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Belgium - EHS Country Case Study

Reform of environmentally harmful subsidies in Belgium

By adopting the Paris Agreement, Belgium committed to lower its greenhouse gas emissions to facilitate the process of a low carbon transition and to work towards a climate-resilient development. Belgium has released a recovery and resilience plan, setting out reforms and investments to become more sustainable and resilient towards green and digital transitions. Some reforms will target subsidies which have been identified as environmentally harmful (e.g. the company car scheme).

So far, fossil fuel consumption has remained stable in Belgium, and fossil fuel subsidies continue. Belgium’s environmental taxes are also among the lowest in Europe. Some of these subsidies are in the form of reduced excise taxes for residential and professional users of heating oil (especially low-income and heavily indebted households), favourable tax treatment for company cars as well as for diesel compared to gasoline, fuel tax exemption in aviation, and a fuel tax rebate for taxi drivers and freight. Other fossil fuel subsidies are seen within the agricultural sector. 

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© aaron staes / Unsplash

As part of the requirements of the NECP, a first inventory of fossil fuels subsidies was prepared in 2019 by the Finance and Environment departments of the Federal Public Service. This exercise found that the federal government provides more than EUR 13 billion in direct and indirect subsidies to fossil fuels, mainly through  tax exemptions and reduced rates of excise duty/VAT. In 2021, the European Commission endorsed Belgium’s EUR 5.9 billion recovery and resilience plan. Fifty percent of the budget will support climate objectives, with investments going for the renovation of buildings to increase their energy efficiency, to fund alternative energy technologies and to accelerate the transition to green mobility. In December 2021 the government adopted a new law on Greening of Mobility, which aims at reforming the subsidy on company cars by proposing a new green tax regime.

The Belgian Federal government and the regional and community governments are responsible for the national and regional budgets and resource allocation, therefore determining the size and scope of the subsidies. The FPS Climate Change department launched a ‘national debate on carbon pricing’ to determine the modalities for implementing a carbon price in Belgium in the sectors that are not covered by the European Union Emission Trading System (EU ETS), i.e. mainly buildings and transport. The debate involved stakeholders from the entrepreneurial, administrative, academic, associative and trade union sectors, and was articulated in several events, from high-level conferences — to generate the necessary political impulse at the start and present the results at the end — to technical workshops — discussing technical issues with experts and key stakeholders. Stakeholders were also invited to discuss policy alignment, and one the key messages was that carbon pricing must be developed together with a large set of measures that complement each other. This includes reforming environmental harmful subsidies as they direct behaviour and investments towards high carbon options.

In the residential sector, Belgium has almost double the amount of GHG emissions per capita of the EU average. The reform should accelerate the renovation rate and depth of the buildings stock an should promote the shift to more environmentally friendly technologies for domestic heating. Transport amounts to around 35% of the GHG emissions from sectors not covered by the EU ETS. Transport GHG emissions have increased by around 1% per year in the period 1990-2016, while they should have decreased by around 3% on an annual basis to achieve carbon neutrality in 2050. Almost 60% of GHG emissions are due to cars, and car density has increased by 10% in the period 2008-2018. Therefore, transport policies need to promote the shift from cars to public transport, bicycle and walking. 

Energy vouchers have been identified as the main option to redistribute a share of public carbon revenues to households at risk of energy poverty. The value of the vouchers could be defined with the view of compensating the payments of the carbon tax, and could be distributed to those households benefitting of social tariffs or on the basis of the household size, heating energy vector, etc. With regard to transport, the revenues of the carbon pricing could be distributed to reduce labour taxes, taxes and levies on electricity, to promote low carbon transport modalities, to invest in transport infrastructure to increase multi-modality or could be allocated to technological innovation.

Belgium should monitor the progress on phase out initiatives in order to assess the impact of reform.

To learn more about the reform process in Belgium and other Member States read the country case studies and factsheets compilation.