Energy tax adjustments for additional emission reductions. Estimated impact

On 26 April 2023, the government presented a package of climate measures in the 2023 Spring Memorandum. Part of this package is an increase in gas tariffs and a reduction in electricity Energy Tax rates, which should provide an additional emission reduction of 1.2 Mton. This study was commissioned by the Ministry of Finance to determine what the CO2 impact in 2030 could be of these tariffs from the Spring Package and four alternative variants. The effects of different variants were determined relative to established and proposed policies. Four of the five variants take a new first bracket into account.

According to this modelling, the energy tax rates from the 2023 Spring Package would result in an emission reduction of 0.4 to 0.7 Mton. This tariff structure seems unlikely to achieve the emission reduction of 1.2 Mton. None of the variants calculated with a tariff reduction in the new first tranche achieve the 1.2 Mton additional emission reduction. This is only achieved in the variant with increased tariffs in the new first and second tranches.

The actual impact depends on many factors, including price sensitivity, the policy reference, and elasticities. In addition, certain boundary conditions must be met to achieve the desired emission reductions. For example, these include electricity network capacity, availability of personnel, presence of infrastructure and opportunities to further modify behaviour. These boundary conditions must be safeguarded in policies to achieve the intended emission reductions.