A Comprehensive Greenhouse Gas Mitigation Strategy for The Netherlands

IMF Working Papers, August 20, 2021

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The Netherlands has targets to cut greenhouse gas emissions by 49 percent below 1990 levels by 2030 and 95 percent by 2050.
The paper examines the government’s mitigation strategy in the context of likely new EU-wide targets under the EU Green Deal and proposes complementary measures to accelerate decarbonization and better align effective carbon prices across sectors.
The paper evaluates alternatives to the recently-introduced industry carbon levy and recommends revenue-neutral feebate schemes in industry, transportation, buildings, and agriculture.
For power generation, the paper recommends eliminating taxes on residential and industrial electricity and supplementing the coal phaseout plan with an increase in the CO2 emissions floor price.
The paper finds the impacts of these reforms on consumption would be low and relatively evenly split across the income distribution.

Emission reduction targets: 49 percent below 1990 levels by 2030; 95 percent by 2050.
Rapid acceleration in decarbonization is required to meet national targets and anticipated EU-wide targets under the EU Green Deal.
Current policy tools create misalignment of effective carbon prices across sectors; policy reforms can improve efficiency and alignment.
The recently-introduced industry carbon levy could be modified to improve efficiency; alternatives are discussed in the paper.

Use revenue-neutral feebate schemes across:
- Industry
- Transportation
- Buildings
- Agriculture
Modify the industry carbon levy to increase efficiency (paper discusses alternatives).
Power sector reforms:
- Eliminate taxes on residential electricity.
- Eliminate taxes on industrial electricity.
- Supplement the coal phaseout plan with an increase in the CO2 emissions floor price.
Design reforms to ensure low aggregate consumption impacts and an even distribution of costs across income groups.

Consumption impacts of the proposed reforms are expected to be low.
The reforms’ distributional effects are projected to be relatively evenly split across the income distribution.