Exploration of a Primary Fossil Resources Tax

Fiscal policy is regarded as one of the potential measures to accelerate the transition toward a circular and climate‑neutral economy. A levy on the use of primary fossil resources — applied at the beginning of the value chain — is viewed as a potential instrument.

Commissioned by the Ministry of Infrastructure and Water Management, Copper8 conducted an exploratory study on the feasibility and effectiveness of abolishing the tax exemption for the non‑energetic use of natural gas and coal, and introducing an excise levy on the non‑energetic use of crude oil (primary fossil resource tax).

Based on the current tariff levels applicable to energetic consumption, abolishing the exemptions for non‑energetic use would generate €7.867 billion in annual tax revenue.

The impact of this cost increase — a 23.3% rise in costs for the chemical sector in the Netherlands — was analysed using an EEMRIO model. This analysis shows that the cost increase primarily leads to price‑raising effects in the chemical and related industries in the Netherlands and neighbouring countries (Belgium and Germany). The price increases and corresponding reduction in demand lead to a reduction of 2.78 Mton of annual CO₂ emissions. Substitution or leakage effects were not included in this calculation.

This study includes in‑depth explorations of the effects of abolishing the exemption on the non‑energetic use of natural gas in the fertiliser industry, and introducing an excise levy on the non‑energetic use of crude oil in the steam cracking process for plastic production. These two sectors currently benefit most economically from the exemptions on non‑energetic use.

The sectoral explorations show that a primary fossil resource tax has economic impacts on the existing industry; however, we also see that the absence of such a levy is one of the factors hindering the development of circular alternatives. We observe that both existing industries and pioneering challengers are working on alternative methods for producing fertilisers and plastics. Many of these methods positively contribute to national climate targets.

A primary fossil resource tax, as a standalone measure, is unlikely to be sufficiently effective; a coherent set of policy measures is needed. Moreover, implementation at the European level is an important prerequisite.

*Please note that this publication is only available in Dutch.