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"Every tonne taxed in the same way"

Dutch government wants to incentivise individual grower with 'flat' carbon tax

The cabinet has commissioned research into six variants for the individual CO2 system for greenhouse horticulture. The Hague wants to change the system to give growers more incentive to become more sustainable. Now, the sector system affects the sector as a whole. The new system should encourage individual growers to take action, by taxing each tonne of CO2 in the same way through 'a flat tax'.

This option will be 'worked out in more detail', LNV minister Adema wrote to the Lower House when publishing the final report of research firms Berenschot and Kalavasta.

The CO2 sector system should help greenhouse horticulture become climate-neutral by 2040. The sector has this ambition and it has also been laid down in a covenant with the government. The covenant contains agreements and instruments to reduce CO2 emissions from greenhouse horticulture. The interim goal of this covenant is to leave the sector's emissions at between 4.3 and 4.8 Mtonne CO2 equivalents.

Individual sector system now does not incentivise grower enough
The covenant contains additional incentive measures on the one hand, and incentive measures on the other, including the introduction of an improved CO2 sector system. The improved CO2 sector system will replace the current sector system and should enter into force on 1 January 2025.

The sector currently already has a CO2 sector system. Under this system, entrepreneurs are charged in proportion to natural gas use. However, this looks at CO2 emissions of the sector as a whole and not of the individual grower. As a result, according to the researchers, the system has proved "ineffective" because "it lacks a clear steering signal and does not provide an incentive for individual growers to become more sustainable.

This is because of the long settlement time, which means a grower only later receives the bill for the previous year's emissions and therefore cannot make an investment decision in advance. The researchers also point out that the collectivity of the CO2 sector cap makes individual entrepreneurs feel less responsible. "The incentive for the individual horticulturist to become more sustainable is not that great, because the levy is not known in advance and depends on the performance of the entire horticultural sector."

Flat levy
The researchers examined six variants. Broadly speaking, two system variants can be distinguished: one where the grower only pays for what he emits 'in excess', and a 'flat variant' where all emissions are taxed equally. The government has chosen the 'flat tax' variant. The main argument for this choice, Adema writes in the parliamentary letter, is to tax every tonne of CO2 equally. In addition, according to the government, this system is easier. Glastuinbouw Nederland supports this choice, the minister stressed.

A levy 'at the margin' has also been explored. Here, faster impact of the expected for sustainability. With the 'flat charge', 'acceleration' of sustainability follows later.

Currently, gas prices are high. However, they are expected to fall again. The researchers recommend that the new sector system should consider a situation where energy prices are so high that an additional levy is not necessary.

There is more than just 'sustainability'
In their study, a first step towards further elaboration of the 'flat tax', the researchers do make some comments. For instance, they point out that the entire earning capacity of the sector is not in the picture ('more insight on the income side is needed for this'), that the energy market has been 'simplified' for the study and that sustainability is the only option examined in detail. The sector will also intensify or extensify, grow or shrink in the coming years and therefore have different emissions. "It is important in the context of overall emissions to better understand these effects," the researchers believe.

Importance of access to sustainable sources
The researchers also make another recommendation. According to them, "the sector appears to have great potential to become more sustainable", provided entrepreneurs gain and maintain access to sustainable sources. "Particularly in sources of geothermal and waste heat, it will be important to ensure that these are available to a wide group of horticulturists. Recommendation is therefore to pay extra attention to how entrepreneurs have sufficient access to sustainable heat when introducing the proposed tax measures and/or the sector system, otherwise these adjustments will only lead to additional costs for the sector and not enough to the desired sustainability of that sector."

View the full research report here.