraging our wider technology ecosystem, becoming a hub for the development of ClimateTech/Green Tech solutions and promoting Ireland as a hub for sustainable finance.”
“The tax policy measures proposed take a holistic view of the variety of measures that Government could introduce to encourage and incentivise a wide range of businesses, investors and individuals to adopt a more sustainable approach that is aligned with our climate goals and supports a transition to a green economy.”
Below are the top ideas in 6 key areas raised in PwC’s 2023 Climate Change Pre-Budget Submission which the Government could add to its selection of measures based on impact and implementation:
1. Private investment and entrepreneurship in sustainability initiatives
Private investment plays a critical role in financing the transition to a green economy and showing how private finance can fund climate action is a critical part of this Submission. PwC’s Climate Action Submission focuses on two key sectors – offshore wind and ClimateTech/green technology – requiring substantial private investment and/or will be driven by entrepreneurs:
- Certainty for investors in and developers of renewable energy in the taxation of investment and divestment.
- Capital allowances for enhancing our port infrastructure.
- Improving the R&D tax credit regime to support green innovation and ClimateTech development.
2. Infrastructure and sustainable living
Tax measures to encourage positive corporate and consumer behaviour in the areas of transport, housing and the transition to Electric Vehicles (EVs):
- Tax saver scheme for the hybrid worker.
- Tax relief for financing costs associated with retrofit.
- Extension of help to buy scheme to include ‘help to insulate’.
3. A holistic environmental tax and incentive system
The ‘Fit for 55’ package has resulted in significant changes in the approach to environmental taxes, namely the Carbon Border Adjustment Mechanism (CBAM) and changes to the Energy Taxation Directive:
- Guidance on the CBAM and the Energy Taxation Directive and their introduction for businesses are urgently needed.
4. Establishing Ireland as a ‘green finance hub’
Continue to develop Ireland as an attractive investment location that fosters the growth of sustainable finance and put Ireland on course to be a leading centre for sustainable finance by 2025:
- Introduce a preferential rate of income / corporation tax for returns generated from sustainable investment products by Irish tax resident investors.
- Extend the accelerated capital allowances regime to qualifying expenditure on investment in technology software solutions for ESG data management and reporting.
5. Decarbonising the Irish aviation industry
Ireland, as a leading centre for aircraft leasing globally and home to Europe’s largest airline, has the opportunity to take a leading role in the aviation sector’s journey to net zero:
- Tax relief for investment into projects working on the development of new Sustainable Aviation Fuel (SAF) technologies.
- Extend the accelerated capital allowances regime to apply to energy efficient / sustainable fuel type aircraft.
6. Ensuring a just transition
Several other areas continue to require attention to ensure a just transition through the allocation of carbon tax revenues and allocation of funding to key vulnerable parts of the economy and society including:
Continued focus on the retrofit of social housing and those in danger of fuel poverty.
A comprehensive suite of funding and tax measures to support the transition of the agricultural sector.
Continued focus on upskilling and reskilling our workforce to ensure we can support and contribute to the development of the green economy from a labour perspective.