Fuel prices across Ireland are set to increase sharply following the Government’s 2026 Budget, with a scheduled rise in carbon tax coming into effect from midnight on Budget Day.
From Wednesday, the cost of petrol and diesel will rise by about 2.5 cent per litre, reflecting the latest annual increase in the carbon tax, Finance Minister Paschal Donohoe has told the Dáil. He said that this would be used to fund “socially-progressive” policies, such as helping farmers to work in a “greener” way.
While carbon tax also applies to home heating oil, its implementation is postponed until May 1st each year to spare households from higher costs at the height of the winter heating season, as the levy is calculated on the carbon emissions of fossil fuels.
Further increases are expected as part of changes to the Renewable Transport Fuel Obligation (RTFO) scheme, which promotes the use of renewable fuels. The RTFO adjustments, due to take effect on January 1st, are expected to add another 2 to 3 cent per litre to petrol and diesel prices.
The hike has drawn sharp criticism from Independent Ireland TD Ken O’Flynn, who described the move as “indefensible” in comments to Gript.
“Thousands of people working in Cork City travel every day from towns like Youghal, Bandon, Mallow, and Fermoy,” he said.
“They don’t have the luxury of a train line or reliable public transport. They have to drive. For them, this latest increase in fuel costs is another blow to already stretched household budgets.”
He described the carbon tax as a “tax upon a tax”.
“Motorists already pay VAT, excise duty, and a range of levies on every litre,” he said.
“Adding yet another charge under the banner of environmental policy is indefensible. It punishes workers, families, and small businesses who have no alternative. At a time when the cost of living is spiralling, this is one tax that Ireland could and should do without.”
The carbon tax increase is part of the Government’s plan to gradually raise the charge each year to support climate targets and reduce greenhouse gas emissions in an effort to stop climate change.
According to AA Ireland, around 65% of the price of petrol and 60% of the price of diesel currently go towards various taxes and levies imposed by the State.
Ireland’s carbon tax was first introduced in 2010 as part of the Finance Act under then–Finance Minister Brian Lenihan. It was designed to put a price on carbon emissions by taxing fossil fuels such as petrol, diesel, kerosene, coal, and natural gas, in line with Ireland’s climate commitments and EU environmental goals.
Initially, the tax applied to transport fuels, and was later extended in 2011 to home-heating fuels like oil, gas, and solid fuels.
In 2020, the Government set out a long-term schedule of annual increases as part of the Climate Action Plan, committing to raise the carbon tax from €26 per tonne of CO₂ to €100 per tonne by 2030. The increases are typically implemented each Budget Day.
Revenue from the carbon tax is always earmarked to fund climate and energy initiatives, home retrofitting schemes, and social welfare supports to offset impacts on low-income households.
Since its introduction, the carbon tax has been a recurring source of political debate, with critics arguing it disproportionately affects rural households and motorists who lack viable public transport alternatives.