## introduction of the Market

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---

### EU Emissions Trading System (EU ETS) and Market Stability Reserve (MSR)
- MSR introduced in January 2019 to place a fraction of surplus allowances into a reserve when the surplus exceeds a certain threshold, to preempt weakening of the carbon price signal.
- During the COVID-19 crisis, the ETS price initially dropped, but has since risen above €50 per tonne.
- With a fixed cap on emissions at the EU level, emissions reductions from overlapping policies in the Netherlands would be offset tonne-for-tonne by extra emissions in other EU countries (via a decline in the ETS allowance price).
- The MSR is designed to offset this problem to some degree.
- Recommendation: underpin the EU ETS with an exogenously set price floor, rising over time, to provide firms more certainty over the future price path and better enable planning for clean technology investment.
- Implementation notes on price floors:
  - Price floors might be implemented through allowance auctions with a minimum auction price or making the MSR subject to a price trigger.
  - Either way, allowances should be permanently withdrawn from the system whenever needed to prevent the price falling below the floor.

### Global carbon pricing context
- Over 60 regional, national, and sub-national carbon taxes and ETSs have been implemented worldwide; at present, prices in most schemes are below about $35 (€29) per tonne.
- Country-specific high carbon tax examples:
  - Finland: €55 per tonne
  - Sweden: €112 per tonne
  - Switzerland: €87 per tonne
  - Ireland plans to raise its carbon tax to €80 per tonne by 2030
- Major schemes and changes:
  - China and Germany introduced major pricing schemes in 2021.
  - Canada announced its price floor will rise to CAN $170 (€114) per tonne by 2030.
- Figure references in the source: Figure 6 (Daily EU ETS Carbon Price) and Figure 7 (Selected Carbon Pricing Schemes, 2020).

### EU directives and targets
- Renewables and energy targets:
  - Increase share of renewables in energy consumption to 20 percent by 2020 and to at least 32 percent by 2030.
  - Target to reduce total energy use in the EU by 32.5 percent by 2030 compared with 1990.
- Transport and land use:
  - Standards for fleetwide average CO2 emission rates of new passenger vehicles: 95 g CO2/km in 2021 with a 37.5 percent reduction in 2030 compared to the 2021 standard.
  - Binding targets at the member state level for GHG emissions and removals from LULUCF.
- Commission actions:
  - Proposing to revise the ESR in view of enhanced emissions targets for 2030; published an initial impact assessment and launched an open public consultation.
  - Announced intent to propose extending ETS coverage to buildings and transportation.

### Current Domestic Policies in the Netherlands — Energy Taxation and Effective Prices
- Fuel excise estimates (OECD, 2018):
  - Gasoline excise: €0.80 per liter — equivalent to CO2 tax of €348 per tonne on gasoline.
  - Diesel excise: €0.50 per liter — equivalent to CO2 tax of €187 per tonne on diesel.
  - A liter of gasoline and diesel produce 0.0023 and 0.0027 tonnes of CO2 respectively.
- Natural gas taxation:
  - Natural gas for the building sector taxed at €188 per tonne.
  - Natural gas for industry taxed at €19 per tonne.
  - Other fossil fuels subject to minimal or zero taxation.
- Comparative gasoline taxes: implicit carbon tax equivalents vary between €165 and €315 per tonne across other EU countries; Netherlands gasoline taxes are higher than in other EU countries.
- Table 2 excerpts (Effective Carbon Prices by Major Fuel Type in the Netherlands, 2018):
  - Power/district heating: Coal/other solid fuels 190; Natural gas 90; Other fossil fuels 40.
  - Industry: Coal/other solid fuels 41; Natural gas 15; Other fossil fuels 130.
  - Road transport: Gasoline 83; Diesel 111.
  - Buildings: Natural gas 16.
- Environmental assessment:
  - Environmental costs approximately warrant the high gasoline tax in the Netherlands and suggest an increase in the diesel tax.
  - Retail gasoline prices reflect supply costs, non-carbon environmental costs (local pollution), traffic congestion and accidents, and VAT.
  - Diesel prices fall short of efficient levels because excises undercharge for environmental costs.

### Electricity, Natural Gas, and Vehicle Taxation
- Residential/commercial natural gas taxes:
  - Taxes on residential natural gas use are dramatically higher in the Netherlands than in all but one other European country.
  - Local air pollution damages are relatively small for natural gas compared with coal; Parry and others (2014) put local air pollution damages for coal at ten times damages for natural gas per unit of energy in the Netherlands.
- Electricity taxes:
  - Taxes are €22 and €32 per megawatt-hour (MWH) for industry and households respectively.
  - Electricity taxes are a blunt climate instrument: they promote reductions in electricity demand but not reductions in emissions intensity of power generation or electrification of heating/industry.
- Vehicle taxation and EV incentives:
  - Registration fees for 2021: between €372 and €1,000 for vehicles with emission rates below 95 g CO2/km; increase to €7,100 and €23,500 for vehicles with emission rates of 150 and 200 g CO2/km respectively.
  - Battery EV subsidy: €4,000 (Climate Act proposes extending to 2030).
  - 2020 new registrations: 21 percent battery EVs and 4 percent plug-in EVs.
  - In 2021, 73 percent of new passenger EVs in the Netherlands were registered by companies; employees receive favorable income tax treatment worth around €200 or more per month.

### Subsidy schemes and renewable support
- Renewable Energy Production Incentive Scheme (SDE+) paid for by a surcharge on energy consumption (ODE) historically compensated operating shortfalls for renewable energy generation.
- Starting 2020, SDE+ broadened to compensate GHG emissions reductions in other sectors and renamed Renewable Energy Transition Incentive Scheme (SDE++).
- Subsidy schemes are designed to fund operating shortfalls of renewable energy producers from charges collected on household and business energy consumers.

