Study after the impact of the Dutch CO2 levy

This report presents the results of a quantitative model study into the effectiveness of the Dutch national CO2 levy as an instrument for making the Dutch energy-intensive industry more sustainable.

The reason for this study is the concerns of the Dutch energy-intensive industry about a growing uneven playing field compared to other countries, partly as a result of the national CO2 levy, coinciding with insufficient prospects for action for various reasons when it comes to the realisation of sustainability projects.

The study used the TDES model, a purely economic decision-making model. The analysis focused on the impact of the national CO2 levy. It examined the choices companies make with regard to investments in greenhouse gas reducing measures and the scale of industrial activity in the Netherlands, thereby identifying the so-called leakage effect. The study thus further supplements the method used by PBL for, among other things, the preparation of the annual Climate and Energy Outlook (KEV).

The study concludes that a higher national CO2 levy seriously threatens the survival of energy-intensive industry in the Netherlands and will mainly lead to rapid, large-scale industrial leakage instead of actual reduction of greenhouse gas emissions.

The results of the study can be summarised as follows:

• With a low ETS price (in line with the PBL's low scenario) and no other changes, the national CO2 levy will lead to a decline of approximately 95% in energy-intensive industrial activity in the Netherlands by 2030;
• Because this reduction in activity will also lead to a decrease in industrial CO2 emissions, the reduction target for industry for 2030 will be achieved, but these CO2 emissions will be transferred in full to other countries within and outside the EU (the so-called carbon leakage). After all, demand for products will not change;
• In practice, the national CO2 levy therefore acts as a driver of leakage rather than a driver of sustainability in Dutch industry;
• The underlying reasons why the cessation of industrial activity emerges as the most economical choice in most cases are as follows:
  • The system of national CO2 taxation increases the operational costs of businesses, even at lower production levels;
  • In practice, supporting instruments such as SDE++ are insufficiently aligned with the investment needs and technology profiles of energy-intensive companies to make investments in CO2 reduction projects economically viable;
  • CO2 reduction projects are often not feasible (in a timely manner) in practice due to a lack of infrastructure (electricity, CO2, hydrogen) or licensing issues (nitrogen, lengthy licensing procedures);
  • A partial carbon reduction means that the national CO2 levy will continue to weigh on the remaining emissions;
  • According to the TDES model used, this will mean that most companies will reach a point around 2030 when their operations are no longer profitable.

• The rapid outflow of industrial activity from the Netherlands not only means that the expected revenues from the national CO₂ levy will not be realized, but also that other societal benefits and government revenues will quickly be lost.