Tax on energy - the facts

10-11-2015

Energy tax: a good idea or not?

The government is in consultations with the Senate about a new Tax Plan. In this context, State Secretary of Finance Wiebes is considering increasing the tax on natural gas by five cents per m3 and to offset this with a reduction in tax on electricity. Is this a good idea? Recently, two articles on this subject were published on www.energiepodium.nl. One by supporters of such a tax, Sible Schöne, director of the HIER Climate Agency, and Frans Rooijers, Director of CE Delft, and an article against the tax, by Martien Visser, Lector Energy Transition & Network Integration, Groningen University of Applied Sciences. Decide for yourself.

Letter by Martien Visser, Lecturer in Energy transition & Network integration, Hanzehogeschool Groningen

Every so often, the case for a substantial increase in the tax on natural gas comes up again. In a recent report, for example, renowned consultancy CE Delft stated: "The current energy tax on electricity is 5 times higher than on natural gas". Of course, everyone is allowed to have an opinion on the issue. It also highlights a social problem, as people with little money often live in badly insulated houses. And for the beautiful swimming pool in Zuidlaren, where I was a volunteer board member for many years, it would have meant bankruptcy. These are details that must be ‘resolved’, shall we say. But first: is the argument true?

If calculated per tonne CO2, the difference between the tax on electricity and gas is significantly lower. Later on, the report reads that the energy tax for gas is €119 per tonne CO2, and for electricity €254 per tonne of CO2. This is a factor of two difference.

But even these figures are not correct. The (high) rate of energy tax on electricity only applies in a very limited number of cases. Over 10,000 kWh, the rate is reduced by 60% and over 50,000 kWh, this reduction goes up to 90%. For gas, you pay the high rate up to (after conversion) 1.5 million kWh.

"It is therefore a good idea to tax CO2 emission, regardless of the form of energy we use. But then we also have to tax all of it"

Another important difference is that per electricity connection, users get a €318 energy tax refund, while there are no refunds for gas. As a result, you pay €50 (net amount) in energy tax for 3000 kWh of electricity, while the same amount of gas would cost you €80.

We need to reduce our CO2 emission. It would therefore a good idea to tax CO2 emission, regardless of the form of energy we use. But then we also have to tax all of it. This means not just equalizing the high rates, but also offering a €318 refund for each gas connection every year, and giving gas users a 60% discount over 10,000 kWh as well, increasing to a 90% discount over 50,000 kWh. This proposal also limits the social problems and helps the pool survive. Vice versa, the decision can be made to treat electricity and gas the same: by abolishing the annual discount of €318 and remove the lower rates over 10,000 kWh.

And this brings me to the height of the energy tax. What is a reasonable rate? The price for CO2 rights on the market is less than €10 per tonne. Estimates of the social costs of CO2 emissions range from approximately €50 to €200 per tonne. We could follow the market, but it is widely accepted that this price is too low: the price should have to be at least €30, and even higher if possible. There is enough reason to choose a higher level of CO2 taxation than the market rate, one that is more in line with the social impact of CO2.

In short: The energy tax on natural gas will not be structurally higher than the tax on electricity. There are good reasons to equalize the rates per tonne CO2 and also equalize the other preconditions between the two fuels. A generic amount of €100 per tonne CO2 would not seem unreasonable to me.