### Netherlands' Domestic Climate Mitigation Policies by Sector (Table 4 summary)
- Industry:
  - Carbon levy starting at €30 per tonne in 2021 and increasing to €125 per tonne in 2030 (including the ETS price) on every tonne emitted above a fixed reduction path.
  - Subsidy scheme for renewable energy (SDE) and CO2-reducing options in industry, such as CC(U)S.
  - Funding for innovation aimed at hydrogen and other sustainable fuels.
- Electricity:
  - Phasing out coal-fired electricity generation by 2025/2030.
  - Accelerating offshore wind, onshore wind, and solar energy.
  - Subsidies for additional renewable energy capacity (wind and solar) until 2025 (renewable energy share projected at 70 percent by 2030).
  - Introduction of a minimum CO2 price for electricity production.
- Buildings:
  - Enhancing energy efficiency of 1.5 million homes and 1 million utility buildings.
  - New buildings will no longer be heated with natural gas; improve existing buildings to enable fossil-free heating.
  - Municipalities lead local, participative approaches to make housing emission free, neighborhood by neighborhood.
  - Improving energy tax system with stronger incentives for energy efficiency and CO2-reduction.
- Transportation:
  - All new passenger cars to be emission-free by 2030.
  - Incentives for electric vehicles through several taxation measures, including support for the used car market; 1.8 million charging points by 2030.
  - Modal shift from car to bicycle / public transport.
  - Smart solutions to enable more efficient and sustainable logistics.
- Agriculture and land use:
  - Sustainable heating in greenhouse horticulture.
  - Reducing methane emissions from livestock through improved processing of manure.
  - Carbon storage in soil and vegetation through pilot programs for climate-friendly land use.
  - Incentives for climate-friendly food consumption and reducing food waste.
- Note: Measures shown in italic in the original table are already in effect; others are awaiting implementation.

### Evaluation of Fiscal Policy Options and Policy Recommendations
- Carbon pricing as centerpiece:
  - Carbon pricing promotes a full range of opportunities for reducing energy use and shifting to cleaner energy sources across all covered sectors.
  - Automatically minimizes costs of responses by equalizing the cost of the last tonne reduced across fuels and sectors.
  - Levels the playing field for clean technology investments by establishing a robust price signal.
  - Mobilizes revenue that can be used to pursue climate objectives.
  - Generates domestic environmental co-benefits (reductions in local air pollution deaths and traffic congestion).
  - Straightforward to scale up administratively, building off capacity for the EU ETS and national fuel taxes.
- Assessment for the Netherlands:
  - Carbon pricing in the Netherlands is already comprehensive and often with high prices by international standards.
  - Needs: (i) prices will need to rise further; (ii) scope for better aligning prices across sectors; (iii) more price certainty to create a better environment for investments in clean technology.
  - Emissions prices for the power sector (determined by EU ETS) remain uncertain; no automatic ramp-up for implicit carbon taxes for the building and transportation sectors.
- Role of reinforcing sectoral measures:
  - Reinforcing measures are less efficient but may be more acceptable; they can provide insurance if emissions impacts of carbon pricing turn out smaller than projected.
  - They may avoid significant impacts on energy prices and thus enhance acceptability.
- Feebates recommendation:
  - Consider enhancing carbon pricing with feebates — revenue neutral tax-subsidy schemes — administered by finance ministries.
  - Advantages: feebates can be more flexible and cost effective than regulations, generate efficiencies without need for extensive credit trading provisions, and can be implemented quickly with minimal administrative cost where they build on existing tax/subsidy/EU ETS administration.
- Complementary measures advised:
  - Public investment in clean technology networks.
  - Equitable and productive use of carbon pricing revenues.
  - “Just transition” measures to protect vulnerable groups and preserve industrial competitiveness.
  - Extensive stakeholder consultation and public communication.
  - Pricing of broader emissions sources beyond fossil fuel emissions.

*Source: wpiea2021223-print-pdf - introduction of the Market*

### Box 1. Key Elements of a Comprehensive Mitigation Strategy — Supporting measures
- Balance between pricing and reinforcing measures at the sectoral level to enhance acceptability.
- Public investment in clean infrastructure (e.g., EV charging stations, transmission lines), and policies to advance critical technologies (e.g., electricity storage, green hydrogen).
- Recycling carbon pricing revenues to boost the economy and distribute benefits equitably.
- Just transition measures: stronger social safety nets, tax reliefs for low-income households, assistance programs for displaced workers and at-risk regions, measures to limit harm to industrial competitiveness.
- Extensive stakeholder consultation and public communication.
- Measures aimed at broader sources of GHGs (e.g., agricultural emissions, methane leaks).

### Industry: Dutch carbon levy design and alternatives
- Levy structure and trajectory:
  - Introduced in January 2021: levy on industrial CO2 emissions above a benchmark level, levy equal to any positive difference between an escalating target price and the prevailing EU ETS price.
  - Target price trajectory: starts at €30 per excess tonne of CO2 in 2021 and rises in a straight line to €125 per excess tonne in 2030.
  - Example: would imply a levy of €50 per tonne for ETS installations if the EU ETS price were €75 in 2030; would be €125 per tonne for non-ETS installations such as waste plants.
- Base of the tax (dispensation rights) calculation:
  - Base = production × CO2 related to this production based on EU ETS benchmarks × reduction factor.
  - EU ETS benchmark: emission rate from the cleanest ten percent of firms in the industry at the EU-level.
  - Reduction factor: set at 1.2 for 2021, declining to 0.69 by 2030.
  - If a company emits less CO2 than allowed by dispensation rights, unused dispensation rights can be carried back to the previous five years or sold to other firms subject to the levy.
- Efficiency and competitiveness trade-offs:
  - The levy is a compromise between efficiency and leakage/competitiveness concerns and is more practical administratively than a pure carbon tax on all emissions.
  - Most other countries avoid pure carbon pricing of industry emissions through free allowance allocations, tradeable emission rate schemes, or exempting a portion of infra-marginal emissions; Singapore is an exception.
- Feebate modification:
  - Proposed feebate fee formula: CO2 price × {CO2/production ─ pivot point CO2/production} × production.
  - Pivot point could be set equal to the average emission rate for the domestic industry in the previous year and updated annually; under this setting the feebate would be (approximately) revenue neutral over time.
  - Feebate advantages: provides ongoing rewards for extra mitigation to all firms, including those already below benchmark.
  - Caveat: in sectors dominated by one or a few firms, an endogenous pivot could erode incentives; in such cases the pivot emission rate could be set exogenously and made progressively more stringent over time.
- Border carbon adjustment and benchmarks:
  - An EU-level carbon border adjustment (CBAM) planned for 2023 (in the form of a requirement to purchase emissions certificates) would provide reassurance against competitiveness and leakage concerns.
  - Using country-specific emissions factors would raise costs more for China, India, and Russia than for European and North American countries; an alternative is to use EU emission rate benchmarks for all countries to avoid relatively larger burdens on emerging market economies.

