Outgoing Dutch cabinet does not leave climate out in the cold

• The topic ‘climate’ received plenty of attention from the outgoing Dutch cabinet in the 2024 Budget Memorandum

• All climate sectors will benefit from more incentivising climate policies and further scaling up public and private sustainable investments

• The climate measures of the outgoing Dutch government to reduce GHG emissions for next year are in most cases additions to existing climate measures

• For major new climate initiatives, we have to wait for the next cabinet to be installed

Emissions in climate sectors

The main focus in the 2024 Budget Memorandum was on spending power developments and poverty reduction. For the fight against poverty, the outgoing Dutch cabinet earmarks EUR 2 billion next year. The climate agenda also received plenty of attention in the Budget Memorandum 2024, despite the fact that major parts of climate policy have been declared ‘controversial’ and therefore cannot be taken forward. New climate policy on upcoming important themes - think of the Energy Act or the introduction of road pricing, for instance – can potentially provide a lot of CO2 gains, but only a new coalition will decide on the final implementation and exact policy details. There is a chance that there will be accented differences in specific environmental policies for agriculture, mobility or industry, for example.

However, climate neutrality in 2050 remains the ambition, also for a new Dutch cabinet. To achieve this goal, however, much climate action is still needed in various sectors of the Dutch economy. Every part of the Dutch economy will have to contribute to the climate target. According to the first preliminary emission figures from CBS and RIVM/Emissions Registration (based on regulations from the UN Intergovernmental Panel on Climate Change, IPCC), GHG emissions in the Netherlands from all climate sectors combined decreased by 6% in the second quarter of 2023 compared to the same period in 2022. It is a continuation of the 4% annualised emission reduction seen in the first quarter of 2023.

Reduced natural gas consumption due to high gas prices after the corona pandemic contributed notably to the decrease in GHG emissions. Especially in agriculture (greenhouse horticulture), industry (in making food, paper, metal, building materials, chemical and also petroleum products) and households (built environment) there has been a rationalisation in gas consumption. Most climate sectors showed annualised reductions in the second quarter of 2023. The sharpest reductions took place in the electricity sector (-22%), built environment (-11%) and industry (-5%). According to CBS, the electricity sector produced 42% less electricity from coal and 2% less from natural gas. In the agriculture sector, annualised emissions remained stable Q2-2023, while the mobility sector was the only sector to record an increase in GHG emissions in Q2-2023, of as much as 8% year-on-year. This was mainly due to an increase in petrol consumption. Road transport is the biggest polluter in the mobility sector. It accounts for about 95% of the mobility sector's total emissions. The acceleration of electrification in the mobility sector still faces obstacles, not only in passenger transport, but also for commercial vehicles. Affordability, range (especially for freight transport), refuelling infrastructure and charging infrastructure are the biggest challenges. With this, the mobility sector remains a difficult sector to decarbonise. To accelerate decarbonisation in this and also other sectors, targeted and incentivised climate policies are often the driving force.

Investing in sustainability

Climate is given adequate attention by the outgoing Dutch cabinet in the 2024 Budget Memorandum. The current cabinet's climate policy still assumes a 60% reduction in emissions by 2030 compared to 1990 levels. This level of ambition is 5%-points above the 55% emission reduction target the starting point of the EU Green Deal. Thus, the government is hedging against any setbacks in the 2030 reduction target.The good news is that within many of the economic sectors of the Dutch economy, the transition to a low-carbon or carbon-free mode is now well underway. However, some sectors still lag behind and many GHG emissions still need to be reduced there. These sectors would benefit from more ambitious climate policies and a further scaling up public and private sustainable investments, among other things.

