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.”