The Dutch fossil fuel subsidy scandal
Send us a Tikkie for 37.5 billion euros
A big scandal broke last week in the Netherlands—new research showing that the Dutch government provides 37.5 billion euros in fossil fuel subsidies to businesses.
Subsidies are tax breaks and other schemes that make the production and use of fossil fuels (oil, gas, and coal) cheaper for big consumers—like refineries, power stations, and the aviation and shipping industries.
37.5 billion is a big number. But the government deals always in big numbers—why has this one risen to the level of scandal?
The monstrous scale
The new report out last was the most extensive study of fossil subsidies to date. Previously the subsidy value was believed to be much lower. In 2020 the government seriously low-balled their estimate at 4.5 billion.
The Multinational Enterprise Research Foundation (SOMO) who conducted the research arrived at this 37.5 billion number by basing their calculations on the premise that industry should pay the same tax rate as small and medium enterprises.
And 37.5 billion euros happens to be more than the cabinet has reserved for the “Climate Fund,” which makes 35 billion euros available for “contributions to greenhouse gas reduction.”
Perverse incentives
Fossil fuel subsidies reward the heavy consumption of oil and gas.
As Michal Persson put it in the Volkskrant:
Anyone who thinks that the Netherlands has a progressive tax system has never seen the energy tax rates. They are regressive: the broadest shoulders do not carry the heaviest, but the lightest, loads. The more gas or electricity you use, the less tax you pay on each cubic meter or kilowatt hour. Large consumers are greatly favored.
There is no incentive for industry to reduce consumption. In fact, the opposite.
Boris Schellekens of SOMO illustrated the point for the NOS:
This is really an unfair competition. Why should an industrial baker, for example, who supplies Albert Heijn, have to pay less energy tax per cubic meter of natural gas than a traditional baker around the corner?
In 2020, the 170 companies that accounted for 74 percent gas consumption paid only 11 percent of the energy tax.
Small and medium-sized enterprises, which consumed only 10 percent of all Dutch gas, paid 66 percent of the energy tax.
Climate Change
Because fossil fuels cause climate change, climate activist groups like Extinction
Rebellion are focused subsidies.
The group will block the A12 in the Hague this Saturday, demanding the abolition of subsidies.
SOMO concludes that if fossil fuel subsidies are eliminated by 2025, it will result in almost 20 percent fewer greenhouse gases.
The industry argument
These subsidies are in place (in theory) to keep business in the Netherlands. The argument against abolishing subsidies is that heavy polluters, which also tend to employ a lot of people and be advantageous for the Dutch economy, might respond by moving to “friendlier” countries with more favorable tax schemes.
Subsidy proponents also argue that these business cause an equal amount of damage to the climate, which is of course borderless, wherever they go—so the their economic benefits of their pollution might as well accrue to us.
“The baker on the corner cannot go to Spain so quickly,” said one Deloitte tax specialist during a meeting at the House of Representatives in 2008.
Which is twisted, and amounts to justify taxing small bakers at a higher rate… because they are Dutch. Speaking of perversity.
The government argument
Here’s the meaningless statement that caretaker Minister for Climate and Energy Rob Jetten (D66) put out about this whole thing:
The government already has halted a number of measures and it is important to clearly and unequivocally map out exactly which further financial incentives are involved.
“Budget Day” is coming up in a couple of weeks, and Jetten is expected to present a detailed plan at that time. TBD what that’s going to look like in practice.
What’s next
This research is the best PR weapon that Dutch climate activists could have asked for.
Extinction Rebellion has already blocked the A12 a number of times. This Saturday, these activists will protest with the wind at the backs—with this new 37.5 billion number the government looks totally out of touch with the scale of the tax benefits they have been providing industry for years. It seems a bit out of control.
And all of this is all playing out just a few months after the cabinet fell and Prime Minister Mark Rutte resigned.
According to recent survey, 79 percent of Dutch people are in favor of a transition to clean energy; 66 percent believe that government is not doing enough.
It will be interesting to see if any of this has an impact on voting behavior in the upcoming elections at the end of November. Maybe voters will be looking for candidates and parties who promise to reign in these Rutte-era, pro-businesses excesses.
Or, this could very well be this week’s news. TBD.
🥳 Leuke Dingetjes
Fun new track from Amsterdam-based rock band Pip Blom.
thanks for breaking this down!