The EU budget does not work like a national budget, for instance, the EU is not able to independently collect taxes and duties. Its revenues, so-called own resources, are composed of tariffs on imports from third countries, of contributions based on VAT collected by Member States and of direct contributions by Member States, based on their gross domestic product. In 2021, another source of revenue was added with the introduction of the plastics own resource – also known as “plastic tax”. Since the EU budget has raised more than two trillion euros through the Corona reconstruction instrument, the NextGenerationEU, new own resources are now needed to repay these borrowed funds. Apart from that, these shall also finance the planned Climate Social Fund, which is to ensure a just transition in the course of the Fit for 55 Package.

EU emissions trading

Additional revenue through an expansion of the EU Emissions Trading System (ETS) has already been proposed by the Commission as part of the Fit for 55 Package in July 2021. On the one hand, the ETS shall be expanded to air and sea transport in future, while a new Emissions Trading System, ETS 2, shall be introduced for buildings and road transport on the other. While currently revenues from the sale of emission certificates are still flowing into national budgets, the Commission’s proposal now provides for 25 % to be included in the EU budget in future. According to EU estimates, this shall add on average 9 billion Euro p.a. from 2023-2030.

Carbon Border Adjustment Mechanism

Based on the simultaneously presented Carbon Border Adjustment Mechanisms (CBAM), a carbon price shall be levied on import into the EU to reduce the risk of carbon leakage. Apart from that, the Commission wants to ensure that production will also be more environmentally friendly in non-EU countries. The carbon price on imports shall be equivalent to the price, which would have been paid in case of EU-based production. According to the Commission proposal, 75 % of CBAM revenues shall flow into the EU budget, thereby adding 0.5 billion Euro p.a. on average to the EU budget from 2023-2030.

Taxation of corporation’s profits

On 8 October 2021, 136 OECD countries agreed on reforming the international tax system to curb profit shifting and tax competition by large multinational enterprises. This reform is based on two pillars, whereby the first shall contribute to generating own resources. Due to the fact that in future profits are to be taxed, where economic activities take place and value is created, new revenues are being generated, which are to serve as another source for own resources. According to the Commission proposal, 15 % of the residual profits shall flow back to the Member States via the EU budget, which might add between 2.5 and 4 billion Euro p.a. to the EU budget.   

Next steps

Introducing these three new own resources into the EU budget is no easy task, as it requires amending the provisions of the 2021-2027 Multiannual Financial Framework. Apart from that, negotiations on introducing ETS 2, CBAM and the international corporate taxation are ongoing in the European Parliament without any decision being in sight. Thus, AK is clearly opposed to the introduction of Emission Certificate Trading for fuels as consumers could be directly affected by strong price fluctuations. This would be particularly harsh for consumers affected by energy poverty as these have no opportunity to resort to energy efficiency measures. Thus, the Draft report of the rapporteur on the ETS directive, Peter Liese, proposes to delay the implementation of ETS 2 for at least two years. The AK welcomes the proposal to use the taxation of corporation’s profits as a supplier of own resources. However, it has to be ensured that in the end it will not be the national budgets bearing the burden, but that an additional tax will be devised for large enterprises.

Further information:

AK EUROPA: Commission presents Proposal on minimum tax for large multinational enterprises

AK EUROPA Position Paper: “Fit for 55” Package I: Pricing Greenhouse Gas Emissions

AK EUROPA Policy Brief: Effective Minimum Tax Implementation - Alternatives to Unanimity 

EU Commission: next generation von EU own resources