Carbon tax reduces forecast fuel price fall from Monday, 26 August

It seemed too good to be true. The forecast fall in fuel prices for the week - 3.5 cents per litre for diesel and 4.5 cents per litre for petrol - has been almost entirely wiped out by the government.

This follows the publication late yesterday by the government led by Luís Montenegro of Ordinance No. 189-A/2024/1 of 23 August, which announces the partial unfreezing of the carbon tax. The tax had been frozen since August 2023 - rises were suspended in December 2022 and had been due to resume in May the following year - in response to the exceptional increase in fuel prices.

Carbon tax partially unfrozen

The carbon tax is now set at €68.368/t of CO₂. Should fuel prices continue on their current downward path, as they have done so far, further adjustments to the carbon tax can be expected.

There is, after all, still a considerable gap before reaching the 2024 rate of €83.524 per tonne that would have applied, as stated in the ordinance, had the tax freeze never been introduced.

The government explains the measure as pursuing the “objective of promoting green taxation and energy decarbonisation”, adding that the “gradual unfreezing on CO₂ emissions reconciles environmental protection with the need to support households and businesses in the energy sector”.

Fuel price forecast for Monday, 26 August

The change takes effect next Monday, 26 August. It will add a further three cents per litre to the tax burden charged on fuels. As a result, the initially forecast sharp reduction will no longer materialise. Diesel will fall by only half a cent per litre, while petrol will decrease by 1.5 cents.

The government's intervention means the calculations presented yesterday, 23 August, must be revised. The expected average price for standard diesel is therefore €1.524/l, while standard 95 petrol is expected to cost €1.674/l.

How the new rate affects fuel support measures

As usual, the fuel price calculations are based on figures released by the Directorate-General for Energy and Geology (DGEG), in this case those published yesterday, Friday 23 August.

This carbon tax update also affects the value of measures intended to soften rising fuel prices.

The ISP “discount” remains unchanged - 15.1 cents per litre for diesel and 16.3 cents per litre for petrol - but the total value of all support will be lower. It will fall to 22.1 cents per litre of diesel and 23.1 cents per litre of petrol.

Source: Eco