Can VAT help accelerate Ireland’s green transition?

Energy and the built environment: where Ireland has already moved

The clearest examples of environmentally focused VAT policy in Ireland are solar panels and heat pumps. 

Since May 2023, Ireland has applied a zero VAT rate to the supply and installation of solar panels on private dwellings. The policy objective was to reduce installation costs and encourage greater investment in renewable energy generation. Data from the CSO, cited by the Department of 
Climate, Energy and the Environment in August, shows that over 200,000 homes across Ireland have now installed solar panels. 

Heat pumps have followed a similar path. Since January 2025, qualifying low-emission heat pump systems supplied and installed under a single contract have benefited from reduced VAT treatment to help reduce the upfront cost of investment. 

There is also international precedent, such as in Germany where a zero VAT rate for qualifying photovoltaic systems and associated storage technologies has been in place since 2023. The policy explicitly extends beyond solar panels themselves and includes qualifying battery storage systems. France has taken a slightly different approach by applying reduced VAT rates to qualifying energy renovation works and energy-efficiency improvements in residential property.

If Budget 2027 is to build on the solar and heat pump measures, the most practical next step would be to target technologies that reduce household energy demand or improve the return from domestic renewable generation. Options could include:

• battery storage systems
• smart energy management technologies
• home energy monitoring systems
• broader retrofit-related technologies

If Government wants faster adoption of specific technologies, reducing the VAT cost can improve the investment case.

The circular economy: repair rather than replacement

The policy objective behind the circular economy is straightforward: keep products in use for longer and make repair a more attractive option than replacement. That means encouraging repair, refurbishment, reuse, remanufacturing and resale, rather than disposal and replacement.

While Ireland does not have a dedicated circular economy VAT regime, elements already exist within the current system. Certain repair services benefit from reduced VAT treatment, such as bicycle repairs. 

Ireland also operates the second-hand goods margin scheme, which allows qualifying dealers to account for VAT only on the margin earned on the resale of second-hand goods rather than on the full selling price. The original purpose was to avoid double taxation, but it now plays an increasingly important role in supporting second-hand markets.

The public has already shown an appetite for circular approaches as platforms such as Vinted have helped normalise the resale and reuse of goods. While private individuals selling used goods online are not operating the margin scheme themselves, the growth of second-hand markets shows the potential for wider economic activity that these rules help facilitate.

Sweden provides a good internation example: the country’s VAT system applies a reduced rate to certain repair services including clothing, footwear, bicycles and household linen. The explicit policy objective is to encourage repair rather than replacement and to keep products in use for longer. For Ireland, practical options include:

• broader reduced VAT treatment for repair services
• support for refurbishment activities
• incentives linked to remanufacturing
• reviewing margin scheme rules for modern resale models
• encouraging repair of consumer electronics

For Budget 2027, the strongest case is for measures that are easy for consumers to understand and practical for businesses to apply. That points towards repair and refurbishment services where the environmental objective is clear and the VAT treatment could be administered without excessive complexity.

Sustainable transport: a largely untapped area 

Compared with renewable energy, VAT has played a relatively limited role in supporting sustainable transport in Ireland. Beyond the reduced VAT treatment for bicycle repairs, there has been relatively little use of VAT incentives to encourage more sustainable transport choices.

Contrast this with Norway, where the Government has specifically identified taxation measures and incentives as one of the primary drivers behind the transition to more sustainable modes of transport.

For many years, electric vehicles benefited from significant VAT reliefs as part of a wider package of incentives designed to encourage adoption. These incentives formed one element of a broader strategy that has contributed to exceptionally high EV adoption rates. By the end of 2024, electric vehicles represented 88% of new passenger car sales in Norway, according to state figures. 

EV incentives are not the only approach open to the Government. Recent EU VAT reforms specifically expanded Member State flexibility in relation to bicycles and electric bicycles. While this does not automatically mean Ireland should reduce VAT in these areas, it does mean policymakers now have greater flexibility to consider how VAT might support sustainable transport objectives.

For Ireland, the clearest opportunities are likely to be measures that support lower-cost, lower-emission transport choices, such as bicycles and e-bikes, rather than broad reliefs that would be expensive and harder to target.