Why is it costing me more to use green fuel in my car than fossil fuels?

Irish Times

4 hours ago

May I draw attention to an item that seems to escape scrutiny and that is the higher per litre pump price of HVO (hydrogenated vegetable oil).
I switched my 1.5-litre diesel car to HVO in early 2024, when it was cheaper but the supplier has increased it since, stating the original price was an introductory promotion. The fuel is currently costing two to three cent more per litre than the prevailing diesel price.
The Department of Transport has not responded to two queries re the taxation element, which ought to reflect the lower emissions factor. This seems to indicate that Revenue considerations supersede environmental objectives, and this deserves examination.
Mr W.K.
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As our
carbon emissions
continue to rise despite everything we are being told about the perils of climate change, it is good to see some people making the necessary personal choices to reduce emissions.
But I can fully understand your chagrin at having made the switch only to see you are actually paying more for your
biofuel
than you would be if you had stuck with diesel, a fossil fuel.
The
Sustainable Energy Authority of Ireland
said hydrogenated vegetable oil (HVO) is a renewable form of biofuel derived from vegetable oil, which is processed with hydrogen, to create a diesel substitute product.
It says HVO can have a carbon footprint that is at least 65 per cent lower than conventional fossil fuel, such as diesel.
For its part,
Revenue
tells me that HVO, like all liquid fuels, is subject to mineral oil tax. However, the tax applied to biofuels produced by biomass, including HVO, relieved of the carbon component of the tax.
What does that mean?
Well, the diesel you used to use has an motor oil tax charge of €595.68 per thousand litres, or just shy of 0.6 cent per litre.
HVO has a motor oil tax charge of €425.72 per thousand litres as it is excused the €169.96 carbon element of the diesel tax rate. That comes to just over 0.4 cent per litre. So, all other things being equal, your HVO should cost 0.17 cent less per litre.
For other people reading this, it is worth bearing in mind that the figures will vary slightly if your biofuel is replacing petrol or if you are using it for heating. It will be different again for those using blended fuels where the dispensation applies only to the portion that is biofuel. You can find all the details
here
.
Revenue also notes that the relief from the carbon component of motor oil tax is granted to the supplier at the top of the chain. This means the price paid by wholesalers and retailers already allows for that ...which is why you should expect to benefit from the relief.
Moving on from motor oil tax, fuels are also liable in Ireland to value added tax (VAT).
Irish VAT rates are obliged to work within EU rules although there is some wriggle room in places.
In this case, motor fuels are subject to the standard rate of VAT – currently 23 per cent. Ireland does use the discretion available to it to tax HVO at a lower rate of VAT – 13.5 per cent – but only when it is used as a heating oil, not in cars.
So where does that leave us?
Well, you're paying fractionally less tax on your HVO and you have the comfort of knowing that it sharply reduces the emissions from your car. However, that does not mean it is cheaper.
There are two factors here. First, HVO is more expensive to produce than diesel. The industry says this is due to higher production costs and the challenge of sourcing raw material in industrial quantities.
In fact, if one UK supplier is to be believed, you should be expecting to pay 10-15 per cent more for HVO than diesel but I understand the UK gives HVO no relief such as is available in Ireland under motor oil tax.
The other factor is that it is not as efficient as diesel for your car. That means you will need to purchase around 7.3 per cent more HVO to cover the same mileage as you would with diesel.
This is why most HVO in Ireland is, I understand, used by commercial fleets rather than by individual motorists. For companies, the offsetting by the green credentials may make it more attractive despite the added costs.
But it is also why consumers need to ensure they are fully informed of the longer-term budgetary impact before making a decision to switch to such fuels.
You note you switched at a time when the supplier was offering HVO at a price lower than diesel. I would have hoped the supplier made it clear this was an introductory offer but it appears from your letter that they didn't. That's not a great way for a long-term supplier of fuel to build a relationship of trust.
From what I can gather, it will cost you more to run your car with HVO than with diesel. And that is even with the preferential tax rate.
You suggest Revenue considerations appear to supersede environmental objections. On the basis of the motor oil tax relief, that's not entirely fair, although it is true to say the incentive to go green is modest – perhaps too modest given the additional base costs outlined above.
The Government faces a choice. Either it increases the incentives available to accelerate take-up among the public, or it relies on people caring more for the environmental (and likely financial) benefits for future generations than their own pocket.
On a related note, if Government departments are simply ignoring queries that come into them, it is dispiriting. The
Department of Transport
is among the department supposedly leading the Government's charge to hit what now appear to be unattainable climate change targets by the end of the decade.
You would think they should be encouraging moves in that direction and pointing people in the direction of the information that helps them make informed choices. Ignoring people inevitably irritates people and makes them less receptive to messages the Government tells us it considers important.
The information you sought was readily available from Government departments – Revenue was able to provide me with the details and point me to references within 24 hours – so it really was not beyond the department to direct your query appropriately and provide you with the basic information sought.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to
[e-mail]
with a contact phone number. This column is a reader service and is not intended to replace professional advice