Strategic Climate and Nature Funds
In July 2024, the Future Ireland Fund and Infrastructure, Climate and Nature Fund Act 2024 (“the Act”) was enacted which established the Infrastructure, Climate and Nature Fund (ICN Fund). The purpose of the ICN Fund is to assist with addressing climate change objectives and addressing nature, water quality and biodiversity issues. Initially, €2 billion was set to be invested annually from 2024-2030, targeting an overall fund of up to €14 billion.
This year’s budget announced that, by the end of 2026, the Future Ireland and ICN Funds will reach €24 billion, with a target of €40 billion + by end of government term. Minister for Public Expenditure, Paschal Donohoe, explained that this increase in the scale of funds will be aimed at helping Ireland deal with the “demographic and structural challenges that may lie ahead.”
Carbon Tax and Revenue Allocation
Carbon tax has continued to follow the trajectory set out in the Finance Act of 2020. Carbon tax has increased to €71 per tonne, with the proceeds ear-marked for environmental and social programmes. The additional revenue arising from this is estimated at €121 million in 2026 and the full year additional yield is estimated at €157 million.
From Wednesday, motor fuel will be taxed at €71 for every tonne of carbon dioxide it emits, a 10.3 per cent increase on the current €63.50 rate. The new rate will apply to all other fuels from May 1st next year.
This revenue will be spent on social welfare measures and other measures to prevent fuel poverty and to ensure a just transition, as well as a socially progressive national retrofitting programme and funding to encourage and incentivise farmers to farm in a greener and more sustainable way.
For example, this year the allocation for the Warmer Homes Scheme, which provides completely funded retrofits to low-income households, has seen an 11-fold increase relative to 2020 expenditure.
Additionally, €558 million in carbon tax revenue has been allocated for residential and community energy upgrade schemes.
Clean Energy and Microgeneration
Budget 2026 has extended the Income Tax disregard of €400 for income received by households who sell electricity from micro-generation back to the grid for a further three years to the end of 2028 to allow all households to play a part in the reduction of Ireland’s emissions.
This comes following the announcement that this year, there are 140,000 households with solar PV installed, providing greater energy affordability for these houses both by reducing their own energy demand and allowing them to sell excess energy into the grid.
Transport and Electric Vehicles
The €5,000 VRT relief for electric vehicles has also been extended for a further one year until the 31st of December 2026.
It was also announced that the Benefit-in-Kind regime for company cars has been extended, on a tapered basis. This refers to the universal relief on the Original Market Value of a vehicle which was first introduced as a temporary measure in 2023. This relief will remain at €10,000 in 2026 and will begin reducing yearly until it is abolished in 2029. It has also been announced there will be a new vehicle category for zero emission cars only, where the lowest BIK rates will apply.
The Metro Link has also been allocated €2 billion from the ICN Fund for progress.
Accelerated Capital Allowances
There has been an extension to the Accelerated Capital Allowance schemes for energy-efficient equipment, gas vehicles, and refuelling equipment for a further five years until 31st December 2030 to encourage capital investment to help deliver a reduction in emissions. There has also been an extension of the Accelerated Capital Allowance scheme for slurry storage facilities for four more years to continue to help farmers meet emissions targets.
Infrastructure, Water, and Energy Investment
In 2026, the NDP will allocate €19.1 billion for capital investment, an increase of €2 billion from 2025. This funding has been earmarked for:
Supply of Housing
As part of the government’s social policy they have prioritised actions to alleviate the housing shortage which will be good news for aspiring homeowners and those looking to rent. In particular they have focused on increasing supply “so more people can access a home”. In this regard funding has been allocated for housing delivery, and there are to be regulatory changes to the planning system. Of particular benefit VAT has been reduced from 13.5% to 9% on the sale of completed apartments, rental profits from homes falling within the Cost Rental Scheme will be exempt from corporation tax and there will be enhanced corporation tax deductions for certain costs incurred in construction/ conversion of apartments.
How can BDO help?
BDO’s Sustainability Department can provide support to companies aiming to maximise the opportunities and manage the risks presented by Budget 2026’s climate, sustainability, and infrastructure measures. Our service offerings include:
BDO’s approach ensures your business complies with new budgetary measures while also unlocking value from government incentives, green financing, and sustainable growth strategies.