Policies For A Carbon Neutral Industry In The Netherlands

This report presents a comprehensive assessment of the policy instruments adopted by the Netherlands to reach carbon neutrality in its manufacturing sector by 2050. The analysis illustrates the strength of combining a strong commitment to raising carbon prices with ambitious technology support, uncovers the pervasiveness of competitiveness provisions, and highlights the trade-off between short-term emissions cuts and longer-term technology shift.

This report presents a comprehensive assessment of the policy instruments adopted by the Netherlands to reach carbon neutrality in its manufacturing sector by 2050. The analysis illustrates the strength of combining a strong commitment to raising carbon prices with ambitious technology support, uncovers the pervasiveness of competitiveness provisions, and highlights the trade-off between short-term emissions cuts and longer-term technology shift. The Netherlands' carbon levy sets an ambitious price trajectory to 2030, but is tempered by extensive preferential treatment to energy-intensive users, yielding a highly unequal carbon price across firms and sectors. The country's technology support focuses on the cost-effective deployment of low-carbon options, which ensures least-cost decarbonisation in the short run but favours relatively mature technologies. The report offers recommendations for policy adjustments to reach the country's carbon neutrality objective, including the gradual removal of exemptions, enhanced support for emerging technologies and greater visibility over future infrastructure plans.

This report presents a comprehensive assessment of the policy instruments adopted by the Netherlands to reach carbon neutrality in its manufacturing sector by 2050. The analysis illustrates the strength of combining a strong commitment to raising carbon prices with ambitious technology support, uncovers the pervasiveness of competitiveness provisions, and highlights the trade-off between short-term emissions cuts and longer-term technology shift. The Netherlands' carbon levy sets an ambitious price trajectory to 2030, but is tempered by extensive preferential treatment to energy-intensive users, yielding a highly unequal carbon price across firms and sectors. The country's technology support focuses on the cost-effective deployment of low-carbon options, which ensures least-cost decarbonisation in the short run but favours relatively mature technologies. The report offers recommendations for policy adjustments to reach the country's carbon neutrality objective, including the gradual removal of exemptions, enhanced support for emerging technologies and greater visibility over future infrastructure plans.

The Netherlands has ambitious greenhouse gas emission reduction targets for the future - to cut them by 49 percent below 1990 levels by 2030 and 95 percent by 2050. These targets and the likely new EU-wide targets under the recent EU Green Deal entail a rapid acceleration in decarbonization. This paper discusses the government’s mitigation strategy and advances several recommendations to complement and reinforce that strategy and to achieve better alignement of the effective carbon prices across sectors. The paper discusses alternatives to make the recently-introduced industry carbon levy more effcient and recomends the use of revenue-neutral feebate schemes in industry, transportation, buildings, and agriculture. For power generation, it recommends eliminating taxes on residential and industrial electricity, supplementing the coal phaseout plan with an increase in the CO2 emissions floor price. The impacts of these reforms on consumption would be low and relatively evenly split across the income distribution.

The COVID-19 pandemic and the Ukraine war have revealed vulnerabilities in Germany’s economic model: undiversified energy supply, an over-reliance on fossil fuels, delayed digitalisation and disruptable supply chains. Digital technologies may significantly disrupt manufacturing industries Germany has dominated for decades, threatening future competitiveness.

The Climate Action Monitor, part of the International Programme for Action of Climate (IPAC), provides a diagnostic policy framework for assessing country progress towards climate objectives. Its goal is to provide a digest of progress towards, and alignment with, Paris Agreement goals to support countries in making better-informed decisions and allow stakeholders to measure improvements more accurately.