Beginning in late 2008, Ireland experienced a fiscal crisis. This resulted in November 2010 in
agreement between the Irish government and the European Central Bank, the European Commission and
the International Monetary Fund (IMF) – known collectively as ‘the Troika’ – whereby the latter provided
substantial financial support, on condition that a number of revenue raising and expenditure reduction
targets were met. Also in 2010, a carbon tax at a rate of EUR 15 per tonne of CO2 was introduced, covering
most CO2 emissions from the non-traded sectors (mainly transport, heat in buildings and heat and process
emissions by small enterprises). This paper describes the features of the tax, recounts the story of its
interplay between fiscal adjustment and helping meet the obligations to raise taxes, and implications for
competitiveness and carbon leakage, environmental effectiveness and equity issues, and draws some
conclusions regarding why it happened, and provides some tentative insights for other countries in a
similar situation.
The circumstances that resulted in a carbon tax being proposed and subsequently introduced in Ireland include: Leadership by the Green Party; limited public opposition; Government need for the income; supports the Green Economy; support from the academic and wider policy population; exemptions for large emitters (many in EU ETS) and agriculture; effective engagement and good planning...
