Copyright Page
© 2023 International Monetary Fund
SIP/2023/017
IMF Selected Issues Paper
European Department
Fiscal Policy Options to Accelerate Emissions Reductions in Belgium Prepared by Nate Vernon
Authorized for distribution by Mark Horton
March 2023
IMF Selected Issues Papers are prepared by IMF staff as background documentation for periodic consultations with member countries. It is based on the information available at the time it was completed on February 10, 2023. This paper is also published separately as IMF Country Report No 23/099.
ABSTRACT: Belgium's current policies fall short of achieving its climate targets and promoting emissions reductions at limited economic costs. We recommend that domestic carbon pricing form the centerpiece of an emissions reduction package, as pricing promotes mitigation at the lowest economic cost, can be phased in as international energy prices fall, and generates revenue to compensate vulnerable households and reduce taxes on productive activities. Sectoral policies, such as subsidy-tax schemes to promote low emissions vehicles, should reinforce carbon pricing and regional efforts, while the social protection system can be made more efficient and environmentally friendly by switching from energy subsidies to income-based support. Belgium should also promote dialogue at the EU-level to harmonize ETS prices and include all sectors under a single trading scheme.
RECOMMENDED CITATION: Vernon, Nate. Fiscal Policy Options to Accelerate Emissions Reductions in Belgium. IMF Selected Issues Paper (SIP/2023/017). Washington, D.C.: International Monetary Fund.
| JEL Classification Numbers: H23, H30, Q5, Q52, Q54 |
| Keywords: Environmental taxes and subsidies, fiscal policy, environmental economics, distributional effects, climate |
| Author's E-Mail Address: NVernon@imf.org |
| JEL Classification Numbers: H23, H30, Q5, Q52, Q54 |
| Keywords: Environmental taxes and subsidies, fiscal policy, environmental economics, distributional effects, climate |
| Author's E-Mail Address: NVernon@imf.org |
Front Page
SELECTED ISSUES PAPERS
Fiscal Policy Options to Accelerate Emissions Reductions in Belgium
Belgium
Title Page
BELGIUM
SELECTED ISSUES
February 10, 2023
Approved By
European Department
Prepared By Andre Geis, Yu Ching Wong (both EUR) and Nate Vernon (FAD).
Contents
FISCAL POLICY OPTIONS TO ACCELERATE EMISSIONS REDUCTIONS IN BELGIUM
A. Background
B. EU and Belgian Policies
C. Reforming Existing Fuel Taxes and Introducing Economy-Wide Carbon Pricing
D. Reinforcing Carbon Pricing with Feebates and Other Sectoral Policies
E. Conclusion and Summary of Policy Recommendations
BOXES
1. Response to the 2022 Energy Crisis
2. Carbon Taxes vs. Cap-and-Trade Systems
FIGURES
1. Global GHG Emissions vs. Targets and Pledges
2. Trends in Historical Emissions and Projections under BAU Policies
3. Emissions Trends across Europe
4. Daily EU ETS Price
5. Excise Rates and Consumption by Fuel and Use
6. Effective Carbon Tax Rates by Section in 2021
7. Price Impacts of Carbon Pricing, Compared to Efficient Levels
8. Distributional Impacts of a €100 per Ton Carbon Tax
9. Illustrative Feebate for Power Sector
10. Electricity Mix under Various Scenarios
11. Relative Price of Electricity
12. Illustrative Average Annual Cost of Heating Options
13. CO2 Emissions of New Cars
14. CO2-Based Components of Vehicle Taxes
TABLES
1. Summary of Mitigation Targets
2. Carbon Pricing in Non-ETS Sectors
3. Sectoral Emissions Outcomes, 2030 Relative to 2005 Levels
APPENDIX
I. Recent Studies on Climate Mitigation Policies and Other Carbon Taxes in Belgium
References