This week, the House of Representatives is asking the government for various phasing-out scenarios for fossil subsidies, tax breaks that encourage the use of gas, oil and coal. But stopping those fossil subsidies will be a ‘brain teaser’, the Netherlands Environmental Assessment Agency (PBL) and the Central Planning Bureau (CPB) say in a new report today.
The agencies present their own sum of fossil subsidies in the Netherlands, with a different approach than many previous studies, such as that of outgoing minister Jetten. He arrived at 39 to 46 billion euros. Jetten, like environmental groups, calculated how much the treasury is potentially missing out on in tax revenue due to all kinds of discounts and exemptions, such as the low tax that industry has to pay on gas.
That approach is useful, but far from sufficient, says this new research, especially if you want to know which tax schemes you actually need to quickly adapt for the climate. Suppose you suddenly make fertilizer manufacturer Yara pay the same amount of tax on its gas as citizens. “Then much of the industry simply closes down, and you don’t get that income,” says researcher Herman Vollebergh. In addition, at Jetten, several billion-dollar items are classified as fossil subsidies, such as low rates for electricity for industry, which can actually promote the energy transition.
Amount linked to CO2 emissions
The PBL and CPB researchers therefore focus on the question of how good (or bad) the taxes are, looking at the climate damage caused by emissions. Take marine and aviation fuel, largely exempt from taxes and duties. Looking at the climate damage, you would actually have to tax 5.8 billion euros per year in the Netherlands. The researchers arrive at this figure by linking an amount to the damage caused by climate change due to the CO2 emitted. The advantage of this calculation method is that it filters out the tax regulations that most hinder the energy transition. “Which is useful if you want to know which subsidies you want to phase out,” says Vollebergh.
The low tax that industry pays for gas is also inadequate when you look at the climate damage caused by companies’ emissions. If the government did price them adequately, it would cost the industry 2.4 billion euros annually, money that the government could use for sustainability. Gas and coal use in the production of electricity – now exempt from tax – would also generate 2.5 billion euros annually if adequately taxed.
It does not benefit the climate if people fly from Germany or Belgium
Vollebergh, who has been involved with fossil subsidies since the 1990s, is pleased that the discussion in the Netherlands has gained momentum in the past two years and that politicians are looking at ways to phase out fossil subsidies. However, he was sometimes bothered by the rushed nature of the discussion, with the focus often on the increasingly higher amounts that were being revealed.
Phasing out will not be easy, says Vollebergh. For example, the tax benefits for shipping and aviation are laid down in international agreements. You can’t adjust that quickly. The Netherlands could possibly charge many euros more in taxes per airline ticket for fair climate pricing. “People will then fly from Germany or Belgium, and then it will do nothing for the climate.”
According to the PBL, another major fossil subsidy is the large pile of free allowances for industry in the European emissions rights system. If this were priced, it would be worth 2.1 billion per year in the Netherlands. But according to Vollebergh, this is simply a ‘flaw’ deep within the European system.
Refineries, among others, should pay fairer prices
Nevertheless, the researcher calls for further action in phasing out fossil subsidies from the Dutch government and especially from the next cabinet. There are also numerous tax schemes that do not yet fairly price climate damage, while this could easily be done. Vollebergh mentions the exemption for refineries. Industry should (and could) also pay a higher tax rate on gas, and the generation of electricity with coal or gas should no longer be exempt from taxes. In addition, the Netherlands can work even harder in Europe for a joint approach to fossil subsidies.
The government has already initiated the phasing out of a number of Dutch fossil subsidies. According to Vollebergh, this can be improved further, especially in the form of tax reforms that further encourage the sustainable economy of the future. “For example, there could be a committee that would look at the way we tax electricity. Companies and households can be more encouraged to switch to sustainable energy or heat pumps through tax schemes.”
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