Energy - Budget 2026

KPMG insights – our view

Despite the recent policy shift in the United States and the reemergence of the “drill, baby, drill” culture that will undoubtedly slow or alter the green transition across the Atlantic, this trend is clearly not replicated across the globe. In 2024, renewable power capacity globally rose by about 15% year on year, reaching almost 4,500 gigawatts.

The bulk of that growth came in Asia where China remains the powerhouse of renewable energy investment, pushing huge scale in both capacity additions and grid modernisation. In the first half of 2025 alone, China added 268 gigawatts of renewable capacity (for context the total electricity generating capacity from all sources on the island of Ireland is approximately 17 gigawatts).

Europe was the second largest contributor to renewable energy growth in 2024 adding 12.3% capacity year on year with Germany, Spain, France and Italy leading the way. There is clear evidence from these case studies that countries and regions with strong access to financing, streamlined regulatory frameworks and investment incentives are those who are achieving most success in the green transition.

Ireland & carbon targets

Ireland is forecast to fall well below its 2030 target of a 51% reduction in carbon emissions and clearly needs to act faster to meet both National and EU targets.

Tax policy and tax incentives can play an important role in incentivising investment into green projects and reducing carbon emissions. In the past, we have used tax policy to regenerate urban and rural areas, create financial services and manufacturing hubs, build hotels and student accommodation, and reduce the consumption of plastic bags.

When used appropriately, tax policy can drive investment quickly into the right sectors of the economy and change social behaviours overnight.    

Inflation Reduction Act & the European Green Deal

Although the sitting US president is busy dismantling the Inflation Reduction Act (IRA) measures introduced by the Biden administration, after the IRA was introduced into law in 2022, there was clear evidence that it was driving clean energy investment in the US.

Groups like Audi, ENEL and BMW had all announced plans to invest in manufacturing facilities in the US and cited the IRA and its incentives to foster domestic production of clean energy equipment as the catalyst for these decisions.

The European Green Deal (seen as the EU’s version of the IRA) has introduced pro green tax measures (such as plastic taxes and the carbon border adjustment mechanism) and in July 2025, the Commission recommended the use of tax incentives such as accelerated depreciation and targeted tax credits to promote investment in clean technologies, renewable energy and energy-efficient machinery.

The evidence is out there that these types of tax policy can foster investment, and the EU Commission is clearly promoting the use of tax policy to aid the green transition. 

Our pre-Budget recommendations

Under the banner of supporting the green transition, the following recommendations for Budget 2026 were included in KPMG’s pre-budget submission:

• Increases to the tax-free lump sum payable on retirement when some or all of the lump sum is derived from approved ESG funds.
• The introduction of a tax exemption for interest earned by individuals on “green” bonds.
• The reintroduction of a tax deduction to companies who invested their own cash in renewable energy projects and a broadening of the relief to include investments in energy-efficiency projects such as retrofitting of commercial buildings.
• Increases in the R&D tax credit rate for expenditure incurred on R&D carried out on green technologies.
• The introduction of a super-deduction (for instance 150% of expenditure incurred) on energy-efficient equipment, EV charging stations and onsite renewable energy installations.
• Changes to BIK and VAT rules to ensure that individuals are motivated to buy electric vehicles and use bicycles or public transport where possible.

Meeting EU targets

Although we welcome the changes announced in this year’s Budget, we would encourage the Department of Finance to consider what new measures can be introduced, as given our current trajectory, we are unlikely to meet our EU targets.

While there are costs associated with the introduction of new tax reliefs, those costs must be measured against the financial penalties that would be imposed if EU-mandated targets are not met in the future. A report issued by the Fiscal Advisory Council and Climate Change Advisory Council in March of this year estimated those costs to be between €8bn and €26bn.  

These costs (and the other costs for businesses and individuals of climate change) should not be ignored in arriving at a balanced budget.