The carbon-tax rate applying to kerosene and natural gas will fall from €63.50 to €48.50 per tonne of CO₂, reversing planned increases that would otherwise have taken the rate to €78.50 by May 2027.
The Government has also said there will be no further increase in the rate applying to home heating oil and gas during its current term.
Announcing the measure, Minister for Finance Simon Harris acknowledged the impact of increased heating costs on households with limited alternatives to their existing fuel.
The move forms part of a wider package aimed at addressing energy affordability following renewed volatility in international energy markets.
Temporary reductions in excise duty on petrol and diesel, which have cut the respective pump prices by around 27 cent and 32 cent per litre, will remain in place until the end of February 2027 before being restored in stages through to the end of June. The reduced NORA levy will also continue until the end of 2026, while enhanced support through the Diesel Rebate Scheme has been extended.
Further support is also being provided for energy-intensive sectors, including road transport and agriculture.
UKIFDA welcomes relief
UKIFDA, which represents a significant proportion of Ireland’s liquid fuel distribution sector, welcomed the measures targeted at customers including home heating oil users and farmers. The association stressed, however, that heating oil distributors themselves remain exposed to movements in global wholesale markets.
“Heating oil distributors purchase product at prevailing wholesale market prices on a frequent basis,” UKIFDA said. “As a result, distributors are largely price takers in an internationally traded market.”
UKIFDA said it recognised the impact sustained high wholesale prices continue to have on households and businesses and reiterated the sector’s commitment to supporting customers and promoting awareness of available assistance.
However, the association used its Budget response to renew its challenge over the different VAT treatment of home heating oil and natural gas. VAT on heating oil remains at 13.5%, while natural gas used for home heating is charged at 9%.
UKIFDA described the difference as an “unnecessary rural penalty”, given the greater dependence on heating oil in rural areas. The association had proposed reducing the VAT rate on heating oil to 9% and is calling for further investigation into whether the current position can be changed.
It said: “While it has been argued officially that this 9% VAT rate cannot be applied to heating oil due to the EU VAT Directive, it is now time to properly investigate a way of removing this inequality.”
The Department of Finance has previously maintained that EU VAT rules prevent Ireland from reducing the heating-oil rate further. Home heating oil is not included among the goods eligible for the newer reduced VAT provisions, with Ireland instead relying on an historic derogation to retain the existing 13.5% rate.
Longer-term energy measures
Minister Harris made clear in his statement that the measures introduced “do not in any way signal a weakening of our resolve to de-carbonise the economy” before adding that “The two recent energy shocks have offered further proof – if any were needed – that we must ween ourselves off fossil fuels.” As a result, Budget 2027 combines the immediate fuel-cost measures with substantial additional investment in energy efficiency and home decarbonisation.
More than €950 million has been allocated to the Government’s Energy Transformation programme, including more than €650 million for SEAI-supported home and community energy upgrades. Measures include additional solar PV and battery support, increased insulation grants and a fossil-fuel boiler scrappage scheme.
The Government said the approach is intended both to reduce current energy costs and lessen households’ longer-term exposure to imported fossil-fuel prices.
Of particular interest to the liquid fuels sector, the Department of Finance is also engaging with the European Commission over the possibility of more favourable tax treatment for hydrotreated vegetable oil (HVO), as part of efforts to encourage lower-carbon alternatives.
For Ireland’s fuel distributors, Budget 2027 therefore brings welcome demand-side relief at the start of the heating season – but leaves the industry’s long-running VAT argument firmly on the table.
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