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Farmers set to foot the bill with agri contractors up in arms over 'penal' carbon tax

The proposed increase in carbon tax to €80/tonne by 2030 will cost contractors €100m and it is farmers who will be forced to foot the bill, writes Derek Casey

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Green divide: Farmers are allowed a carbon tax rebate on their purchases of green diesel, but contractors are not

Green divide: Farmers are allowed a carbon tax rebate on their purchases of green diesel, but contractors are not

Green divide: Farmers are allowed a carbon tax rebate on their purchases of green diesel, but contractors are not

Fills of diesel are being ordered all over the country in anticipation of spring planting work, but as a welcome stretch comes to the evenings, contractors are far from happy.

In fact, some of them are furious with the outgoing Government over what they see as the inequitable imposition of a carbon tax on diesel.

Contractors I speak with describe a deep sense of uncertainty about the year ahead, but also a nervousness about this election because, if the polls are accurate and the Green Party make gains this weekend, there is the real prospect of a far more aggressive carbon tax policy being implemented in the coming years.

Backdrop

Cutting the national beef herd is what most of the media debates have focused on when the main political parties are being quizzed on their plans around farming and climate change. But when it comes to machinery and fuel costs, there is only one issue being talked about.

Carbon tax was introduced in Ireland in 2010 as a way to discourage the burning of fossil fuels and encourage the uptake of cleaner energy sources.

It was also introduced, of course, as a hard and fast way of raising revenue. The tax applies to kerosene, marked gas oil, liquid petroleum gas, fuel oil, natural gas and solid fuels.

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FCI National Chairman Richard White

FCI National Chairman Richard White

In 2010, the rate of carbon tax was initially set at €10 per tonne of CO2 emitted by the fuel concerned, but that rate increased to €20 per tonne in May 2014.

Then, as of last October's Budget, the carbon tax on auto fuels increased by a further €6 to €26 per tonne. The latest increase to €26/tonne is set to apply to green diesel from May 2020 - just as the silage season kicks off.

The main gripe contractors have with taxing green diesel is that agricultural tractors and harvesters have just one power source, a diesel engine, which is fuelled by marked gas oil (green diesel).

Across the world, diesel-fuelled engines are the sole engine types used to power agricultural tractors and machinery. Development of alternative power sources like natural gas or hydrogen is at a very early stage.

These are not realistically expected to be offered as a practical energy alternative to diesel engines for powerful agricultural machinery in the immediate future.

When they do come online, it will be for smaller horsepower machines first, with the capacity to power the likes of a 600hp harvester with alternative fuel sources still very much a pipe dream.

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In light of these facts, one of the core aims of the carbon tax - to stimulate the use of cleaner fuels - is rendered impotent as far as farm machinery is concerned. Taxing a product to discourage its use despite the absence of any alternatives was always going to draw a lot of criticism from the farming public. But of course, it will still raise revenue.

Are contractors being treated differently?

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Contractors carry out 90pc of mechanisation work on farms

Contractors carry out 90pc of mechanisation work on farms

Underpinning contractor unrest is the fact they feel singled out and treated unfairly by comparison to farmers.

As things stand, farmers are allowed a carbon tax rebate on their purchases of agricultural diesel as a write-off against their annual tax bills. That rebate is not, however, available to farm contractors.

But before farmers think this sounds like good news for them, it should be said that contractors are making little secret of the fact they are going to pass on the added fuel costs to customers unless they too can secure the rebate.

If that were to happen, industry sources suggest that the average dairy farmer can expect to pay as much as €600 extra per annum for contractors within 10 years if, as planned in Budget 2020, the carbon tax hits €80/tonne by 2030.

Contractors are warning that their charges would increase by even more if there are other inflationary trends or policy changes - as there may well be should the incoming government have a strong Green hue to it.

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Contractors burn 75 million litres of green diesel each year spreading slurry

Contractors burn 75 million litres of green diesel each year spreading slurry

Contractors say their exclusion from the carbon tax rebate system is particularly unfair given they carry out 90pc of the farm mechanisation work on Irish farms, and their machinery consumes close to 340 million litres of green diesel annually valued at in excess of €255m (see table of FCI figures, right).

It is hard to argue with that point, and harder still not to be cynical in terms of seeing this as a revenue-raising exercise by the outgoing Government.

Manifestos

Ahead of the election, the contractor body group FCI called on all of the main political parties and rural independent TDs to include in their manifestos an agreement that carbon-tax changes will be made to the Finance Act. However, a look at all of the main parties' plans would suggest the call wasn't heeded.

"May 2020 is the month when the Government propose to enforce this penal stealth carbon tax on Irish farming. The timing could not be less appropriate, with huge amounts of diesel being used in the summer months as the national silage harvest kicks off," said FCI National Chairman Richard White (left).

"Unlike in the car industry, Irish farm contractors do not have the option of using alternative fuels. Hybrid or LPG as alternative fuel options are not currently available to power modern agricultural machines in contractor fleets in Ireland or across the world," he added.

What really raised contractors' hackles was a radio interview by outgoing Agriculture Minister Michael Creed during the election campaign. He suggested that contractors "should ask farmers to provide the diesel for their tractors and machinery in order to keep costs down".

Contractors say they simply would not allow their expensive kit to be put at risk of being filled with diesel of unknown quality from farmers.

"For a start, farmers would not have access to the quantities of diesel that are required to fuel a modern silage harvesting system and, secondly, contractors using these hugely valuable tractors and harvesters would be very slow indeed to take diesel supplies from sources where they could not rely on consistency of quality," said Mr White.

Charges

He added that the proposed increase in the carbon tax from the current €20 per tonne to €80 per tonne by 2030 would increase contractors' fuel costs by close to €100m.

"We will be forced pass on this additional €100m cost to our farming client customers and it will equate to almost a 14pc increase on current contractor annual charges," he estimated.

Fine Gael are certain to face the full anger of much of the farming electorate this weekend, and my sense is that contractors will be among the first to protest vote given the level of angst about this issue.

However, the trouble for contractors and the agri sector at large is no matter which parties come together to form the new government, the carbon-tax issue is only going to get bigger.

If, as predicted by many, a Fianna Fáil, Labour and Green parties comprise the new government, such a coalition has the potential to make current carbon-tax plans look minuscule. The only way contractors will get traction on this issue is to keep the pressure on and to get farmers and farming representative bodies singing from the same hymn sheet.

And whether they realise it or not, ultimately it will be farmers who will be asked to bear the additional costs.

Indo Farming