### Power sector: targets, fiscal reforms, scenarios, and impacts
- Targets and technology aims:
  - Target: cut power sector emissions to 20.2 Mt CO2 in 2030 from 49.8 Mt CO2 in 2018, a reduction of 59.4 percent.
  - Two technology-based targets: full phaseout of coal by 2030 (enshrined in law), and increase renewables share to 70 percent by 2030 (from about 11 percent in 2018).
  - Coal constituted 30 percent of generation versus 58 percent for natural gas in 2018; coal accounts for about the same CO2 emissions as natural gas (25 Mt CO2).
- Fiscal reforms enacted or proposed:
  - Tax shift from electricity consumption to natural gas-based generation: natural gas tax increased by 4 cents per cubic meter in 2020 and +1 cent per cubic meter in the following 6 years; funds used to offset the cost of the tax reduction and of a lower energy tax rate for the first bracket for electricity.
  - Review scheduled for 2023 to examine necessity of proposed natural gas tax increases.
  - Legislative proposal (not yet adopted) for a minimum price for CO2 emissions from power generation: proposed at €12.3 per tonne in 2020, increasing to €31.9 in 2030, linked to the EU ETS (difference levied as national carbon tax if EU ETS price falls below minimum).
  - Shift from taxing electricity to taxing fuel inputs (natural gas) improves efficiency by promoting both reductions in emissions intensity of generation and reductions in electricity demand.
- Scenario analysis and needed additional measures:
  - Assuming a linear early retirement of existing coal capacity between 2022-30:
    - Baseline 2030 emissions: 50.9 Mt CO2.
    - Scenario 1 (coal phaseout): reduces to 28.2 Mt CO2 in 2030.
    - Scenario 2 (1 + tax shift): further reduces by 1.8 Mt CO2 to 24.6 Mt CO2 in 2030, still above target of 20.2 Mt CO2.
  - Increasing the price floor of the CO2 tax to €160 per tonne by 2030 would fully close the gap between planned policies and the target by 2030, while saving a cumulative 32.1 Mt CO2 between 2022 and 2030.
  - Even with €160 per tonne price floor, renewables share would reach 65 percent in 2035 (not achieving 70 percent by 2030). To reach 70 percent by 2030, additional demand-pull and cost-push policies (e.g., feed-in tariffs) and potentially politically challenging increases in electricity prices passed to users are needed.
  - Note: assumes that nuclear is considered a renewable source of electricity.
- Consumer impacts of reforms:
  - Coal phaseout and tax shift would increase electricity prices by about 8.2 percent by 2030.
  - Impact on household consumption: about 0.4 percent for the poorest quintiles and 0.3 percent of current consumption for wealthiest quintiles (for the 8.2 percent electricity price increase scenario).
  - Adding the additional CO2 tax on the power sector would raise prices by an additional 24.6 percent, increasing the impact to about 1.4 percent for all quintiles (these calculations exclude effects of additional policies needed to reach 70 percent renewables).

### Transportation: vehicle feebates, diesel tax, and other reforms
- Vehicle tax system and feebate proposal:
  - Current system: strong penalties for purchasing ICE vehicles with above average emission rates, but limited incentives among ICEs with below average emission rates.
  - Feebate formula for new vehicles under a revenue neutral pivot (pivot = fleetwide average CO2/km):
    - Fee = {CO2 price} × {the vehicle’s CO2/km ─ the sales fleet average CO2/km} × {the average lifetime vehicle use (in discounted km)}.
  - Feebate advantages:
    - Sharpen incentives for lower emission vehicles (within ICEs);
    - Provide more certainty over government revenue from vehicle tax system (pivot updated annually while a uniform registration fee maintains revenue);
    - No new data/administrative capacity required beyond recalibration of tax rates;
    - CO2 price in feebate adjustable annually to meet EV penetration targets.
  - Illustration: feebate parameters:
    - CO2 price of €800 per tonne of CO2 combined with a uniform registration fee of €2,000 per vehicle would increase the current net subsidy for EVs while maintaining revenue and strong incentives.
    - At current average vehicle emission rates a feebate with CO2 price €800 provides an incentive of €2,800 to purchase a car with 50 g CO2/km instead of one with 85 g CO2/km (current incentive is €35).
    - Subsidies for EVs and clean ICEs would decline over time as the average fleet emission rate declines.
- EV penetration and emissions outcomes:
  - A feebate that progressively shifted new sales to 100 percent EVs by 2030 would reduce road fuel emissions about 40 percent below otherwise projected levels for 2030.
  - Deeper reductions would continue after 2030 as the fleet turned over.
- Diesel tax and other transport reforms:
  - Per unit of fuel use diesel vehicles emit about 16 percent more CO2 than gasoline counterparts; estimated air pollution deaths from diesel fuel combustion are higher than for gasoline consumption.
  - Raising the road diesel tax by €0.30 per liter (to increase it to the level of gasoline tax) would:
    - Increase current pump prices for diesel by 34 percent;
    - Reduce diesel fuel consumption about 14 percent, or 2 Mt CO2e;
    - Raise revenues of 0.2 percent of GDP;
    - Remove the bias against gasoline vehicles.
  - Broader fiscal reforms:
    - Introduce charges on passenger vehicle use related to km driven that vary with the prevailing degree of road congestion (higher per-km charges in congested conditions). Authorities are considering this approach.
    - Promote market-driven transition to pay-as-you-drive automobile insurance to directly address road traffic accidents.

*Source: IMF staff.*

### Annex 1 — Transport, Buildings, and Agriculture reform details

- Transport / Vehicle fleet and EV transition assumptions:
  - 8 percent of the fleet is replaced each year (i.e., vehicle lifespans are 12 years).
  - Initially 20 percent of new vehicle sales are EVs, rising linearly to 100 percent by 2030.
  - Fuel price elasticity assumed: -0.5 reflecting reductions in vehicle km driven and improvements in fuel efficiency.
  - Lifetime cost of using an average diesel vehicle would increase about €2,400.
  - A lower level of tax might be warranted for off-road diesel uses via rebates.
- Buildings: energy efficiency, renovation, and household energy use:
  - EU 2020 Climate and Energy Package target: reduce energy use in buildings by 32.5 percent by 2030 through NZEB from 2020 onwards and renovation.
  - In the Netherlands, low energy efficiency rating (“E” and below) accounts for 30 percent of the Dutch housing stock; highest rating “A” covers 2.5 percent.
  - A shift from rating “E” and below to rating “A” could reduce energy consumption by about 85 percent on average.
  - To reach the energy efficiency level consistent with the 2030 emission reduction target, the EU-wide renovation rate should be about 7–8 percent per year.
  - Household energy consumption composition (Netherlands, 2019): Space heating 62 percent; Lighting/electrical appliances 18 percent; Water heating 17 percent; Cooking 2 percent.
  - Feebate design example for consumer products: Fee = CO2 price × CO2 per unit of energy × {energy consumption per unit ─ industry-wide energy consumption per unit} × number of units.
- Agriculture: structure, emissions, and mitigation levers:
  - Agriculture accounts for 1.5 percent of GDP.
  - Net exports of agro-products and horticulture represent almost 4 percent of GDP.
  - 2019 largest agricultural exports: ornamental flowers and plants (€5.8 billion), dairy products and eggs (€4.3 billion), meat (€4.0 billion), vegetables (€3.5 billion).
  - Manure averaged 74.6 million tonnes per year during 2010-2019 compared to 71 million tonnes per year during 2000-2009.
  - Agriculture and land use accounted for about 17 percent of total GHG emissions in 2019, or 31.2 Mt CO2e.
  - Per capita nitrogen emissions are four times the EU average, with an estimated 61 percent coming from agriculture.
  - Current projected target for agricultural GHG reduction: 25 percent by 2030; suggested alternative: raise the target to 49 percent in line with the emissions mitigation pledge for the whole economy.
  - 2019 Climate Agreement envisages a reduction of 2.7 Mt CO2e from agriculture; meeting national mitigation pledges could require reducing emissions from agriculture by 3.5 Mt CO2 in 2030.
  - Policy levers: feebates for farmers, incentives for sustainable diets, reducing herd size, increase organic/regenerative farming, temporary subsidies to boost organic share, fiscal incentives to repurpose farms.

