‘CO2 tax could solve the climate problem’
Today, a proposal for tax on all CO2 emissions is presented in the Dutch Parliament’s Lower House. It is a kind of VAT on greenhouse gas. Climate decaying products, such as coal power will become more expensive, climate friendly products, such as wind power will not.
The business community reacts rather enthusiastically, but it would only become effective if at least Belgium and Luxembourg but also France and Germany are joining in.
Based on VAT system
The new tax could be called VEK (Vergoeding Extra Kosten) or REC if you translate it in English: ‘Recompense of Extra Costs’ and is based on the example of the old VAT. Under a ‘REC’ tax system, each producer must state how much greenhouse gas his production process produces.
These emissions are taxed as soon as a company sells a product or service, just as it is now with VAT. If a kilo of CO2 is emitted for a product, a REC levy is charged on that kilo.
Fairer than ETS
The Dutch government sees it as a fairer variant of the tradable emission rights system, ETS, that the EU has in place since 2005. Large companies must have an emission right for every ton of CO2 they want to emit, which they still often receive but sometimes, and increasingly, have to buy.
However, this ETS system only applies to large companies. The emissions of all the smaller companies remain outside the scope of this system. This can distort competition, especially if the price of emission rights rises.
Extra climate charges
How high the tax should be depends on the desired effect. The tariffs that are currently circulating for some products are 25 euro per ton (the price level of the current emission rights), 100 euro per ton, and 250 euro per ton, which will ultimately be necessary to achieve the Paris climate targets.
At the highest rate of REC, the tomato with the most CO2 (a tomato from a gas-heated Dutch greenhouse) would be around 16% more expensive than one of a more climate-friendly competitor. A train ticket Amsterdam-Berlin will be 8% more expensive, but the flight ticket for the same distance 85%.
Lower incomes suffer
The REC system seems to be a possible solution to distribute the climate costs fairly among companies, but do people with lower incomes – after all, the consumer pays for the entire CO2 emissions throughout the chain – not risk getting into trouble because of more expensive energy? For example, the lowest incomes would have to pay up to 17% of their income to climate charges.
Frans Rooijers, the chairmen of CE Delft, an independent consultancy firm specializing in the development of innovative solutions to environmental and sustainability issues and which has developed the REC system, says that this problem can’t be solved with the REC. Rooijers advocates for the introduction of an energy surcharge.
Costs in the price of the product
Rooijers doesn’t see the REC as an extra tax either, although he admits that it should have been called ‘tax added greenhouse gas’ (VAG). “We don’t want to call it that way, though, because the word ‘tax’ suggests that it is meant to raise money for the government.
That is not the case. It is only meant to include costs in the price of the product. The money flows to the treasury anyway but it is up to the politicians to spend it.
Rather enthusiastically received
The idea of the REC tax is rather enthusiastically received in the Dutch business community. It does not make exports and imports more expensive because the importer of the product can simply get back the REC, just as it currently works for VAT.
You can also work with standards. For example, it is known how much small companies emit on average. If a small entrepreneur can demonstrate that he emits less, because he uses renewable energy, the contribution will be lower for him, so his product becomes cheaper.
Climate issue can be settled
CO2 levies already exist in France, Finland, Ireland, Switzerland and elsewhere. Nevertheless, Rooijers would prefer to see a REC introduced throughout Europe but it is not necessary.
The Netherlands alone are too small, the Benelux actually too but together with countries, such as Germany, Scandinavian countries and maybe France, would be best. After all, with a single tax, a tax on all CO2 emissions, the climate issue can be settled.