Seven questions about the Dutch CO2 tax

Seven questions about the Dutch CO2 tax

The Netherlands has been applying a national CO2 tax since 1 January 2021, but industrial companies were immediately exempted due to Covid-19. Now political parties and environmental organizations are stoking the fire: it is time for the industry to pay, because the sector is running again. But what exactly does the Dutch CO2 tax entail? Seven questions about the CO2 tax.

What is it?


The Dutch CO2 tax obliges industrial companies to pay tax per tonne of CO2 they emit. That amount increases every year to encourage companies to take real CO2 saving measures now. Companies receive an exemption for part of their CO2 emissions. They therefore do not have to pay tax on this. The exemption is determined by comparing the company’s CO2 emissions with the most efficient companies in Europe.

How does the Dutch CO2 tax work?


In 2021, companies will pay 30.48 euros per tonne of CO2. After that, the rate increases by 10.73 euros every year. Companies that are also taxed through the European emission allowance system may deduct this amount from the national tax. For example, if an emission allowance costs 18 euros, companies pay 12.48 to the Dutch government instead of 30.48.

Which parties does it apply to?


This CO2 tax applies to all companies that now also have to deal with the European emissions trading system (ETS). These levies are supplemented by a tax on the emissions of nitrous oxide and CO2 from waste incineration plants (WIPs). That is to say: installations in industry, waste incineration and companies that use specific processes that release nitrous oxide. This levy also applies to ETS installations in the energy sector that produce heat for industrial use. This concerns approximately 300 companies and installations in the Netherlands. Want to know if you fall below? Check it out here on this flowchart.

Why is a national CO2 tax necessary?


The Climate Agreement states that Dutch greenhouse gas emissions must be approximately 95 percent lower in 2050 than in 1990. A 49 percent reduction is planned for 2030. Industry is responsible for 30 percent of national CO2 emissions. In nine years, the sector must reduce these emissions by 14.3 megatons. The national CO2 tax must ensure that the industry achieves this target. Large Dutch companies now pay little for their CO2 emissions compared to European peers. They also pay less than smaller companies and households, writes De Nederlandsche Bank (DNB) in the report The price of transition. Several countries are already taxing CO2 emissions through a direct method. The rates vary from 6 euros per tonne of CO2 in China to 112 in Sweden.

When will we notice the result?


Because many companies have been granted an exemption, the government expects that this scheme will only have consequences for companies that are lagging behind in 2024. The government opted for a cautious approach because of the effects of the corona crisis, but also because companies protested strongly against the levy. The companies are afraid that their international competitive position will deteriorate as a result. The FNV previously announced that they believe that the Netherlands should introduce compensation rules for metal and industrial companies, because otherwise we would lose thousands of jobs.

What is done with the income from the CO2 tax?
The CO2 tax generates tax revenue for the government. Those revenues can be used in a sustainable way, for example if they are used to support citizens for whom sustainable heating installations are too expensive. But it is not necessarily the case that the revenue from the levy should flow back to environmental issues. The money does not end up in a special pot.

What is the best route to take?


The royal route is Frans Timmermans’ plan: that all companies in the European Union will pay CO2 tax. Not just the industry. So that all companies pay for the damage they cause. In addition, the European Commission is considering establishing a Carbon Border Adjustment Mechanism (CBAM): a border tax for CO2. In this way, European companies should not suffer competitive disadvantages from stricter CO2 regulations.

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