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Use a pan European minimum carbon tax to finance the €750 billion Corona costs

In order to implement the European Commission's proposal on the corona crisis package, agreement between the 27 countries of the Union is required. This is the condition because it is about fiscal policy and taxes, where the member states have exclusive control so far. Sweden, and other countries, will be able to use the veto power and this gives each member state an excellent negotiating situation.

Gustav-Kjell

Gustav Melin, CEO, and Kjell Andersson, Policy director, Svebio.

It is time for constructive negotiations and solidarity between the European countries. But it is also important to focus on the long-term needs for energy transition and the climate targets when designing the policies for restart of the economies.

The moment should be used to push for more efficient carbon pricing in Europe, to introduce carbon pricing for the whole economy, not only in the emission trading sector (EU-ETS). The majority of the carbon emissions is outside the EU-ETS and many EU member states already have carbon taxes in other sectors, but most still don’t.

The European Commission in its proposal wants more climate taxation that goes to the EU to assist the countries most affected by the corona crisis – directly and indirectly. Both carbon dioxide tax and plastic tax have been discussed according to media reports. The Commission wants to expand emissions trading in the fields of aviation and shipping and raise the money directly to Brussels. It also wants to impose a carbon dioxide duty on imports from countries that do not price carbon dioxide emissions.

The proposals so far are too limited, but it must be noted that the Commission finally recognizes that it is not possible to implement the EU’s ambitious climate policy without more general economic incentives. Although there is no concrete proposal on the table yet, a common carbon tax is in the cards.

Sweden has been working on carbon dioxide taxation since the early 1990s. This is a main explanation for the fact that Swedish greenhouse gas emissions have decreased by 30 percent, when at the same time GDP has grown by 70 percent in real terms and the population has increased by 20 percent. The carbon dioxide taxation is also a major explanation for why Sweden were able to successfully build a domestic supply of bioenergy, complemented with some imports.

Bioenergy is today by far Sweden’s largest source of energy. But the Swedish work on carbon dioxide prices has in recent years encountered recurring problems in relation to the European Commission.

The combination of an outdated energy tax directive, the EU Commission’s formulation and interpretation of state aid rules without regard to climate effects, and lock-ins around the view on various biofuels, have created a situation where Sweden has repeatedly been forced to compromise its own principles on carbon taxation.

It is now time to once and for all take a stand on European level in favor of carbon taxation.

Our proposal is:

  • . Introduce a common carbon dioxide tax at a minimum level, applicable to all EU member states and all sectors outside the EU-ETS emissions trading. Some or all of the proceeds can go to joint support for the most vulnerable EU countries and regions, just as the Commission wants, and should preferably go through a special fund, in addition to the EU budget ordinances. It is recommended that the minimum level should be at least EUR 25 / ton CO2, the current level of the emission allowances in ETS.
  • Provide full freedom for all Member States to levy carbon tax beyond the common minimum level. Sweden must have the full right to retain today’s carbon tax of around 115 euros / ton, and if Sweden raise the national tax to 125 euros / CO2 ton, the level becomes 150 euros / ton, of which 25 euros goes to the EU.
  • Accept a common carbon dioxide duty (carbon border adjustment mechanism) going to the EU. Logical because we have a common trade policy in the EU, and customs can be used in negotiations about trade policy and global climate policy.
  • Requests an EU decision that Sweden and all other EU countries should freely be able to use the carbon tax instrument as part of their climate policy and, of course, exclude all biofuels and biofuels that meet EU common sustainability criteria from taxation. A consequence must also be that the ceilings and quotas that limit the use of certain biofuels are removed. The sustainability criteria needed are those that are negotiated in the Renewables Directive and are about protecting the environment and biodiversity, preventing deforestation, etc.

An agreement such as the one we propose will require a new Energy tax directive and revisions to other directives, notably the Renewable energy directive. But a clear message from the heads of government and the European Parliament in a negotiation of the EU’s corona support package would pave the way. And from now on Sweden and other countries should be able to use carbon taxation without any restrictions from state aid rules: full carbon tax on fossil fuels and no tax on bioenergy.

Sweden’s and other climate progressive members state’s contribution to the negotiation would, with our proposal, tighten climate policy throughout the EU, while they jointly and in solidarity stand by other hard-hit member countries.

Gustav Melin, CEO, Svebio
Kjell Andersson, Policy director, Svebio   

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