Dutch Tax Policy Report And Energy Sector – Renewables

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.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.