*Source: wpiea2021223-print-pdf - Annex 1 for more discussion of these reforms.*

### Box 2. Sources of Agricultural GHG Emissions in the Netherlands — key facts and policy implications
- Practices and impacts:
  - Netherlands nitrogen fertilizer consumption per hectare of fertilized UAA in 2018: 120 kg/ha vs. 77.2 kg/ha in the EU-28.
  - Methane and nitrous oxide GWPs over a 100-year timescale: methane 28–36; nitrous oxide 265–298.
  - About EUR 2.4 billion worth of edible food, or 8-11 percent of the food Dutch consumers buy, is thrown away.
- Livestock counts (2019):
  - Total number of cattle exceeded 3.8 million.
  - Total number of pigs exceeded 11.9 million.
  - Stock of sheep and goats is around 1.5 million.
  - Per capita: 0.2 cows and 0.7 pigs for every Dutch citizen.
- GHG emissions from animals (aggregate):
  - Total: 12.6 Mt CO2-eq GHG.
    - 9.7 Mt CO2 from cattle.
    - 2.3 Mt CO2 from pigs.
    - 0.2 Mt CO2 from sheep.
- Policy recommendations:
  - Apply feebates to livestock and crop production to strengthen abatement incentives.
  - Reduce herd concentration to lower emissions intensity.
  - Incentivize transition to organic/regenerative farming and more plant-based diets.
  - Consider temporary subsidies to increase the share of organic farming and fiscal incentives to repurpose farms.
  - Implement fiscal schemes to raise relative prices of beef, pork and dairy relative to plant-based food to change consumption patterns and reduce leakage risk.

*Source: Box 2. Sources of Agricultural GHG Emissions in the Netherlands (provided content).*

### introduction of the Market

### introduction of the Market

### EU Emissions Trading System (EU ETS) and Market Stability Reserve (MSR)
- MSR introduced in January 2019 to place a fraction of surplus allowances into a reserve when the surplus exceeds a certain threshold, to preempt weakening of the carbon price signal.
- During the COVID-19 crisis, the ETS price initially dropped, but has since risen above €50 per tonne.
- With a fixed cap on emissions at the EU level, emissions reductions from overlapping policies in the Netherlands would be offset tonne-for-tonne by extra emissions in other EU countries (via a decline in the ETS allowance price).
- The MSR is designed to offset this problem to some degree.
- Recommendation: underpin the EU ETS with an exogenously set price floor, rising over time, to provide firms more certainty over the future price path and better enable planning for clean technology investment.
- Implementation notes on price floors:
  - Price floors might be implemented through allowance auctions with a minimum auction price or making the MSR subject to a price trigger.
  - Either way, allowances should be permanently withdrawn from the system whenever needed to prevent the price falling below the floor.

### Global carbon pricing context
- Over 60 regional, national, and sub-national carbon taxes and ETSs have been implemented worldwide; at present, prices in most schemes are below about $35 (€29) per tonne.
- Country-specific high carbon tax examples:
  - Finland: €55 per tonne
  - Sweden: €112 per tonne
  - Switzerland: €87 per tonne
  - Ireland plans to raise its carbon tax to €80 per tonne by 2030
- Major schemes and changes:
  - China and Germany introduced major pricing schemes in 2021.
  - Canada announced its price floor will rise to CAN $170 (€114) per tonne by 2030.
- Figure references (as presented in source):
  - Figure 6: Daily EU ETS Carbon Price shows nominal emissions price, €/tonne, with events labeled: Global financial crisis; Change in EU regulation; MSR; EU tightens emissions targets; COVID-19; Future emissions caps tightened.
  - Figure 7: Selected Carbon Pricing Schemes, 2020 — carbon price ($US/tCO2e) vs coverage of nationwide greenhouse gases (%) with bubble sizes showing value of pricing initiative and color showing share of global GHGs.

### EU directives and targets
- Renewables and energy targets:
  - Increase share of renewables in energy consumption to 20 percent by 2020 and to at least 32 percent by 2030.
  - Target to reduce total energy use in the EU by 32.5 percent by 2030 compared with 1990.
- Transport and land use:
  - Standards for fleetwide average CO2 emission rates of new passenger vehicles: 95 g CO2/km in 2021 with a 37.5 percent reduction in 2030 compared to the 2021 standard.
  - Binding targets at the member state level for GHG emissions and removals from LULUCF.
- Commission actions:
  - Proposing to revise the ESR in view of enhanced emissions targets for 2030; published an initial impact assessment and launched an open public consultation.
  - Announced intent to propose extending ETS coverage to buildings and transportation.

### Current Domestic Policies in the Netherlands — Energy Taxation and Effective Prices
- Fuel excise estimates (OECD, 2018):
  - Gasoline excise: €0.80 per liter — equivalent to CO2 tax of €348 per tonne on gasoline.
  - Diesel excise: €0.50 per liter — equivalent to CO2 tax of €187 per tonne on diesel.
  - A liter of gasoline and diesel produce 0.0023 and 0.0027 tonnes of CO2 respectively.
- Natural gas taxation:
  - Natural gas for the building sector taxed at €188 per tonne.
  - Natural gas for industry taxed at €19 per tonne.
  - Other fossil fuels subject to minimal or zero taxation.
- Comparative gasoline taxes (implicit carbon tax equivalents vary between €165 and €315 per tonne across other EU countries; Netherlands gasoline taxes are higher than in other EU countries).
- Table 2 (Effective Carbon Prices by Major Fuel Type in the Netherlands, 2018) excerpts:
  - Power/district heating: Coal/other solid fuels 190; Natural gas 90; Other fossil fuels 40.
  - Industry: Coal/other solid fuels 41; Natural gas 15; Other fossil fuels 130.
  - Road transport: Gasoline 83; Diesel 111.
  - Buildings: Natural gas 16.
  - (Source: OECD (2019) as presented in the original table.)
- Environmental assessment:
  - Environmental costs approximately warrant the high gasoline tax in the Netherlands and suggest an increase in the diesel tax.
  - Retail gasoline prices reflect supply costs, non-carbon environmental costs (local pollution), traffic congestion and accidents, and VAT.
  - Diesel prices fall short of efficient levels because excises undercharge for environmental costs.
- Figure 9: Supply cost, Environmental Cost, and Prices for Road Fuels by Country, 2017 — carbon damages assume a 'social cost of carbon' of $40 per tonne in 2017.

