379. Deputy Barry Ward asked the Tánaiste and Minister for Finance his views on the merits of financially incentivising the use of HVO fuel instead of diesel to support achieving our climate emission targets; and if he will make a statement on the matter. [64390/26]

387. Deputy Erin McGreehan asked the Tánaiste and Minister for Finance if he will review inconsistencies in the taxation of fuels, including the loss of eligibility for the diesel rebate scheme when hauliers move from fossil diesel to certain renewable fuels and the application of 13.5% VAT to home heating oil compared with 9% on gas, particularly given rural households’ greater dependence on oil heating; and if he will make a statement on the matter. [64531/26]

I propose to take Questions Nos. 379 and 387 together.

Provisions for the Diesel Rebate Scheme (DRS) were introduced in Finance Act 2013 as a measure to protect the competitiveness of the road transport sector, and the wider economy, from the impact of the prevailing high price of auto diesel at that time. The DRS is a State aid which provides for a partial repayment of Mineral Oil Tax (MOT) on auto diesel purchased in the State and used in qualifying vehicles by licensed Irish and EU road haulage and passenger transport operators, in the course of their business.

As the DRS applies on a more selective basis than provided for in Article 7 of the Energy Tax Directive, it operates as a State aid under Commission Regulation (EU) No 651/2014, commonly referred to as the General Block Exemption Regulation, or GBER. The DRS is notified to the Commission as an aid satisfying GBER conditions and compatible with the internal market.

MOT law sets out that auto diesel must be tax paid at the standard rate of MOT to qualify for the DRS. Biofuel, such as hydrotreated vegetable oil (HVO), is fully relieved of the carbon component of MOT and is therefore not subject to the standard rate of MOT. This means that biofuels do not qualify for repayment under the DRS legal provisions.

The MOT treatment of biofuels, including HVO, already financially incentivises biofuels over fossil fuels such as diesel. Under section 100(5) of Finance Act 1999 (as amended), biofuels which are produced from biomass qualify for relief from the carbon component of MOT (Carbon Tax), thus incentivising the uptake of more sustainable and renewable fuels. In the case of blended fuels, the biofuel relief applies to the biofuel portion.

The rate of the carbon tax relief for biofuels such as HVO used in place of auto diesel is currently 19 cents per litre. This is higher than the maximum DRS repayment rate of 12 cents per litre.

As biofuels are relieved of the carbon component of MOT, they are not impacted by annual carbon tax increases. As a result, the MOT rate differential between biofuels and fossil fuels will continue to widen as the 10-year carbon tax trajectory up to 2030 is implemented.

The tax treatment of HVO in the freight sector, and possible further incentives for its use, was examined in my Department’s Tax Strategy Group paper on Energy, Environmental and Vehicle Tax ahead of Budget 2026, which is available on my Department’s website at: www.gov.ie/en/department-of-finance/collections/budget-2026-tax-strategy-group-papers/. This was again examined in the Tax Strategy Group paper on Energy, Environmental and Vehicle Tax paper ahead of Budget 2027, which is also available on my Department's website at: www.gov.ie/en/department-of-finance/collections/budget-2027-tax-strategy-group-papers/

In relation to VAT on home heating oil, the EU VAT Directive, with which Irish VAT law is obliged to comply, generally holds that all goods and service are liable for VAT at the standard rate which Member States must set at a minimum of 15%. Ireland currently charges a standard rate of 23%.

If a good or service is included in a list of goods and services under Annex III of the Directive, a reduced rate of VAT or exemption may be applied. Member States are permitted to apply up to two reduced rates at a minimum of 5%. Ireland currently has two reduced rates of VAT of 13.5% and 9%. Member States may also avail of a derogation under the terms of the Directive that allows for a reduced rate of VAT be applied to specific goods and services that have historically been charged below the standard rate and not included under Annex III.

As home heating oils such as kerosene is not included under Annex III, Ireland has availed of this derogation to charge the 13.5% rate on home heating products other than natural gas including firewood. There is no basis to apply a further reduction of VAT.