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Rapport frontier economics "Carbon price floor for electricity generation and industry"

Elektriciteit Klimaat Belastingen, Prijzen en tarievenRapport5 juni 2023Jacques van de Worp

A study for the Dutch Ministry of Finance The customer tax, customs, and international tax directorate.

FrontierCarbonPriceOn the 4th of April 2022, the ‘Wet minimum CO2-prijs voor elektriciteitsopwekking’ (carbon price floor for electricity generation act) has come into force. The aim of this legislation is to provide an incentive for environmentally sustainable investments by giving certainty about the minimum carbon price (carbon price floor, CPF). The CPF was set at 14.90 EUR/tCO2eq in 2022 and 31.90 EUR/tCO2eq in 2030. From 2030 onward the CPF was set to continue at a price of 31.90 EUR/tCO2eq. This price path was chosen in a period when the EU ETS price was between 10 and 30 EUR/tCO2eq. Since then the EU ETS price has risen to between 90 and 100 EUR/tCO2eq in early 2023.

The strong increase of the EU ETS price has decreased the relevance of the current CPF, so that an update of the floor price is considered. In Dutch parliament the evaluation term of the measure was shortened from five to three years through an amendment on the legislative proposal, and it was agreed that there will be a supplemental earlier evaluation of the price path. The updated price path should be put into force through the yearly legislative tax proposal (Belastingplan 2024).

In addition to the CPF for electricity generation, the coalition agreement contains the introduction of a CPF for industrial companies. The CPF for industry should be same as the one for electricity generation.
As a result of these political developments, Frontier and CE Delft were commissioned by the Ministry of Finance to analyse the potential impact of a revised CPF on the electricity sector and the impact of the introduction of a similar CPF in the industrial sector. The objective of the study is to estimate the effects of different CPF options in the period between 2024 and 2030, with an outlook on the period until 2040. While the principal analyses focus on the impact on the electricity sector, a sensibility analysis for the impact on the industrial sector is also conducted.

Bron: CE Delft frontier economics