Newly announced CO¬₂ Tax

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Newly announced CO₂ Tax

Climate Accord blog series

In the Climate Agreement, a new CO₂ Tax has been announced by the Dutch Government. In November this year the concept legislation that contains more details of this CO₂ Tax has been approved by the House of Representatives. On the 15th of December 2020, The Senate also approved the legislation which takes effect as of January 1st 2021. This legislation aims to achieve the reduction target for the Industry as laid down in the Climate Agreement, while the level playing field with neighbouring countries is affected as little as possible. However, this legislation still needs explanation by the Government on a number of points. Below we explain what you need to know about this new CO₂ Tax.

What is CO₂ Tax?

The Dutch government has set a 49% reduction target for CO₂ emissions in 2030 compared to 1990. The Climate Agreement includes agreements made to achieve this reduction target in various sectors. One of these sectors is the Industry Sector. In order to lower the “surplus” greenhouse gas emissions from industrial parties, a CO₂ Tax will be introduced on 1 January 2021. This tax is additional to the European emission trading system (hereinafter: EU-ETS) and aligns with this system as much as possible.

How does it work?

By taxing CO₂ emissions of installations in and for industrial production, the Dutch Government aims to stimulate reduction of greenhouse gas emissions in order to reach its goals as set in the Climate Agreement. The same emissions will be taxed as the emissions allowances which must be surrendered to the EU-ETS each year.

Taxable person
The proposed CO₂ Tax will be levied on the emissions of installations covered by the EU ETS in and for industrial production. This means that it is decisive whether the company’s emissions relates to industrial production, rather than only include the companies within the Industry sector – where the chimney of the installation is located – in the tax.

Tax base
The tax base for this CO₂ Tax is per year determined by the gross tax base, decreased with the allocated exempted emission in the form of dispensations rights in that year, decreased or increased with the transfer of dispensation rights in that year. A brief explanations of these terms are set out below.

  • Gross tax base
    The gross tax base of this tax consists of the CO₂ emissions of qualifying installations. The calculations to determine these CO₂ emissions will be based on the calculations of the EU-ETS. This means that the allowances which must be surrendered to the EU-ETS each year will be considered the gross tax base for this CO₂ Tax.
  • Freedom of allocation of exempted emission in the form
    of dispensations rights
    Companies are granted a freedom of allocation of exempted emission, which can be deducted from the gross base. The amount of these dispensation rights are based on which activity level an installation is located. An activity level of an installation within a product benchmark determines how much production takes place within that benchmark. The exemption of an installation is calculated each year by multiplying its own activity levels by the applicable EU ETS benchmarks, times the national reduction factor, which will be determined annually. 
  • Transfer of dispensation rights
    The proposed CO₂ Tax allows the transfer of dispensation rights between installations. This will be settled by decreasing/increasing the gross base by the total of deduction/surcharge related to the rights to be transferred.

Tax rate
The CO₂ tax rate will be EUR 30 per tonne of carbon dioxide equivalent from 1 January 2021. This rate will increase linearly by EUR 10.56 a year until 2030, so it will be EUR 125 per tonne of CO₂ in 2030. The self-assessment payment is not based on this CO₂ rate, though. Instead, it is based on the rate applicable in that year minus the EU ETS price of the same year. So, if the EU ETS price is higher than the CO₂ rate in the related year, a nil tax return is sufficient.

Comments on the concept legislation

Various commissions have been commenting the draft legislation, including the Nederlandse Orde van Belastingadviseurs (NOB). Some of the main comments and remarks on the CO₂ Tax legislation are as follows:

  • Many commissions ask themselves if it makes sense to introduce CO₂ Tax on national level rather than on international level, wondering what the effects of such a Tax will have on the CO₂ emissions and how big the risk on carbon leakage is.
  • The timing of the implementation; It could be decided to postpone the introduction of this new Tax, bearing in mind that companies already are in heavy times due to the COVID-19 situation.
  • Complexity of the legislation due to two national taxes that are linked with current system of EU-ETS.
  • In principle the tax is based on the EU-ETS, but sometimes this has been deviated from, which is not always justified properly.
  • Very high reduction factor might result in non-taxation for the first years for some parties, which might be undesirable in the context of the main goal.
  • The risk of carrousel fraud could increase.
  • The appointed implementing agency to levy the tax is the Nederlandse Emissie authorities instead of the Dutch Tax Authorities, which has much less experience with the formal legal aspects of collecting Tax.

In short, there is still a lot unclear and uncertain about the  CO₂ Tax legislation. Further discussions are yet to be held in order for the (lower)legislation to be clear and unambiguous. As such, it is imaginable that changes will be made in the CO₂ Tax legislation.

Role of Deloitte

Global Investment and Innovation Incentives (Gi3), our global team of scientists, engineers and tax/grants experts, support companies in obtaining cash for their past and future activities. Since the submission of the concept legislation, Gi3 has been actively involved in providing annotation the draft legislation via various commissions.

Given this expertise, Deloitte can support companies in the entire processes of the implementation of CO₂ Tax.

More information?

Do you want to have a personal discussion about the COTax or do you have any questions? Feel free to reach out to our expert below.

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