### Electricity, Natural Gas, and Vehicle Taxation
- Residential/commercial natural gas taxes:
  - Taxes on residential natural gas use are dramatically higher in the Netherlands than in all but one other European country (Figure 10).
  - Local air pollution damages are relatively small for natural gas compared with coal; Parry and others (2014) put local air pollution damages for coal at ten times damages for natural gas per unit of energy in the Netherlands.
- Electricity taxes:
  - Taxes are €22 and €32 per megawatt-hour (MWH) for industry and households respectively.
  - Electricity taxes are a blunt climate instrument: they promote reductions in electricity demand but not reductions in emissions intensity of power generation or electrification of heating/industry.
- Vehicle taxation and EV incentives:
  - Registration fees for 2021: between €372 and €1,000 for vehicles with emission rates below 95 g CO2/km; increase to €7,100 and €23,500 for vehicles with emission rates of 150 and 200 g CO2/km respectively.
  - Battery EV subsidy: €4,000 (Climate Act proposes extending to 2030).
  - 2020 new registrations: 21 percent battery EVs and 4 percent plug-in EVs.
  - In 2021, 73 percent of new passenger EVs in the Netherlands were registered by companies; employees receive favorable income tax treatment worth around €200 or more per month (as an incentive).

### Subsidy schemes and renewable support
- Renewable Energy Production Incentive Scheme (SDE+) paid for by a surcharge on energy consumption (ODE) historically compensated operating shortfalls for renewable energy generation.
- Starting 2020, SDE+ broadened to compensate GHG emissions reductions in other sectors (industry, agriculture, built environment, transportation) and renamed Renewable Energy Transition Incentive Scheme (SDE++).
- Subsidy schemes are designed to fund operating shortfalls of renewable energy producers from charges collected on household and business energy consumers.

### Netherlands' Domestic Climate Mitigation Policies by Sector (Table 4 summary)
- Industry:
  - Carbon levy starting at €30 per tonne in 2021 and increasing to €125 per tonne in 2030 (including the ETS price) on every tonne emitted above a fixed reduction path.
  - Subsidy scheme for renewable energy (SDE) and CO2-reducing options in industry, such as CC(U)S.
  - Funding for innovation aimed at hydrogen and other sustainable fuels.
- Electricity:
  - Phasing out coal-fired electricity generation by 2025/2030.
  - Accelerating offshore wind, onshore wind, and solar energy.
  - Subsidies for additional renewable energy capacity (wind and solar) until 2025 (renewable energy share projected at 70 percent by 2030).
  - Introduction of a minimum CO2 price for electricity production.
- Buildings:
  - Enhancing energy efficiency of 1.5 million homes and 1 million utility buildings.
  - New buildings will no longer be heated with natural gas; improve existing buildings to enable fossil-free heating.
  - Municipalities lead local, participative approaches to make housing emission free, neighborhood by neighborhood.
  - Improving energy tax system with stronger incentives for energy efficiency and CO2-reduction.
- Transportation:
  - All new passenger cars to be emission-free by 2030.
  - Incentives for electric vehicles through several taxation measures, including support for the used car market; 1.8 million charging points by 2030.
  - Modal shift from car to bicycle / public transport.
  - Smart solutions to enable more efficient and sustainable logistics.
- Agriculture and land use:
  - Sustainable heating in greenhouse horticulture.
  - Reducing methane emissions from livestock through improved processing of manure.
  - Carbon storage in soil and vegetation through pilot programs for climate-friendly land use.
  - Incentives for climate-friendly food consumption and reducing food waste.
- Note: Measures shown in italic in the original table are already in effect; others are awaiting implementation.

### Evaluation of Fiscal Policy Options and Policy Recommendations
- Carbon pricing as centerpiece:
  - Carbon pricing promotes a full range of opportunities for reducing energy use and shifting to cleaner energy sources across all covered sectors.
  - Automatically minimizes costs of responses by equalizing the cost of the last tonne reduced across fuels and sectors.
  - Levels the playing field for clean technology investments by establishing a robust price signal.
  - Mobilizes revenue that can be used to pursue climate objectives.
  - Generates domestic environmental co-benefits (reductions in local air pollution deaths and traffic congestion).
  - Straightforward to scale up administratively, building off capacity for the EU ETS and national fuel taxes.
- Assessment for the Netherlands:
  - Carbon pricing in the Netherlands is already comprehensive and often with high prices by international standards.
  - Needs: (i) prices will need to rise further; (ii) scope for better aligning prices across sectors; (iii) more price certainty to create a better environment for investments in clean technology.
  - Emissions prices for the power sector (determined by EU ETS) remain uncertain; no automatic ramp-up for implicit carbon taxes for the building and transportation sectors.
- Role of reinforcing sectoral measures:
  - Reinforcing measures are less efficient but may be more acceptable; they can provide insurance if emissions impacts of carbon pricing turn out smaller than projected.
  - They may avoid significant impacts on energy prices and thus enhance acceptability.
- Feebates recommendation:
  - Consider enhancing carbon pricing with feebates — revenue neutral tax-subsidy schemes — administered by finance ministries.
  - Advantages: feebates can be more flexible and cost effective than regulations, generate efficiencies without need for extensive credit trading provisions, and can be implemented quickly with minimal administrative cost where they build on existing tax/subsidy/EU ETS administration.
- Complementary measures advised:
  - Public investment in clean technology networks.
  - Equitable and productive use of carbon pricing revenues.
  - “Just transition” measures to protect vulnerable groups and preserve industrial competitiveness.
  - Extensive stakeholder consultation and public communication.
  - Pricing of broader emissions sources beyond fossil fuel emissions.

