Carbon price floor
The government is working hard to achieve its climate goals and has set new milestones to implement:
- a carbon price floor;
- a climate agreement; and
- the Climate Act.
Further, in a landmark judgment, The Hague Appeal Court recently ordered the government to do more than it currently does to combat climate change.
In its coalition agreement entitled Confidence in the Future, the current government agreed to introduce a minimum CO2 price for electricity producers in 2020. On 10 July 2018 the state secretary of finance and the minister of economic affairs and climate policy started a public consultation on a draft Act on a Minimum CO2 Price for Electricity Generation. The act would introduce a minimum CO2 price for electricity producers that fall under the EU Emissions Trading System (ETS). The minimum price would consist of a combination of the ETS CO2 price and, where necessary to achieve the minimum price, a national tax. The maximum CO2 price would increase to €43 per tonne in 2030.
On 10 July 2010 the minister also submitted a Frontier Economics report (Research on the Effects of the Minimum CO2 Price) to Parliament. The report shows that the net effect of the carbon price floor and the recently announced ban on the production of coal-fired electricity generation (for further details please see "Prohibition on coal-fired power plants") would be smaller than the net reduction of a coal ban in isolation, as electricity supply from Dutch gas and coal plants would be replaced by generation from other countries with a higher emission intensity. Moreover, a carbon price floor and coal ban would have significant effects on supply security, making the Netherlands more dependent on imports, especially in peak hours. Unsurprisingly, electricity producers and large industrial users have not been overly supportive of the bill.
A national climate agreement that will achieve the Dutch government's goal of a CO2 reduction of at least 49% (or 55% when this can be agreed EU-wide) by 2030 compared with 1990 levels and foster public support has been described as a herculean task (for further details please see "Towards a climate and energy plan: will Dutch polder model succeed?"). Although no agreement or agreement in principle exists to date, on 10 July 2018 the minister of economic affairs and climate policy published and submitted to Parliament a proposal for the main features of a climate agreement. In the proposal, the five sectors identified in the negotiation phase (ie, electricity, built environment, industry, agriculture and land use and mobility) have each come up with a raft of measures to achieve their sector goals and the overall goal of a 49% reduction in CO2 by 2030. These measures include:
- a dramatic increase in solar and wind power to 700 offshore wind turbines, 500 onshore wind turbines and 75 million solar panels (electricity);
- an effort to get 2 million houses off the gas grid, which will be incentivised by higher taxes on gas and lower taxes on electricity (built environment);
- large-scale electrification, carbon capture storage and energy savings (industry);
- geothermal and circular initiatives (agriculture and land use); and
- the large-scale electrification of vehicles and roll-out of charging infrastructure (mobility).
On 28 September 2018 the PBL Netherlands Environment Agency and the CPB Netherlands Bureau for Economic Policy Analysis published their assessments of the proposal (the latter's being a rather brief memorandum). PBL concluded that the proposal could technically achieve the 49% reduction goal, against annual costs of €3 to €4 billion on top of existing policies. However, whereas it has been made much clearer what needs to be done, PBL concluded that the proposal lacked clarity on how this could be achieved.
A further important step was taken on 5 October 2018 when the minister of economic affairs and climate policy submitted a letter to Parliament stating the government's 'appreciation' of the proposal. In the letter, the minister sent the parties back to the drawing board to come up with a final draft climate agreement with some additional government guidance. The letter clarified that more attention must be paid to:
- additional measures to achieve a 55% CO2 reduction; and
- new norms and pricing mechanisms to achieve the measures (in addition to the subsidies often sought).
Further, the division of the costs between households and industry, and the affordability of and public support for the measures, will be important factors in the government's ultimate decision. With respect to the proposed measures, the letter clarifies that:
- the government will stick to its plans to introduce a minimum CO2 price as of 2020, taking into account supply security concerns. Further, the SDE+ subsidy scheme should be unnecessary for renewable energy production after 2025 (electricity);
- the proposed rebalancing of taxes on gas and electricity with the corresponding increase in taxes on gas is considered too extreme (built environment);
- industry will not get the requested €1 billion in annual subsidies, but the SDE+ subsidy scheme will be opened for industry and a penalty mechanism, such as a CO2 levy, will be introduced to specifically target industry, whose proceeds will benefit CO2 reduction, to secure sufficient progress (industry);
- circular agriculture is the way forward, a reduction of methane emissions is important and timely choices must be made on the required infrastructure for CO2 and energy (agriculture and land use); and
- that electrification of new and used cars is the way forward. The government intends to stick to its plan to allow only 100% emission-free new cars from 2030 (mobility).
In the 5 October 2018 letter, the minister stated that he would like to have a final draft climate agreement in place no later than 1 December 2018, which will mean less than two months of additional negotiations.
In June 2016 a draft Climate Act bill was submitted to Parliament by representatives of two political parties that wanted to speed up the government's efforts to combat climate change and bring them more into line with the 2015 Paris Agreement. The bill enshrines an overriding government goal of reducing greenhouse gas emissions by 95% by 2050 compared with 1990 (consistent with what is deemed to be needed from the Netherlands as part of its obligation to meet the Paris Agreement target of a maximum global temperature rise of 2°C). There are two interim goals in this regard:
- the reduction of greenhouse gases in the Netherlands by 2030; and
- CO2 neutral electricity production by 2050.
The draft Climate Act prescribes five-yearly climate plans setting out the climate policy for the next 10 years to reach these goals. The first climate plan would need to be drawn up in 2019. With the current government's climate policy, including participation of the centre-left party Democrats '66, the chances of this bill making it to the statute book have increased dramatically (for further details please see "New government's ambitious climate and energy initiatives"). In June 2018 broad political support emerged, including support from the ruling coalition parties, when the goal for the reduction of greenhouse gases in the Netherlands by 2030 (compared with 1990) was lowered from 55% to 49%, which was in line with the current government's goals. Therefore, there is every reason to believe that this bill will quickly pass the House of Representatives and the Senate and become law as of, for example, 1 January 2019 (taking into account the dramatic 8 October 2018 Intergovernmental Panel on Climate Change report on the sense of urgency required to save the earth from a climate catastrophe).
Whereas the climate agreement and the proposed Climate Act set out overall goals for 2030 and 2050, respectively, Urgenda concerns the Netherlands' goals for 2020. On 9 October 2018 The Hague Appeal Court upheld a landmark judgment of the lower district court of June 2015 to limit the volume of Dutch annual greenhouse gas emissions by at least 25% by the end of 2020 compared with 1990 levels.(1) The appeal court based its wide-ranging judgment on the fact that the Dutch state has done too little to protect its citizens' international human rights to life and family set out in Articles 2 and 8 of the European Convention on Human Rights. The appeal court's judgment is unprecedented and historic. It will require immediate further measures by the government, such as the closure of the Netherlands' two oldest coal-fired power plants much earlier than before the end of 2024 as currently foreseen (for further details please see "Prohibition on coal-fired power plants") and may serve as a wake-up call for other governments worldwide.
For further information on this topic please contact Jan Erik Janssen at Stek Advocaten BV by telephone (+31 20 530 52 00) or email ([email protected]). The Stek Advocaten BV website can be accessed at www.stek.com.
This article was written by Jan Erik Janssen and Patou Courtens.
(1) An English translation of the judgment is available here.