Carbon Tax Policy Brief for Netherlands
Lulu Yu Eva Wu
The Coverage of RET
The regulatory energy tax (RET) was forced to implement on January1, 1996 in Netherlands as a consequence of the Netherlands’ second National Environmental Policy Plan. In order to avoid economic risk the initiate RET was mainly focusing on small scale energy consumption for large industrial energy user. The main purpose of the tax was stimulating additional energy conversation.
The implementations of the RET were generally consisting of two parts: before and after 2004.Before 2004 there was a Benchmark Protocol which proving effective in inducing large energy consumers to save energy, exposing them to the economic risks of an unilateral tax was felt to be unwarranted. So the main fuels being taxed before 2004 was small scale energy like NG (natural gas) and mineral oil products which can be used as substitutes for gas by households. Apart from this, mineral oil products which can be used as substitutes for gas by households or small commercial establishments are also taxed (home heating oil, light fuel oil, non-transport applications of LPG/butane/propane). RET is expected to generate extra energy conservation majorly through the price impact on the demand side. After 2004 also the large scale energy consumption is brought under RET on the basis of the implementation of the new European directive on energy taxation and the incorporation of a part of the tax on fuels in the RET. In order to prevent double taxation, natural gas used in the generation of electricity is exempted. Also fuels used to power road vehicles are not subject to this regulatory tax. Besides the greenhouse horticulture sector in the Netherlands is characterized by a unique combination of features. The European Commission allowed the use of the zero-rate until the end of 1999. Nevertheless, beginning in 2000 the greenhouse horticulture sector also have to pay a (also in 2004 still rather low) tax on natural gas and mineral oil products.
RET was first introduced in1996 .However, at first the tax was aimed to influence behaviour. Then the tax rate was gradually into force. Zero-rate and waste incineration plants for electricity were introduced in 1998. Then in coming 1999 several new tariff groups were introduced. Because of the faster growth of the use of electricity than of the other products, the tax rate for electricity had a big change in 2000. During 2001-2003 there were also some changes in the tax rate. In 2004 most of the tax was stopped because of the European directive tax on energy was implemented.
Compared with the previous tax system (for example the Fuel), RET is a stronger tax system for small scale NG consumption. However, RET converted the tax policy from “input” tax to “output” tax. Instead of tax NG input for producing electricity, RET tax on per unit of energy content. Therefore, RET failed to provide direct incentives for electricity producers to reduce co2emissions by substituting input.
Distributional Effects of RET
In 2004 RET generate the most part of environmental tax revenue reached at €3213 billion, which occupied the 3% of total tax in Netherlands.The main purpose of RET is to reduce the consumption of “grey” energy by household and small business. According to the CPB calculation, € 1.4billion additional tax revenue will lead to a reduction of 1.7-2.2Mton co2 emissions. In addition, the tax stimulate users to choose alternative sustainable energy, which have positive impacts equal to reduction of 0.7-6.5 Mton CO2 emission.
On general, this policy has many positive effects. Firstly, the tax raised a large amount of tax revenue and many of them are being recycled back to taxpayer (both household and business). For households, they changed the personal income tax like reduction in the rate charged over the first income bracket. For business, there were two main ways. The one was a reduction in the wage component paid by employers to cover social premiums paid by employee tax deduction for energy investments. The other was the accelerated depreciation of investments in environmental equipment and the tax deduction for energy investments. Secondly, the RET actually finished the goal which was the CO2 emission reduction increases from the initiate 1.7 to 2.7 million tons by the end of 2000. Thirdly, the tax and recycling had some positive effects on job creation.
RET is an innovative instrument created to balance budget (green tax reform).RET introduced some abatement incentives by subsidising the non-fossil fuel products. First, parts of the revenue raised by RET used to subsidize households of using energy efficient products .Since 2000, government introduced the “energy premium” to provide positive fiscal incentives for green energy users. For example, using solar power for buildings can receive benefit. Simultaneously, firms who use solar power, biomass, and wind for electronic generation can obtain the subsidies. Second, the revenue is used to reduce the income tax and corporate tax, which help alleviate the impacts from other taxes. For example, government reduce the tax rate for lower income group and decrease income tax for senior citizens. Third, the revenue reinvested in the environmental equipment to improve energy efficiency. The government provide free-interest for certain environmental investment.
RET stimulated the long-term growth of innovations by different fields in Netherland. According to the research, RET combined with previous policies help Netherland improve the energy-efficiency technology in various industries, including instance insulation, high-efficiency boilers, solar energy and lighting. For example, Phillips has become a pioneer in the lighting industry, which is due to the positive impacts of the environmental policy.
Actually, the RET policy has significant impacts on the energy price and labour market. First, higher energy price could induce extra investment. One the one hand, the extra jobs will be created in the service and construction sector. On the other hand, labour shortage might occur in the labour market. Second, instead of the direct investment in job creation program, the RET created a modest way to keep balance social benefits among different groups. For example, direct subsidies will the purchasing power of lower income groups, which is not beneficial for the development of labour market. Third, the RET tried to reduce the risk of double compensation for employees. For example, if employees claimed extra compensation for their cost on energy my increase the overall wage rate, which increase cost for employers and create difficulties on job creation.
Resources:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=500863
http://ec.europa.eu/research/energy/pdf/nn/the-netherlands_annex-viii-report_en.pdf
http://www.wind-works.org/FeedLaws/Netherlands/NLEnergytax2004.pdf
http://www.wind-works.org/FeedLaws/Netherlands/NLgreentaxes2.pdf