Is abolishing ‘fossil subsidies’ necessary? Experts disagree

Also read: Almost half of fossil subsidies cannot be abolished quickly

The motion by D66 and GroenLinks was adopted by a majority on Tuesday. The outgoing cabinet must now draw up scenarios to abolish the tax benefits within 2 to 7 years. CDA and VVD also voted in favor, albeit with the same comments as Jetten. VVD MP Silvio Erkens stated that he did not agree with an abrupt reduction. That would drive companies across the border. “With that we would be cleaning up our own street and not helping the climate.” But the research could help to have a “more focused discussion” about which tax benefits do stand in the way of sustainability.

In response, the biggest critic of fossil subsidies, the action group Extinction Rebellion, announced that it would temporarily stop the daily occupation of the A12 in The Hague. In their view, the motion brings abolition closer and then daily demonstrations will no longer be necessary.

Emissions ceiling

But if it were up to the energy experts, it is oversimplified that abolishing tax benefits helps the climate. Large industrial and energy companies are already being forced to reduce their greenhouse gas emissions to zero by 2040. And that is thanks to an essential part of European climate policy that is often forgotten in the discussion, they believe: the European Emissions Trading System, or ETS .

The ETS sets a maximum on how much certain industries may emit within the European Union. That emissions ceiling will gradually decrease until no new allowances are issued in 2040. “That ensures that we have the CO₂targets before 2040,” the energy experts write.

If the Netherlands implements stricter policies on its own, for example by abolishing fossil tax benefits, the total of permitted emissions in Europe will remain the same. If companies in the Netherlands use less CO₂ emissions, this means more emission space for companies elsewhere in Europe. Then a refinery in Belgium, for example, will produce more.

“If you want to accelerate the energy transition, you do so through the ETS, not through the abolition of fossil subsidies,” says Frans Rooijers in an explanation. “Don’t pile measures on Dutch industry. Then you put them at a disadvantage. To reduce CO₂emissions, it is not necessary,” says co-author Jos Cozijnsen of Climate Neutral Group.

Climate Minister Rob Jetten (D66) also said something similar earlier. In the study into the level of subsidies, he noted that the ETS, among other things, “in itself provides a sufficient price incentive for companies to reduce their emissions.”

Footnote

Other experts again comment on the position of the energy experts in ESB. Daan van Soest, for example, professor of environmental economics at Tilburg University. He is one of 21 authors of a op-ed that in September The Financial Times was published, calling for an end to fossil subsidies as quickly as possible. Because they undermine climate policy. “It’s like turning on the air conditioning and heating at the same time,” he says. The signatories include many economics professors, such as Reyer Gerlagh, Rick van der Ploeg, Wendy Janssens, Arnoud Boot, Bas Jacobs and Sweder van Wijnbergen.

Van Soest points out, among other things, that there are still many sectors that are not covered by the emissions trading system, even though they do receive subsidies. The alleged incentive to reduce emissions is therefore absent there anyway.

He mentions agriculture, among other things. “These subsidies really do make a difference here, in a negative sense.” Now about 40 percent of all CO falls₂emissions under the ETS. In the long term this will be more than 60 percent, the energy experts write in ESB.

But more importantly, he says: without fossil subsidies, the phasing out within the emissions trading system would also be faster. “There is now a basic path in which the number of available emission allowances is reduced to zero until 2040. But there is also a possibility built in to accelerate that path, if the European Commission sees that rights remain unused. Then the Commission issues fewer allowances the following year than planned. Fossil subsidies actually drive the demand for rights.”

Moreover, he does not believe in the waterbed effect: if a factory in the Netherlands produces less CO₂ emissions, a factory elsewhere in Europe cannot simply run faster. “Take a blast furnace in which steel is made. This is usually on or off. You can’t just give 20 percent extra gas with such an oven.”