Pros and cons of a modified energy tax. Exploring a policy instrument for energy conservation

It became clear in 2022 that high natural gas prices were causing many energy users severe financial hardship. As a result, there is currently a debate on whether groups of energy users can continue to be compensated for the high price of gas. Higher natural gas prices are inevitable to achieve a rapid reduction in CO2 emissions. Not as high as now, but higher than in 2021. Higher prices make investments in climate measures cost-effective at a faster rate. This presents the cabinet with a complicated task: on the one hand, ambitious climate targets must be met and a higher gas price accelerates the transition and, on the other hand, end-user costs for households and businesses must remain reasonable.

The Netherlands Association for Sustainable Energy (Nederlandse Vereniging Duurzame Energie, NVDE) asked CE Delft to investigate whether the introduction of a variable energy tax could help to achieve an energy transition in the built environment while keeping costs reasonable for end users. By adjusting the energy tax – if market prices fall again – the government can achieve a more stable gas price, giving consumers investment security for sustainability. Setting a minimum price through the energy tax will provide extra government revenue when gas prices fall. This extra revenue can be used to offset energy costs for certain groups. Targeted compensation from that extra revenue ensures that consumers can pay their energy bills without high costs for the government. This report examines the advantages and disadvantages of this policy tool.