Written by Ireland’s Department of Finance
By aligning economic tools with climate goals, Ireland’s Department of Finance is applying public finance rooted in budgets and taxes, and most importantly, in long-term resilience.
Climate is rapidly changing. Ireland is committed to working at home and abroad to mitigate against the worst effects of climate change and prevent catastrophic levels of global warming. As part of its ongoing policy efforts, the country has introduced a range of initiatives aimed at securing a more resilient future.
Ireland’s new Programme for Government reiterates the commitment to achieve an emissions reduction of 51% by 2030 relative to 2018 levels. In addition to international climate obligations under the Paris Agreement and the European Union legislative commitments, the domestic Climate Action and Low Carbon Development (Amendment) Act sets a statutory target of net zero emissions by 2050. It also enshrines the 2030 target in law and establishes a framework for five-year carbon budgets and associated sectoral emissions ceilings.
The Department of Finance at the centre of climate action
The Department of Finance’s current Statement of Strategy includes “Promoting environmentally sustainable economic progress” as one of its strategic goals. In July 2020, a dedicated Climate Unit was established within the Department, followed by the creation of a Climate Economy Group in early 2022. This group plays a role in mainstreaming climate-related policy development across the Department and in building awareness and capacity on climate issues across the various policy areas, like tax, budget/fiscal, financial services, etc. Traditionally, the Department (along with its sister Department of Public Expenditure) would focus on carbon pricing and environmental taxation measures, the shadow price of carbon in public capital projects, and the EU emissions trading schemes and compliance architecture. This focus has widened in recent years.
Ireland’s Climate Action Plan 2025 (the third statutory update to the plan and the fifth overall) sets out the measures and actions that will support the delivery of Ireland’s climate action ambition. It is the third Climate Action Plan to be prepared under the Climate Action and Low Carbon Act and the fifth overall.
Some Department of Finance actions include:
• Monitor, forecast, and review the Carbon Tax increases as legislated in the 2020 Finance Act and other environment-related taxation reform.
• Increase Ireland’s year-on-year International Climate Finance contribution.
• Expand the Department of Finance’s Green Budgeting methodology from a tax perspective to include all six EU Taxonomy for Sustainable Activities based on the EU Green Budgeting Reference Framework and the OECD Green Budgeting Framework.
• Explore tax and regulatory measures to support the adoption of energy audit recommendations and the installation of energy-efficient equipment.
Ireland’s Carbon Tax sets out a long-term trajectory of multiannual rate increases, aiming to reach a rate of €100 per tonne of CO2 in 2030. It operates on a “polluter pays” principle and applies to carbon dioxide emissions in the heat and transport sectors, covering fuels such as petrol, diesel, kerosene, gas oil, liquid petroleum gas, fuel oil, natural gas, and solid fuels. Since 2020, the Government has allocated additional Carbon Tax revenue into a Climate Action Fund. This fund supports Just Transition measures, e.g. initiatives to prevent fuel poverty, socially progressive retrofitting and investment in green agricultural projects.
Budget 2025’s The Use of Carbon Tax Funds paper provides further details on this allocation. Green Budgeting analysis is now a key part of the Budgetary framework and has been published annually since the first Green Budgeting paper was released on Budget Day 2022. It provides an evidence base and reflects the link between how tax and tax expenditure measures can influence individual and business behaviours towards supporting climate and environmental goals. Overall, the analysis indicates a trend towards the budgetary process becoming more climate friendly with Carbon Tax playing a significant role in driving this shift. Latest analysis was published as part of Budget 2025: Beyond GDP - Quality of Life Assessment and gov.ie - Green Budgeting (www.gov.ie)
Ireland undertakes a range of activities to address the current global challenges affecting the mobilisation of private finance for sustainable investments. The Department of Finance published an “Ireland for Finance” strategy with activities detailed under five themes, one being Sustainable Finance, which raises awareness of the need to finance investments in the green transition.
Regarding funding, acting through the National Treasury Management Agency, Ireland issues Irish Sovereign Green Bonds, the proceeds from which are allocated against eligible green projects upon which the State is engaged and planning for the coming years. Over €11 billion of these bonds have been issued to date. Proceeds from these issuances are allocated for eligible green projects, which generate a positive environmental benefit.
To further support Ireland's transition to a sustainable and climate-resilient future, the Government introduced the Infrastructure, Climate and Nature Fund (ICNF) in Budget 2024. The ICNF will support environmental projects that reduce greenhouse gas emissions, improve water quality, and enhance biodiversity. By the end of 2025, €4 billion will have been transferred to the ICNF. Additionally, the Future Ireland Fund (FIF), also announced in Budget 2024, aims to ensure long-term fiscal sustainability by addressing future challenges such as an aging population, climate change, and digital transformation. Each year until 2035, the Government will contribute 0.8% of GDP to the FIF.
By embedding climate considerations into core fiscal processes, from taxation to budgeting, sovereign debt issuance to long-term investment planning, Ireland is investing in future economic resilience. The country’s experience illustrates a broader lesson for governments everywhere: the green transition is a structural shift -and the sooner finance ministries embrace that reality, the better prepared their economies will be.