Fiscal Policy Options to Accelerate Emissions Reductions in Belgium

Selected Issues Papers, March 2, 2023

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Belgium’s current policies fall short of achieving its climate targets and promoting emissions reductions at limited economic costs.
Domestic carbon pricing should form the centerpiece of an emissions reduction package because:
- Pricing promotes mitigation at the lowest economic cost.
- Pricing can be phased in as international energy prices fall.
- Pricing generates revenue to compensate vulnerable households and reduce taxes on productive activities.

Center policy on domestic carbon pricing to achieve cost-effective mitigation and revenue generation.
Use revenue from carbon pricing to:
- Compensate vulnerable households.
- Reduce taxes on productive activities.
Reinforce carbon pricing with sectoral policies where appropriate:
- Implement subsidy-tax schemes to promote low emissions vehicles.
- Ensure sectoral policies complement carbon pricing and regional efforts.
Reform social protection to be more efficient and environmentally friendly:
- Switch from energy subsidies to income-based support.

Promote dialogue at the EU-level to:
- Harmonize ETS prices.
- Include all sectors under a single trading scheme.

Subject: International organization, Monetary policy
Keywords: climate, distributional effects, environmental economics, Environmental taxes and subsidies, fiscal policy