Dutch tax policy report and energy sector
In our earlier news item, we highlighted the recently published tax policy report from a Dutch independent working group consisting of top public service officials. This report focuses on possible improvements to the Dutch tax system, including measures to address climate and environmental challenges. In this update, we reflect on these policy recommendations.
According to the report, taxes are considered an effective instrument – if part of a good policy mix – to discourage polluting behavior by pricing the negative externalities of economic activities. Primarily, this gives polluters an incentive to change their behavior and reduce polluting production. The tax measure can also allocate the generated revenue for other purposes, such as funding expenditures or reducing other tax burdens.
The report underlines the overarching importance that the tax system should remain simple and understandable. Existing tax schemes could be revised or abolished to promote simplification and/or (at the same time) encourage sustainable behavior. In this context, the working group proposes several policy recommendations, some of which we explain below.
Phasing out fossil subsidies
Some proposals focus on the simplification of the tax system by phasing out fossil subsidies, as previously adopted by the Dutch House of Representatives in a motion. This phase-out should be carefully considered and implemented in conjunction with broader climate policy because abolishing a specific scheme by itself may not be efficient and/or effective. Other considerations such as burden sharing, simplification of the tax system and international competitiveness also weigh in.
The working group advocates international cooperation to phase out fossil subsidies. Since unilateral action by the Netherlands is not feasible in certain sectors like energy, aviation, and maritime shipping, the report promotes international collaboration in this matter.
Green taxation
As part of green taxation, the working group proposes the following measures, in particular:
– Differentiation hydrogen energy tax rate
Option 1: Hydrogen will get a separate rate in the energy tax (EB) from 2026. This rate will be lower than the rate for other gases.
Option 2: Only renewable hydrogen will get a separate rate in the EB based on a Guarantee of Origin (GOO). This rate will be lower than the rate for natural gas and other low-carbon gases.
– Reducing degressivity of energy tax
A study is underway on how energy tax rates can be adjusted to be more in line with the climate damage costs of different energy sources. These adjustments could lead to CO2 reduction and possibly simplify the tax system.
– Energy tax reduction upon ETS2 introduction
The proposed variant includes introducing separate rates within the energy tax from 1 January 2027 for natural gas delivered to ETS1 companies and ETS2 entities. The rate for natural gas supplied to ETS2 entities will be set at €0.28 per m3, while the rate for natural gas supplied to ETS1 companies will be €0.13 per m3. These tariffs replace the current degressive tariffs for natural gas. The tariff system for electricity remains unchanged, as does the tax relief per electricity connection. Annually, the forward rate for ETS2 emission rights is deducted from the rate for ETS2 entities. At a forward rate of €45 per tonne of GHG emissions, this would result in a tax relief of €0.08 per m3 of natural gas.
– Extending Co2 levy for industry
The working group discusses setting tariffs and phasing out dispensation rights for the CO2 tax after 2030. Four different approaches are proposed:
Measure 1: The number of dispensation rights for industry is gradually reduced, so dispensation rights will not be issued from 2038 onwards.
Measure 2: The reduction path of dispensation rights is accelerated, with the aim of having 2 Mton less dispensation rights available in 2032, and no dispensation rights issued from 2035 onwards.
Measure 3: The reduction path for dispensation rights is aligned with that of EU ETS. The carbon tax for industry no longer serves as an instrument for a more stringent national target, but acts as a minimum price in case of price fluctuations within EU ETS.
Measure 4: The CO2 tax is completely abolished and the Netherlands follows the EU ETS system.
– Extending Co2 levy greenhouse horticulture
A tariff study will be carried out, updated regularly, to determine the tariff needed in 2035 to achieve a maximum emission of 2.15 Mtonne in greenhouse horticulture. This rate will be incorporated into tax legislation, following a linear path from the rate in the year 2030, which is currently €17.70 per tonne of carbon dioxide.
The Dutch House of Representatives is expected to debate this report on 22 May 2024. Van Doorne is closely monitoring developments and is equipped to provide high-level advice to parties in the energy sector from a regulatory, tax and corporate law perspective.
For those interested in a deeper exploration of our findings or in discussing their potential impact further, we welcome your inquiries. Please feel free to contact us through the provided channels.