The Dutch government wants to encourage investment in energy-saving assets as well as renewable energy. To this end, the Energy Investment Allowance (EIA) has been in place since the late 1990s. Through this scheme, companies can obtain tax benefits if they invest in energy-efficient techniques and renewable energy. On average, the net tax benefit for companies is around 12% of the investment amount. Under the existing scheme, if such an investment - in, for example, machinery and other sustainable business assets, solar panels for electricity generation or in process efficiency - ultimately uses sustainable energy and/or reduces CO2 emissions and/or is energy efficient, companies can deduct 45.5% of the investment cost from profits. By 2023, EUR 249 million has been earmarked for the EIA subsidy pot.

Investments in tangible fixed assets for the purpose of protecting, restoring or improving the environment are on the rise, thus increasing the use of the EIA. Next year, the EIA budget increases by EUR 10 million to EUR 259 million. However, the proportion that can be deducted drops to 40%. The government - through the EIA scheme - will continue to prioritise stimulating investments by entrepreneurs in further sustainability measures at companies in the years up to 2028.

Furthermore, next year investments will also be made in flood protection to prevent flooding, which will benefit both households and businesses. The King's Speech also touched upon the fact that the nitrogen and nature policy will be continued, to protect nature. At the same time, this will provide more clarity to avoid, for example, stagnation in the issuing of building permits for new construction, and will offer more future prospects for farmers.

Sector specific climate plans

The Climate Act sets the national climate goals for 2030 and 2050. From this a Climate Plan is drawn up, which is largely shaped by the Climate Accord, which in turn was formed following the involvement of many private and public organisations, representing different interests. It thus forms an anchor in climate policy, although of course there are no guarantees for this in the political arena. All kinds of additional climate measures can also be taken or adjustments can be made to existing agreements or measures.

According to the Netherlands Environmental Assessment Agency (in Dutch in brief PBL), realisation of the statutory 55% target is within reach, if all goes well. In its analysis, PBL points out that ‘delays due to elections and the formation of a new cabinet (and possible changes in scheduled plans) pose an additional threat to meeting this target. The room for manoeuvre until 2030 is very limited.' The 2024 Budget Memorandum contains a variety of climate measures to reduce GHG emissions, which we briefly outline below for each climate sector. For a comprehensive overview of climate measures by sector, see here.

Mobility

The mobility sector is one of the sectors where GHG reduction is struggling. Releasing more funds for investment in charging infrastructure and other financial incentives (for households, for example) will help here to get greening in the mobility sector closer to the targeted trajectory. To encourage emission-free driving, vehicles with CO2 emissions of 0 grams per kilometre are exempt from purchase tax (in Dutch in brief BPM). This exemption applies until 1 January 2025. In addition, schemes such as the Incentive Scheme for Private Electric Cars (in Dutch in brief SEPP) and the Emission-Free Business Cars Incentive Scheme (in Dutch in brief SEBA) will also remain available next year.

The 8% increase in GHG emissions in the second quarter of 2023 is mainly caused by an increase in petrol consumption. Indeed, this was 12% higher than in the second quarter of 2022, according to CBS. In the mobility sector, sustainable energy carriers - such as electricity and hydrogen - should eventually lead the way. Investments will also be made in these next year. A possible increase in excise duty on petrol will reduce the number of car kilometres driven. This could have a beneficial effect on GHG emissions. If the increase is blocked by a parliamentary majority, the number of car kilometres will remain at least the same next year, and thus GHG emissions from the mobility sector too.

Built environment

Ideally, further decarbonisation of the built environment should be tackled first with more insulation of houses and buildings. Only after that, sustainable heat devices and installations (such as a heat pump or district heating) can further accelerate the sustainability process and a largely gas-free built environment can be achieved. But there is still a long way to go. The government had launched the National Insulation Programme (in Dutch in brief NIP) with the aim of further scaling up sustainability in the built environment. This programme continues to be rolled out. For 2023 and 2024, the cabinet is making a total of about EUR 1 billion available to the NIP for municipalities. Non-energy efficient houses will be tackled first (these are the houses with energy label E, F and G). Ultimately, this programme should insulate a total of some 2.5 million non-energy-efficient homes by 2030.