*Source: wpiea2021223-print-pdf - introduction of the Market*

### Box 1. Key Elements of a Comprehensive Mitigation Strategy

### Box 1. Key Elements of a Comprehensive Mitigation Strategy

### Supporting measures (overview)
- Key supporting measures to enhance effectiveness and acceptability of a mitigation strategy centered on carbon pricing include:
  - A balance between pricing and reinforcing measures at the sectoral level that are less efficient but likely more acceptable;
  - Public investment in the clean infrastructure networks that would not be adequately provided by the private sector (e.g., EV charging stations, transmission lines to accommodate renewables), as well as policies to advance critical technologies (e.g., electricity storage, green hydrogen);
  - Recycling of carbon pricing revenues in ways that boost the economy (e.g., through lowering taxes on work effort and investment or funding socially productive investments), making sure that benefits are equitably distributed across households;
  - Just transition measures to assist vulnerable groups, such as stronger social safety nets or tax reliefs for low-income households, assistance programs for displaced workers and at-risk regions, and measures to limit the harm to industrial competitiveness;
  - Extensive stakeholder consultation and public communication to build support for reform; and
  - Measures aimed at broader sources of GHGs (e.g., agricultural emissions, methane leaks from natural gas extraction and distribution).

### Industry: Dutch carbon levy design and alternatives
- Levy structure and trajectory:
  - Introduced in January 2021: levy on industrial CO2 emissions above a benchmark level, levy equal to any positive difference between an escalating target price and the prevailing EU ETS price.
  - Target price trajectory: starts at €30 per excess tonne of CO2 in 2021 and rises in a straight line to €125 per excess tonne in 2030.
  - Example: would imply a levy of €50 per tonne for ETS installations if the EU ETS price were €75 in 2030; would be €125 per tonne for non-ETS installations such as waste plants.
- Base of the tax (dispensation rights) calculation:
  - Base = production × CO2 related to this production based on EU ETS benchmarks × reduction factor.
  - EU ETS benchmark: emission rate from the cleanest ten percent of firms in the industry at the EU-level.
  - Reduction factor: set at 1.2 for 2021, declining to 0.69 by 2030.
  - If a company emits less CO2 than allowed by dispensation rights, unused dispensation rights can be carried back to the previous five years or sold to other firms subject to the levy.
- Efficiency and competitiveness trade-offs:
  - The levy is a compromise between efficiency and leakage/competitiveness concerns and is more practical administratively than a pure carbon tax on all emissions.
  - Most other countries avoid pure carbon pricing of industry emissions through free allowance allocations, tradeable emission rate schemes, or exempting a portion of infra-marginal emissions; Singapore is an exception.
- Feebate modification:
  - Proposed feebate fee formula: CO2 price × {CO2/production ─ pivot point CO2/production} × production.
  - Pivot point could be set equal to the average emission rate for the domestic industry in the previous year and updated annually; under this setting the feebate would be (approximately) revenue neutral over time.
  - Feebate advantages: provides ongoing rewards for extra mitigation to all firms, including those already below benchmark.
  - Caveat: in sectors dominated by one or a few firms, an endogenous pivot could erode incentives; in such cases the pivot emission rate could be set exogenously and made progressively more stringent over time.
- Border carbon adjustment and benchmarks:
  - An EU-level carbon border adjustment (CBAM) planned for 2023 (in the form of a requirement to purchase emissions certificates) would provide reassurance against competitiveness and leakage concerns.
  - Using country-specific emissions factors would raise costs more for China, India, and Russia than for European and North American countries; an alternative is to use EU emission rate benchmarks for all countries to avoid relatively larger burdens on emerging market economies.

### Power sector: targets, fiscal reforms, scenarios, and impacts
- Targets and technology aims:
  - Target: cut power sector emissions to 20.2 Mt CO2 in 2030 from 49.8 Mt CO2 in 2018, a reduction of 59.4 percent.
  - Two technology-based targets: full phaseout of coal by 2030 (enshrined in law), and increase renewables share to 70 percent by 2030 (from about 11 percent in 2018).
  - Coal constituted 30 percent of generation versus 58 percent for natural gas in 2018; coal accounts for about the same CO2 emissions as natural gas (25 Mt CO2).
- Fiscal reforms enacted or proposed:
  - Tax shift from electricity consumption to natural gas-based generation: natural gas tax increased by 4 cents per cubic meter in 2020 and +1 cent per cubic meter in the following 6 years; funds used to offset the cost of the tax reduction and of a lower energy tax rate for the first bracket for electricity.
  - Review scheduled for 2023 to examine necessity of proposed natural gas tax increases.
  - Legislative proposal (not yet adopted) for a minimum price for CO2 emissions from power generation: proposed at €12.3 per tonne in 2020, increasing to €31.9 in 2030, linked to the EU ETS (difference levied as national carbon tax if EU ETS price falls below minimum).
  - Shift from taxing electricity to taxing fuel inputs (natural gas) improves efficiency by promoting both reductions in emissions intensity of generation and reductions in electricity demand.
- Scenario analysis and needed additional measures:
  - Assuming a linear early retirement of existing coal capacity between 2022-30:
    - Baseline 2030 emissions: 50.9 Mt CO2.
    - Scenario 1 (coal phaseout): reduces to 28.2 Mt CO2 in 2030.
    - Scenario 2 (1 + tax shift): further reduces by 1.8 Mt CO2 to 24.6 Mt CO2 in 2030, still above target of 20.2 Mt CO2.
  - Increasing the price floor of the CO2 tax to €160 per tonne by 2030 would fully close the gap between planned policies and the target by 2030, while saving a cumulative 32.1 Mt CO2 between 2022 and 2030.
  - Even with €160 per tonne price floor, renewables share would reach 65 percent in 2035 (not achieving 70 percent by 2030). To reach 70 percent by 2030, additional demand-pull and cost-push policies (e.g., feed-in tariffs) and potentially politically challenging increases in electricity prices passed to users are needed.
  - Note: assumes that nuclear is considered a renewable source of electricity.
- Consumer impacts of reforms:
  - Coal phaseout and tax shift would increase electricity prices by about 8.2 percent by 2030.
  - Impact on household consumption: about 0.4 percent for the poorest quintiles and 0.3 percent of current consumption for wealthiest quintiles (for the 8.2 percent electricity price increase scenario).
  - Adding the additional CO2 tax on the power sector would raise prices by an additional 24.6 percent, increasing the impact to about 1.4 percent for all quintiles (these calculations exclude effects of additional policies needed to reach 70 percent renewables).

