December 1, 2023

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“Climate investments ensure truly green budget numbers”

“Climate investments ensure truly green budget numbers”

Belgium’s greenhouse gas emissions reached a historic low in 2022 and were 4% lower than the previous year. To continue this positive trend, we must invest. Climate investments are not known to be particularly beneficial to the budget. It’s time for real green budget numbers, writes Zakia Al Khattabi.

Greenhouse gas emissions in 2022 were historically low, as households and businesses significantly reduced their energy consumption. We were all shocked by the high prices. In short, the decline in emissions was a side effect of an unpleasant crisis: just as happened with Corona. There is no guarantee that the decline will continue on its own in the coming years. This requires strong climate policies from all governments in our country.

A recent study by McKinsey highlights the challenge: to make Belgium climate neutral by 2050, €415 billion of additional investment is needed, half of which is in construction. In fact, the authors conclude that at least 40% of these investments, or about €165 billion, should take place before 2030.

The benefits of such an investment wave for Belgium are now well known. It will easily create 60,000 additional jobs by 2030, increase the competitiveness of industrial sectors, and improve air quality. But let’s be honest: in the current context of high interest rates and intergovernmental bickering over energy prices, an investment jump will not happen automatically. We urgently need to make every effort.

The tax reform that was on the federal government’s table contains 3 measures that could boost climate investments. Greening the investment deduction so that companies can recover these investments more quickly. Phasing out professional diesel subsidies, which will make electric or hydrogen-powered trucks more competitive. Finally, a shift in indirect taxes to make electricity cheaper compared to fossil fuels. The latest measure could give a big boost to the installation of heat pumps and other green heat sources.

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Given the failure of tax reform, a decision on these measures has not yet been taken. As Climate Minister, I will introduce it again at the last minute of a major decision of this federal legislature: preparing the budget. This may seem strange at first glance, but the three measures are also very beneficial for the budget.

The first impact is fundamental: If we do not invest enough and allow global warming to derail, the damage and misery caused by extreme weather will increase dramatically. The summer of 2023 was a painful example of this. These damage costs are already showing up in budgets. For example, insurance companies paid a total of €2 billion in compensation for the 2021 climate disaster, of which €1.05 billion will eventually be repaid by governments in our country. In its second climate stress test, the European Central Bank recently concluded that reducing greenhouse gases “rapidly and radically” is the most economically interesting option of all.

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Of course, climate change outcomes also depend on other factors. Belgium or even Europe alone cannot slow this down enough. But on the contrary, global climate neutrality, which stops climate change, can only be achieved if every industrialized country becomes climate neutral, including Belgium.

The second effect is obvious. An action that generates revenue is good for the budget. The federal government spent €1.2 billion on professional diesel in 2020. Accelerating excise duty payments to Polish truck drivers, among others, is a quick win. But shifting tariffs can be budget-neutral, too.

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However, there is a financial dimension that is not yet sufficiently known. Each ton of CO2 reduction is currently worth around €90. Take 2022 for example: due to the energy crisis, greenhouse gas emissions were 2.3 million tons lower than the reduction path that Belgium should follow than Europe. An unexpected gain of 207 million euros! On the contrary: due to the lack of a strong enough climate policy, the Flemish government wants to reduce greenhouse gas emissions less than is necessary. This will cost more than a billion euros in emissions allowances until 2030. In short: weak climate policy now will cost the government hundreds of millions within a few years.

I have noticed in recent years that this new reality has not yet fully penetrated. That’s why the financing mechanism was included in my climate law, which the federal government approved on its first reading before the summer. By taking the emission allowance price into account in addition to the energy price, for example, we gain better insight into government investments or climate-good expenditures and budgeting.

My administration calculates that the three climate measures could reduce emissions by 12 million tons by 2030. In short, this saves our governments the compulsory purchase of emissions rights worth more than a billion euros. It is very unfortunate that such numbers are never discussed in the public budget debate. If households and companies boost climate investments thanks to targeted government measures, this will also benefit the budget.

Zakia Al Khattabi, Minister of Climate, Environment, Sustainable Development and the Green Deal.

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