This Policy Brief discusses energy tax policy challenges for the Netherlands, against the background of the main trade-off behind green tax reform. Recent estimates of environmental damage in relation to the current energy tax structure in the Netherlands are used to evaluate the tension between green revenue generation and the achievement of green results. The challenge of further green tax reform in the Netherlands is to find an optimal, 'future-proof' balance between generating environmental tax revenues to finance public expenditure and Pigovian taxes to regulate environmental damage.
The analysis shows that the energy tax structure in the Netherlands has been designed to tax environmental damage from fossil-fuel use mostly indirectly, that is, via the consumption of natural gas, electricity and motor fuels. Another major result is that pricing of environmental damage from fuel use solely in terms of climate costs (carbon tax base) is likely to be biased, and overlooks the significant and highly variable contribution of fossil fuels to air pollution. This shows that the green result could be significantly improved by better aligning the energy tax structure with overall environmental damage costs. Energy tax reform should be prioritised on the basis of its long-term contribution to a robust tax structure, not only in terms of its revenue-raising capacity, but also its environmental regulatory impact.