### Transportation: vehicle feebates, diesel tax, and other reforms
- Vehicle tax system and feebate proposal:
  - Current system: strong penalties for purchasing ICE vehicles with above average emission rates, but limited incentives among ICEs with below average emission rates.
  - Feebate formula for new vehicles under a revenue neutral pivot (pivot = fleetwide average CO2/km):
    - Fee = {CO2 price} × {the vehicle’s CO2/km ─ the sales fleet average CO2/km} × {the average lifetime vehicle use (in discounted km)}.
  - Feebate advantages:
    - Sharpen incentives for lower emission vehicles (within ICEs);
    - Provide more certainty over government revenue from vehicle tax system (pivot updated annually while a uniform registration fee maintains revenue);
    - No new data/administrative capacity required beyond recalibration of tax rates;
    - CO2 price in feebate adjustable annually to meet EV penetration targets.
  - Illustration: feebate parameters:
    - CO2 price of €800 per tonne of CO2 combined with a uniform registration fee of €2,000 per vehicle would increase the current net subsidy for EVs while maintaining revenue and strong incentives.
    - At current average vehicle emission rates a feebate with CO2 price €800 provides an incentive of €2,800 to purchase a car with 50 g CO2/km instead of one with 85 g CO2/km (current incentive is €35).
    - Subsidies for EVs and clean ICEs would decline over time as the average fleet emission rate declines.
- EV penetration and emissions outcomes:
  - A feebate that progressively shifted new sales to 100 percent EVs by 2030 would reduce road fuel emissions about 40 percent below otherwise projected levels for 2030.
  - Deeper reductions would continue after 2030 as the fleet turned over.
- Diesel tax and other transport reforms:
  - Per unit of fuel use diesel vehicles emit about 16 percent more CO2 than gasoline counterparts; estimated air pollution deaths from diesel fuel combustion are higher than for gasoline consumption.
  - Raising the road diesel tax by €0.30 per liter (to increase it to the level of gasoline tax) would:
    - Increase current pump prices for diesel by 34 percent;
    - Reduce diesel fuel consumption about 14 percent, or 2 Mt CO2e;
    - Raise revenues of 0.2 percent of GDP;
    - Remove the bias against gasoline vehicles.
  - Broader fiscal reforms:
    - Introduce charges on passenger vehicle use related to km driven that vary with the prevailing degree of road congestion (higher per-km charges in congested conditions). Authorities are considering this approach.
    - Promote market-driven transition to pay-as-you-drive automobile insurance to directly address road traffic accidents.

*Source: IMF staff.*

### Annex 1 for more discussion of these reforms.

### wpiea2021223-print-pdf - Annex 1 for more discussion of these reforms.

### Transport / Vehicle fleet and EV transition
- Assumptions used for fleet turnover and EV uptake:
  - 8 percent of the fleet is replaced each year (i.e., vehicle lifespans are 12 years).
  - Initially 20 percent of new vehicle sales are EVs, rising linearly to 100 percent by 2030.
- Expected effects and considerations:
  - Any impact on the overall size of the vehicle fleet should be small as the reform does not affect the price of the average vehicle.
  - Vehicles might be driven more intensively as fuel costs per km decline over time; empirical studies suggest this ‘rebound effect’ is relatively modest (e.g., Gillingham and others 2015).
  - There is a key role for complementary policies: provision of EV charging infrastructure, procurement for EVs in public vehicle fleets, and promoting a modal shift to public transportation (e.g., Ministry of Transport 2020, Jochem and others 2016).
  - Diesel vehicles directly emit fine particulates (gasoline vehicles do not) and more nitrogen oxide emissions (see Parry and others 2014).
- Fuel demand and cost elasticities and distributional notes:
  - Fuel price elasticity assumed: -0.5 reflecting reductions in vehicle km driven and improvements in fuel efficiency.
  - Lifetime cost of using an average diesel vehicle (based on assumptions used above) would increase about €2,400.
  - A lower level of tax might be warranted for off-road diesel uses (e.g., farm vehicles, construction) which might be implemented through rebates in business tax regimes.
- Policy design note:
  - Consideration of national km-based charging systems has been previously discussed (proposal considered in 2009).

### Buildings: energy efficiency, renovation, and household energy use
- EU and national targets and current ratings:
  - The EU 2020 Climate and Energy Package seeks to reduce energy use in buildings by 32.5 percent by 2030 through construction of nearly zero-energy buildings (NZEB) from 2020 onwards and renovation of the existing building stock.
  - In the Netherlands, low energy efficiency rating (“E” and below) accounts for 30 percent of the Dutch housing stock; highest rating “A” covers 2.5 percent.
  - A shift from rating “E” and below to rating “A” could reduce energy consumption by about 85 percent on average.
  - To reach the energy efficiency level consistent with the 2030 emission reduction target, the EU-wide renovation rate should be about 7–8 percent per year.
- Household energy consumption composition (Netherlands, 2019):
  - Space heating: 62 percent of final energy consumption by Dutch households.
  - Lighting/electrical appliances: 18 percent.
  - Water heating: 17 percent.
  - Cooking: 2 percent.
- Barriers and market failures to renovation:
  - Landlord–tenant incentive mismatch: landlords may lack incentives to invest when savings accrue to tenants and cannot capture rent premia.
  - Tenants may lack incentives when tenancy is short term.
  - Upfront funding constraints for households for major energy-saving investments.
  - Uncertainty about realized energy savings, future energy prices, and contractor quality.
  - 31 percent of the Dutch housing stock was rented in 2018 (Arregui and others, 2020, Figure 15).
- Dutch policy actions and complementary instruments:
  - Government initiatives: banning natural gas heating in new constructions; enhancing energy efficiency of 1.5 million homes (one fifth of the housing stock); efficiency standards for lighting and household appliances; codes for design, construction, alteration, and maintenance of buildings.
  - Feebate schemes proposed to strengthen incentives for energy-efficient appliances and buildings. Example design for consumer products:
    - Fee = CO2 price × CO2 per unit of energy × {energy consumption per unit ─ industry-wide energy consumption per unit} × number of units
    - Example metric for refrigerators: kWh per cubic foot cooled (number of units = cubic feet).
  - Feebates could be applied to gas- and oil-based heating systems (tax) and subsidize electric heat pumps, and could be linked to EPCs and integrated into real estate taxes.
  - Other complementary measures discussed in Annex 2.

