A Department of Finance document has suggested that a €10 carbon tax hike in the next budget would be effective.

The tax currently stands at €20 per tonne of C02 and is applied on diesel, petrol, kerosene, natural gas, coal and peat.

It generated €481m in net receipts for the exchequer last year.

The Tax Strategy Group says that if the aim is to change people's behaviour to meet the 2030 climate change targets, then front-loading the increases would be more effective.

The document states that this would help boost the take-up of things like home insulation and electric vehicles.

"In terms of meeting the commitment to increase the carbon tax to at least €80 by 2030, a possible trajectory is to raise the rate by €10 per tonne in 2020 and by €5 tonne every year thereafter," the report said.

However it warned that such a move would reduce the flexibility of the Minister to react to circumstances such as Brexit.

It said any increase would have to be matched by measures to address energy poverty or to make allowances for homes and businesses that have no alternative to fossil fuels.

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Watch: Carbon tax changes explained

Changes to the taxation of motoring to link it more strongly to its environmental impact are put forward by the Department of Finance's Tax Strategy Group, in a report published this evening.

Currently the rate of motor tax per vehicle is calculated on the amount of emissions it generates.

However, the amount of tax being collected has been steadily falling in recent years, despite the numbers of cars rising, because the public are buying less polluting vehicles.

The TSG's document proposes a number of options for changing the current system, including increasing the gap between the most expensive band in the range and the cheapest.

As an alternative, it suggests the rate gap between each of the 12 motor tax bands could also be widened. 

Currently this gap is €10 per annum and there is scope to increase it further, the report says.

A third option, according to the strategy group, would be to increase the gap between the lowest emitting vehicles and vehicles which have an average or above average CO2 emissions profile. 

Currently this gap is €80 per annum and there is scope to increase this gap, the report says.

On Benefit in Kind, the study notes that there is currently no environmental rationale in the BIK tax system.

But it says introducing one is not conceptually or technically difficult and would involve having a higher tax rate for the most pollutant cars and lower ones for the least pollutant cars.

"The larger the tax gap between the least and most pollutant cars, the stronger the environmental rationale," it says.

The authors suggest that consideration should also be given to reducing the number of mileage bands, upon which BIK is calculated. 

"This would weaken any perverse incentives that currently exist while still seeking to tax the person in proportion to the quantum of benefit derived from the car," it says.

The document also sets out a range of options for reforming the Vehicle Registration Tax, to make it more environmentally sensitive.

These include introducing an environmental health surcharge on the more polluting vehicles to replace the current 1% diesel surcharge, as well as an increase in the number of VRT bands.

The report also suggests that it is difficult to justify the continuation of reliefs for hybrid vehicles, as emerging evidence seems to suggest that under a new incoming emissions testing regime they are likely to be found to be more polluting than previously thought.

Additional Reporting Will Goodbody