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Phasing out tax breaks on fossil fuels enjoyed by the transport sector and heavy industry is complex and will always benefit the environment anyway, say scientists and economists at two government think tanks. That’s not necessarily the case.
Earlier this week, parliamentarians voted in favor of ending benefits given to some companies for their use of fossil fuels, prompting protest group Extinction Rebellion to hold a series of demonstrations on the A12 motorway in The Hague. The lockdown was canceled.
According to the Cabinet, direct and indirect subsidies for fossil fuels cost between €39 billion and €46 billion a year.
Dutch environmental assessment agency PBL and macroeconomic advisor CPB investigated what subsidies and tax breaks are available and what impact they may have on the environment.
“It seems simple, but there are many challenges,” the researchers say.
Researchers suggest that direct tax cuts and subsidies amount to around 17 billion euros per year. This figure excludes secondary benefits such as vans not being subject to road tax and companies that use oil to produce plastics also benefit from certain tax breaks.
The report concluded that officials should be careful “to avoid turning off the wrong switch.” For example, an increase in electricity taxes for large users would make the transition away from gas-fired power plants even more costly.
Instead, it recommends targeting electricity producers by taxing electricity produced from gas and coal more heavily. Doing so could encourage the use of more sustainable methods and accelerate the transition to clean energy, the researchers said.
The report suggests that attention should also be paid to emissions that have not yet been taxed. Aviation and shipping are both exempt from fuel taxes, and Europe’s emissions trading system, which effectively buys companies the right to pollute, also allows heavy industry to avoid energy taxes.
Researchers say such measures need to be addressed at European level.
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