European CO2 pricing better than national approach

09/10/20

Green Deal Monitor

On Budget Day (‘Prinsjesdag’), the Dutch government submitted a bill that would allow the introduction of a Dutch CO2 tax for the industrial sector. According to PwC Partners Niels Muller and Gulbahar Tezel taxing CO2 emissions can be a great tool for reducing those emissions. However, they prefer a tightening of the European Emission Trading System (EU ETS).

Niels Muller and Gülbahar Tezel conducted a level playing-field study for the Ministry of Economic Affairs and Climate Policy. The study was published on Budget Day at the same time as the proposed legislation for a CO2 tax. The comments of tax specialist Niels Muller and economist Gülbahar Tezel on the proposed Dutch legislation and on the subsidies that are planned to counteract leakage effects are reflected in level playing-field study and in the latest edition of PwC’s Green Deal Monitor.

International tax is most efficient

One of their main criticisms of the Dutch national approach is exactly that it is national. A CO2 tax is most efficient if it is implemented internationally, preferably globally, but at the very least at a European level. The risk of a national approach is that economic activity, and with that its emissions, will move to other countries. The European Union has had a system of pricing greenhouse gas emissions since 2005 through the EU Emissions Trading System (EU ETS). In the week of the Dutch Budget Day, the European Commission also announced a tightening of the EU ETS.

Comments on mitigating subsidy schemes

National subsidies that support the industrial sector in making its production processes more sustainable can mitigate this risk. However, the subsidy system would only be effective if sufficient money is available and if the companies that are subject to the CO2 tax can actually make use of it. Gulbahar Tezel en Niels Muller further explain in the Green Deal Monitor that clarity about the (future) availability of sustainable infrastructure is also very important for keeping industrial production in the Netherlands.