Several eastern EU countries oppose a European Commission proposal to expand the EU emissions trading system (ETS) to fund the bloc’s €750 billion coronavirus recovery plan because of concerns over losing national revenues.
A June 19 European Council summit did not produce consensus on several areas of the Next Generation EU recovery fund, Council President Charles Michel said in a press conference following the summit. He said disagreements emerged over the size of the fund, the balance between grants and loans, new own resources, and rebates.
Reuters reported June 19 that according to EU diplomatic sources, several eastern EU countries, including Bulgaria, the Czech Republic, Estonia, Lithuania, and Poland, are against a proposed own resource — expected to generate €10 billion annually — that would extend the ETS to the maritime and aviation sectors. The ETS sets a cap on greenhouse gasses emitted by specific sectors. Allocated credits can be bought and sold by companies covered by the system.
In an email to Tax Notes, the Lithuanian Ministry of Finance said it “strongly opposes” the introduction of an ETS-based own resource because all revenues from the ETS go directly to the national climate change program. That program, the MOF explained, funds climate mitigation and adaptation projects across Lithuania’s economic sectors, including the modernization of apartment buildings, uptake of renewable energy sources, increase of energy use efficiency, and public education on climate change.
“If the ETS revenues were to be used as another source of funding for the EU budget, the national capabilities to directly fund climate mitigation and adaptation projects would be significantly hampered,” the MOF said. The gap in funding would be difficult to make up from other sources, it said.
The MOF said there are still several issues in the recovery package and EU multiannual financial framework that need more consideration, including allocation formulas, strengthening of traditional policies, financing for large infrastructure projects and treaty-based obligations, and abolition of corrections. The MOF said that “for the sake of compromise,” it could be open to a new own resource based on a plastics levy.
Poland’s leadership has also publicly decried the proposed ETS expansion on the grounds that increasing revenue from carbon taxes would unfairly target Poland’s coal-reliant electricity economy. Polish Development Minister Jadwiga Emilewicz told the Financial Times in an interview that as carbon permit prices rise within the ETS, Polish companies are becoming uncompetitive.
“It was not our choice at the end of the 1960s to invest more and more heavily in coal and to run power plants based on coal,” Emilewicz said, as quoted by the Financial Times June 18. “It was decided in Moscow [during the Soviet Union] that we would be excluded from building nuclear power plants, whereas Czechoslovakia or Hungary could do that. So the Polish situation is really unique, and that history matters in this moment.”
Emilewicz said that instead of expanding the ETS, the EU should seek to increase revenues by introducing a tax on digital platform companies and removing barriers for services in the EU single market.
The EU’s carbon dioxide targets were already unpopular among European countries more reliant on carbon-emissions-heavy energy. After the commission approved the European Climate Law on March 4, which increased the emissions reduction target for 2030 from 40 percent to 50 to 55 percent, energy companies from Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Hungary, Poland, and Romania released a May joint statement asking for financial help from the EU. They warned that the change could triple the price of emissions per metric ton and lead to vast operational costs.
Representatives from the Estonian, Bulgarian, Czech, and Polish MOFs did not return requests for comment by press time.