New ‘own resources’ for EU budget will come from carbon market, executive says

EU countries need to agree to the new own resources or face paying back the COVID recovery fund themselves, said Johannes Hahn, Commissioner for Budget and Administration [Christophe Licoppe / EC Audiovisual Service]

The European Commission on Wednesday (22 December) announced its intention to use revenues from the EU carbon market and upcoming border levy as well as taxes on multinational companies in order to repay money borrowed for the bloc’s €800 billion coronavirus recovery fund.

These three new “own resources” of revenue – amounting to €17 billion annually from 2026-2030 – will allow boosting the EU budget without requiring member states to dig further into their pockets to provide additional funding, the EU executive said.

They will help repay the money borrowed for the €800 billion COVID recovery fund, called ‘Next Generation EU‘, and provide around €8 billion for the bloc’s proposed social climate fund.

The new resources “will not only provide a steady stream of revenue used for the repayment of ‘Next Generation EU’ but also align the revenue side of the Union budget with the Union’s policy goals – i.e the green and digital transition,” said Johannes Hahn, Commissioner for Budget and Administration, as he presented the plan.

He added that there is a strong link between the new own resources and Europe’s climate ambitions, especially as they will contribute to the proposed social climate fund, which is supposed to shield the most vulnerable households from the energy transition and provide investment in green technology.

Revenues from carbon levies and company taxes

Of the three new sources of revenue, the EU emissions trading scheme (ETS), which auctions permits allowing certain industries to emit carbon dioxide, will provide the most money to the EU budget.

Currently, most of these revenues go to national budgets, but the EU executive now wants 25% to flow into EU coffers. That equals an average of €9 billion annually between 2023-2030, based on 2018 prices, according to the European Commission.

The second climate-related revenue stream the Commission wants to channel into the EU budget is the carbon border adjustment mechanism, which will put a price on certain carbon-intensive goods entering the EU.

Once it comes into force, the European Commission will take 75% of its revenues, expected to be an average of €1 billion per year from 2026-2030.

Meanwhile, the Commission proposed that 15% of the additional corporate tax revenue that EU member states will receive following this October’s OECD tax deal should aliment the EU’s own resources. This will provide roughly between €2.5 and €4 billion annually, pending the finalisation of the agreement .

Some have raised concerns that making the carbon border adjustment mechanism an own resource would make it incompatible with World Trading Organisation (WTO) rules, but Commission lawyers say this is not the case, according to Hahn.

As long as the sectors covered by the levy are gradually phased out of their financial exemptions under the emissions trading scheme at the same pace as they are brought into CBAM, there is no issue, he explained.

The WTO has argued along similar lines. Earlier this year, its deputy-director general Alan Wolff said: “If those duties go back into general revenues to support the EU in general, of course, no problem”.

However, he warned against using the money to subsidise the industries covered by CBAM, saying that would “change the competitive equation” and create “a fair amount of conflict” at the WTO.

The case for a border carbon tax as an own resource to the EU budget

To deliver on the flagship European Green Deal, there is a need to introduce a new source of revenues for the EU budget under the form of carbon tax, writes Ivailo Kalfin.

Agree or pay the money yourselves

To go ahead, the Commission’s proposal now needs to be formally approved by EU member states and the European Parliament.

The proposal for new own resources will require unanimity among EU countries while the European Parliament will be consulted on the proposal.

And Poland has already warned it would put its “veto on all matters that require unanimity in the EU” as long as the European Commission does not release payments to Warsaw that are being withheld because of an ongoing dispute over the independence of judges.

Under the legally binding roadmap for the new own resources, EU countries must vote on the Commission proposal by July 2022.

The plan also requires a targeted amendment to the EU’s seven-year budget for 2021-2027, agreed only one year ago, to let the Commission repay borrowed EU money and allow additional expenditure for the social climate fund.

That will also require unanimous backing from EU countries after obtaining consent from the European Parliament.

However, some EU countries are sceptical about reopening the already-agreed EU budget for the next seven years, known as the Multi-Annual Financial Framework (MFF). At a meeting of environment ministers, several fiscally conservative countries spoke out against it.

“We are concerned about [the social climate fund’s] size and about opening the MFF deal,” said Finnish minister Terhi Lehtonen.

The deal on the EU’s seven-year budget was a difficult and carefully balanced agreement, which Finland would rather not reopen, a Finnish diplomatic source told EURACTIV.

But the European Commission has a strong argument for EU countries to sign up: if they do not, they must cough up the money themselves.

According to Hahn, EU countries knew that they would need to agree on new own resources to repay the recovery money and “if this is not the case, of course, member states have to finance the repayment by their national contributions.”

This is something echoed by the two lawmakers who drafted the European Parliament’s position on the proposal – José Manuel Fernandes from the centre-right European People’s Party (EPP) and Valérie Hayer from the centrist Renew Europe political groups.

“The risks are clear: much higher national contributions to the EU budget, or cuts to the Multiannual Financial Framework in the medium term,” Fernandes and Hayer said.

“This is clearly not in the interest of the citizens,” they warned.

No consent to ‘historic’ recovery plan without new revenues, MEPs warn

The European Parliament will only give its consent to a new EU long-term budget if the basket of own resources is increased to pay for the recovery fund, the main political groups warned in a letter addressed to EU leaders ahead of Friday’s (19 June) summit. 

Not enough money

While Fernandes and Hayer welcomed the announcement, they criticised the fact that the proposed own resources will only cover two-thirds of the money needed.

“It is also unfortunate that we do not reach €15 billion per year for the repayment of debts incurred under the ‘NextGenerationEU’ recovery plan yet. We, as co-rapporteurs for the Own Resources, request a higher share of these income sources to be defined as Own Resources accruing to the EU budget,” they said.

To address this, the European Commission is planning to introduce new own resources in 2023. Over time, too, more own resources will have to be found to replace the climate-based revenues as these are likely to decrease as Europe cuts its emissions.

“Ideally, the revenues from these climate-related levies should decrease because this is what we’re aiming at – to improve the CO2 emission situation,” said Hahn.

Carbon levy, plastic tax hailed as potential game-changers for EU budget

Proposals to allocate 20% of revenues from carbon trading to the EU budget, combined with a new tax on plastic waste, could help plug the hole left by Britain’s departure from the European Union, as leaders meet tomorrow to agree on the bloc’s first post-Brexit budget.

[Edited by Frédéric Simon]

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