In addition, for other homes, subsidies will also be provided next year for insulation measures such as floor, roof, cavity and wall insulation, and for replacing single-glazing with double-glazing (HR++ glass) or triple-glazing. Subsidies are also available for DIY enthusiasts to save costs when insulating their homes, thus relieving the burden on scarce professionals and allowing them to concentrate on more complex work and projects. Individuals can also take advantage of the Sustainable Energy and Energy Saving Investment Subsidy (in Dutch in brief ISDE) next year. Through this scheme, homeowners can receive compensation for investments in solar boilers, heat pumps and energy-saving insulation measures. The government will also focus on low-emission, circular and bio-based building and will make subsidies available for this in the coming year.

Agriculture

Agricultural activities cause emissions such as methane, nitrous oxide (both livestock farming) and CO2 (mainly greenhouse farming and land use). Government policy remains focused on reducing these emissions, including smart land use, which can help store CO2. Further development of existing techniques and innovation in new techniques remains indispensable. Subsidies remain available for this too. The government remains committed to a sustainable future for farmers and will offer support for business succession.

The 2024 Budget Memorandum also states that the reduced energy tax rate for the greenhouse horticulture sector will be abolished and, in addition, a restriction will be imposed on the exemption of electricity generation. These reduced rates were once introduced to keep the tax burden on energy in greenhouse horticulture equal to the tax burden on energy in energy-intensive industry. With the abolition, the cabinet hopes to give greenhouse horticulture an incentive to become more sustainable, with a further reduction in GHG emissions. The cabinet also proposes to tax own-use heat and electricity with an energy tax from 1 January 2025, also with the aim of encouraging sustainability. This should then also apply to industry.

Industry

Despite industry being one of the biggest polluters, the cabinet embraces the sector. Indeed, the cabinet argues that ‘a climate-neutral, circular industry can become a new driver of the earning power of the Netherlands.’ Initially, climate policy in industry focuses on energy-intensive industry. In fact, there is still a world to be won there when it comes to GHG emission reduction. Tailor-made agreements will be constructed with the large emitters of GHGs in this part of industry in the coming year to further reduce GHG emissions and prevent displacement of GHG emissions. For energy-intensive industry, subsidy schemes (fiscal and non-fiscal) have also been tightened or abolished with respect to fossil energy use, and there will be rate adjustments in energy taxation. However, the new cabinet will also want to have a say in this, as these measures could potentially have a negative impact on the business climate in the Netherlands.

The minimum CO2 tax has been set as of 1 January 2023 to provide more investment certainty. From 1 January 2024 (and subsequently also on 1 January 2025), the levy will be further increased to further encourage sustainability. Industry has many decarbonisation techniques at its disposal, of which efficiency measures, further electrification, more sustainable use of raw materials and fuel substitution are among the most important. Many various subsidies are available for investing in these techniques (see here), most of which will remain available next year as well. The government thus remains committed to achieving a low-carbon and innovative industry in the long term. Furthermore, the price for CO2 emissions for industry will be increased from 2024, in order to further encourage sustainable investments. This also applies for sector energy supply.

Energy supply

The demand for electricity is going to increase in the coming years, especially due to the trend towards electrification that has started in many sectors, especially in industry and mobility. These sectors face a major sustainability challenge and need future-proof energy networks, with stable energy infrastructure and supply. The energy supply therefore requires a move away from fossil electricity generation and towards renewable sources. That is also what the policy aims at. For now and for the longer term. However, the availability of those renewable sources are still relatively limited available in the Netherlands and their security of supply is also a challenge for stable future energy supply. Regarding the energy infrastructure, the coming year will see further investments in the expansion and reinforcement of the electricity grid by national and regional grid operators. This is an important precondition for further electrification in the other sectors and at the same time badly needed to meet the climate targets. In addition, the government is aiming for a nationwide (smart) charging network to facilitate the growth of electric passenger transport.