### Agriculture: structure, emissions, and mitigation levers
- Economic footprint and trade:
  - Agriculture accounts for 1.5 percent of GDP.
  - Net exports of agro-products and horticulture represent almost 4 percent of GDP.
  - In nominal net exports value, the Netherlands is the world’s third largest exporter of agro-products, after Brazil and Argentina.
  - 2019 largest agricultural exports: ornamental flowers and plants (€5.8 billion), dairy products and eggs (€4.3 billion), meat (€4.0 billion), vegetables (€3.5 billion).
  - The Netherlands uses 0.04 percent of global agricultural land and 1 percent of that in the EU.
- Production intensity and inputs:
  - More than half the nation’s land area is used for agriculture and horticulture.
  - Manure increased to 74.6 million tonnes on average per year during 2010-2019 compared to 71 million tonnes per year during 2000-2009.
- Emissions and environmental footprint:
  - Agriculture and land use accounted for about 17 percent of total GHG emissions in the country in 2019, or 31.2 Mt CO2e.
  - Per capita nitrogen emissions are four times the EU average, with an estimated 61 percent coming from agriculture.
  - Agriculture sector emissions have hardly decreased since 2000.
- Sector composition and emission sources:
  - Crop cultivation contributes 29 percent of Dutch agricultural GHG; main sources include nitrous oxide from mineral fertilizers and manure storage/spreading.
  - Organic farming is limited: 1.5 percent of total utilized agricultural area is organic (EU28 average >3 percent); about 2,000 of the 50,000 Dutch farming companies are classified as organic.
  - Livestock production accounts for 71 percent of Dutch agricultural GHG.
    - Ruminants (enteric fermentation) are estimated at 46 percent of total agricultural emissions in the Netherlands.
    - Livestock manure management accounts for almost 25 percent of total emissions from agriculture (EU-28 average: 15 percent).
    - Poultry sector: more than 1,000 poultry farms produce 10 billion eggs a year.
    - Herds and animals: stock of about 1.8 million dairy cows; pigs represent 8.4 percent of total headcount in Europe; non-dairy bovines 2 percent; poultry 7.6 percent.
  - Feed production is a significant emissions source (e.g., about three-quarters of poultry emissions come from feed production).
- Existing policy framework and gaps:
  - 2019 Climate Agreement envisages measures: sustainable heating in greenhouse horticulture (discouraging natural gas through pricing), reducing methane from livestock via improved manure processing, carbon storage pilots, incentives for climate-friendly food consumption and food waste reduction.
  - Government reports indicate farmers have almost completely eliminated chemical pesticides on plants in greenhouses.
  - When the Netherlands breached its legal cap on nitrogen emissions in May 2019, the government intervened outside agriculture (stopping construction projects, cutting motorway speed limit) to curb emissions.
- Ambition and potential targets:
  - Current projected target for agricultural GHG reduction: 25 percent by 2030.
  - Suggested alternative: raise the target to 49 percent in line with the emissions mitigation pledge for the whole economy.
  - 2019 Climate Agreement envisages a reduction of 2.7 Mt CO2e, while meeting national mitigation pledges could require reducing emissions from agriculture by 3.5 Mt CO2 in 2030.
  - Relative reduction target for GHG by agriculture noted as 11 percent and less than the national target of 49 percent.
- Policy levers and considerations (production and consumption):
  - Production-side: feebate approach charging farmers for the difference between their CO2e emissions per hectare and the industry average per hectare may be more acceptable than an across-the-board emissions tax.
  - Consumption-side: incentivize sustainable diets (reduce animal protein consumption, especially beef and lamb) and reduce food waste to validate reductions in production.
  - Structural measures under discussion include reducing the stock of animals raised; illustrative policy discussion includes reducing livestock by half (Batini and Pointereau 2021) while addressing leakage risks if production relocates elsewhere.
  - Increase share of organic and regenerative farming to reduce reliance on chemical fertilizers and restore ecosystems.
  - Make greenhouse farms energetically net zero (sustainable).
  - Political and social feasibility concerns: reducing herd size is controversial and difficult; targets and clear guidance (e.g., on numbers of cattle and pigs, chemical inputs, factory farming practices) are currently limited in the 2019 Climate Agreement.

*Source: wpiea2021223-print-pdf - Annex 1 for more discussion of these reforms.*

### Box 2. Sources of Agricultural GHG Emissions in the Netherlands 1/

### Box 2. Sources of Agricultural GHG Emissions in the Netherlands

### Main sources and contributing practices
- Most crop production utilizes synthetic fertilizers and pesticides (practices with high environmental impacts).
- The Netherlands has the highest consumption in the EU of nitrogen fertilizer, a chemical which is an important source of GHGs and soil degradation.
  - The nitrogen (N) fertilizer consumption per hectare of fertilized utilized agricultural area (UAA) in the Netherlands in 2018 corresponded to 120 kg/ha vs. 77.2 kg/ha in the EU-28 (Eurostat, 2020).
- Animal farming is highly industrialized.
  - Livestock density per utilized agricultural area in the Netherlands is the highest in the EU and focused on emissions-intensive cattle and pigs production in the last decade.
  - Cows release methane (a potent GHG) through enteric fermentation, as do pigs (albeit in smaller proportions), while management of their waste produces large amounts of nitrous oxide.
  - Methane and nitrous oxide have Global Warming Potential (GWP) of 28–36 and 265–298 that of carbon dioxide respectively, over a 100-year timescale (EPA 2021).
- Food waste contributes to GHG emissions.
  - About EUR 2.4 billion worth of edible food, or 8-11 percent of the food Dutch consumers buy, is thrown away (FAO, 2010).
- Heating and electricity of greenhouses.

### Scale and emissions by source
- Livestock counts (2019):
  - Total number of cattle exceeded 3.8 million.
  - Total number of pigs exceeded 11.9 million.
  - Stock of sheep and goats is around 1.5 million.
  - Per capita: 0.2 cows and 0.7 pigs for every Dutch citizen.
- GHG emissions from these animals (aggregate):
  - Total: 12.6 Mt CO2-eq GHG.
    - 9.7 Mt CO2 from cattle.
    - 2.3 Mt CO2 from pigs.
    - 0.2 Mt CO2 from sheep.

### Implications for climate policy and mitigation priorities
- High nitrogen fertilizer use, concentrated livestock production, food waste, and energy use in greenhouses are key targets for reducing agricultural GHGs.
- Immediate reductions in methane and nitrous oxide emissions have outsized near-term climate benefits given their high GWP and shorter atmospheric lifetimes relative to CO2.

### Policy recommendations (from the broader chapter)
- Apply feebates to livestock and crop production to strengthen abatement incentives.
- Reduce herd concentration to lower emissions intensity.
- Incentivize a transition to organic/regenerative farming and more plant-based diets to reduce emissions and soil degradation.
- Consider temporary subsidies to increase the share of organic farming and fiscal incentives to repurpose (mainly livestock) farms toward polyculture farming.
- At the consumer level, fiscal schemes that raise the relative price of beef, pork and dairy products relative to plant-based food would improve incentives and promise significant health benefits from improved nutrition; lowering consumption of animal products would also help contain the risk of emission leakage.

*Source: Box 2. Sources of Agricultural GHG Emissions in the Netherlands (provided content).*

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_Source: https://www.imf.org/-/media/files/publications/wp/2021/english/wpiea2021223-print-pdf.pdf_