How feasible is the EU plan to make citizens pay for their carbon emissions?

Published on: 21 December 2022

Current issues related to economy, (responsible) investment, pension and income: every week an APG expert gives a clear answer to the question of the week. This time: Peter Verbaken, Head of APG’s Commodities Team, on the feasibility of the EU plan to make citizens pay for their carbon emissions.

Currently, an emissions trading system already exists in the EU for large companies in a number of sectors. To be allowed to emit carbon, these companies need certificates issued by Brussels. Companies can buy the certificates and, if desired, trade them with other companies. By issuing fewer and fewer of such certificates, resulting in a rise in the carbon price, the EU hopes to reduce total emissions from industry each year. Incidentally, consumers themselves do not have to buy certificates to fill up their cars or heat their homes. That responsibility lies with gas stations and energy suppliers. Because they will most likely pass this on to their customers, European consumers are likely to pay more for fossil fuels for cars and heating from 2027 onwards.


“The EU is moderately leading the way in this, in the sense that a carbon tax is imposed on consumers. It is thus the first attempt to ‘green’ consumer behavior through policy in this way,” Verbaken explains. One difference with the existing emissions trading system is that with that there is always a concern about whether industries are not moving their economic activities to countries that do not tax carbon emissions. That makes implementing the system complex. “With this variant for consumers you don’t have that concern, because it applies to the whole EU and people here still have to take out an energy contract or fill up their car or charge it. What also improves the practicability is that it only involves energy companies and gas stations that have to buy the certificates and then pass the cost on to the customer. The number of participants is thus limited.”

With measures like this, it is important to offer people an alternative, Verbaken argues. “And those alternatives are there. To offset the carbon tax on home heating, consumers can insulate their homes or buy a heat pump. In addition, owning an electric car is becoming easier and more affordable, and thus increasingly an alternative to the combustion engine car.” The question, however, is whether these alternatives are feasible for everyone. “That should be evident from the details of implementation. The establishment of the Social Climate Fund, which is part of the legislation, should at least ensure that even consumers with the lowest incomes can go green. Because in the end, that’s what you want. If everyone keeps doing the same thing and just pays for the allowances, you won’t achieve much. By the way, the proceeds from the emission rights sold are used for innovation and sustainability. They’ve done a good job of that in Brussels.”

There are caveats built into the legislation so that the impact on consumers does not become too extreme

What does it mean for consumers? “Fuel for the car and energy for heating the home will become slightly more expensive. However, there are some caveats built into the legislation so that the impact on consumers does not become too extreme. This is partly due to the high price of energy last year. That is why the law will not take effect until 2027. Should energy bills be exceptionally high by then, the plan can be postponed for a year. And then there is the Social Climate Fund. In addition, Brussels is keeping open the possibility of making additional carbon allowances available in the event of a very high carbon price, which could reduce the high price somewhat.”

A possible sensitivity involved in directly taxing consumers’ carbon emissions is that at the same time there are companies and entire sectors that are not yet or only partially covered by the emissions trading system. Verbaken: “That is a bit of a political discussion, but in any case, it also has to do with the question of how simple or complicated the feasibility of such a system is. With the carbon tax for industry, there is a concern that companies will move to a place where there is no carbon tax. Then by importing the final product of such a company you would still be contributing to carbon emissions. The new legislation also tries to address this by introducing a so-called Carbon Border Adjustment Mechanism (CBAM). This should ensure that products shipped to the EU will still have to pay for carbon emissions at the border if these emissions have not been taxed sufficiently in the country of origin. Because its implementation is complicated, a trial will be set up in the coming years to show whether the CABM is feasible. This is not an issue with the consumer carbon tax, which is both feasible and practicable.”