Increasing carbon taxes to pay off state debt will harm jobs – ESRI
INCREASING carbon taxes to pay off the State's debts would be damaging to jobs, according to new research from the Economic and Social Research Institute (ESRI).
A study by the ESRI said carbon taxes – levied on carbon dioxide emissions – could generate big money for the State if set at EU levels, but would be harmful to economic output.
A carbon tax based on the EU model could generate €1.1bn annually by 2025, and more under different high-tax schemes. The EU programme charges between €25 to €41 per tonne of carbon dioxide emissions, on an increasing scale every year until 2025. Ireland currently charges €20 per tonne, ramped up from €15 last year.
But the ESRI study warned that the Government must be careful with how it chooses to spend this money.
If used to plug the deficit – which it said is "likely in the current economic and international environment" – the tax would have largely negative effects. It would lead to a 0.21pc contraction in gross domestic product (which means annual economic output), and a 0.08pc reduction in employment. A higher carbon tax than the EU scheme, which is still a possibility, would lead to even more pressure on GDP. The current €20 carbon tax already charged costs an estimated €156 per household per year.
But other positive alternatives are possible. Instead of paying off the deficit and harming jobs and economic output, the Government could use money generated by the tax to help reduce labour tax bills.