Filenews 26 December 2023 - by Eleftheria Paizanou
Cyprus will also have to comply with the green European decisions in the coming years, in the context of the Green Deal. Our country will implement the commitments it made through the National Recovery Plan by the end of 2026 at the latest. The start will be made in the first quarter of 2024 with the imposition of green taxation in the first phase on fuels and at the same time the granting of compensatory measures to citizens. The percentage of the tax rate he chooses, as well as the compensatory measures, are under study by the University of Cyprus.
The green economy is high on the agenda of European Union (EU) member states, as it is hoped to create a new economic base, based on sustainable development and environmental protection. The EU moved forward with the European Green Deal, the Union's new growth strategy for adaptation to climate change, which aims to transform the EU into a modern, resource-efficient and competitive economy and make the EU a global leader in tackling climate change.
Under the Green Deal, greenhouse gas emissions should be net-zero by 2025 by 2050. The political actions of the European Green Deal are included in the National Recovery Plan, which the Republic should implement by the end of 2026.
The Cyprus Recovery Plan includes actions to promote energy efficiency investments in small and medium-sized enterprises, municipalities, communities, etc. It also includes the promotion of renewable energy sources and individual energy efficiency measures in homes to tackle energy poverty in households with disabilities, the reduction of CO2 emissions in industries, businesses and organizations as well as the implementation of the green tax reform.
The Ministry of Finance, for the transition to the green economy, has concluded a Research Cooperation Agreement with the Centre for Economic Research (VIU) of the University of Cyprus, on "Climate Change and Impacts on the Cyprus Economy".
The study assesses the potential impact of climate change on GDP and potential growth rate, in critical sectors of the economy (tourism, agriculture, shipping), public finances and more generally on the prospects and development model of Cyprus. It should be noted that, in its forecasts, the competent ministry should also take into account the potential external shocks and risks caused by the uncertainty caused by climate change in the long term. Agreement with the JIT, the whole study will be completed in three stages and the final text will be delivered in December 2025.
GREEN BUDGET
According to the report on economic developments for 2023 and outlook 2024-2026, accompanying the 2024 state budget, a green budget should gradually be prepared, based on the reference framework of the EU green budget. The Republic has already received technical assistance from the Directorate-General for EU Reform.
The implementation of the framework for the "green" budget will be substantial and with more added value, with the implementation of activity-based state budgeting.
In addition, the report states that the implementation of a "green" budget is considered one of the most important tools that the Ministry of Finance can develop, which with its full implementation will offer the possibility of monitoring and evaluating, with full transparency, the environmental contributions of fiscal policies, with the aim of aligning them with national environmental targets. mainly with regard to our obligations as an EU Member State set out in the Green Deal.
The use of a green budget will make a crucial contribution to the green transition of the economy by reorienting public investment, consumption and taxation towards green priorities, while avoiding harmful subsidies, always within the framework of EU fiscal rules, preserving fiscal stability and ensuring public debt sustainability.
THE NEW FUEL TAX
In the context of the implementation of the Recovery Plan, the green tax reform should be completed within the first quarter of 2024. That is, the carbon tax, known as the green tax, should be imposed on fuels used in sectors of the economy that do not fall under the Greenhouse Gas Emission Allowance Trading System (ETS), while the levy on water use and household waste (landfill tax) would also be imposed.
According to the report on economic developments, the green reform will be fiscally neutral (will not bring increased revenues to the state), through the implementation of compensatory measures.
The carbon tax, which will be levied on energy products, will be differentiated by fuel type, depending on carbon dioxide emissions. The carbon tax is considered one of the most effective fiscal tools to reduce emissions. Its introduction in Cyprus will contribute to the country's compliance with its environmental obligations towards the European Union on energy and climate (national target 32%).
In addition, the transport sector in Cyprus has the largest contribution to carbon dioxide emissions into the atmosphere, being responsible for more than 50% of pollutants (excluding the sectors of the economy falling under the ETS).
As stated in the report, fuel consumption produces a negative externality, like other production and consumption processes, in the sense that citizens do not bear all the costs they cause, in this case emissions of exhaust gases, both carbon dioxide and other pollutants harmful to health.
The imposition of environmental taxation aims to internalise environmental costs in economic operators' fuel consumption decisions, with the aim of reducing fuel consumption and promoting sustainable transport options, thereby reducing pollutant emissions.
It is estimated that the implementation of the green tax reform will have a significant contribution of about 12% to the reduction of carbon dioxide emissions, which is quite significant if we take into account that Cyprus is among the Member States with the highest greenhouse gas emission among the Member States amounting to 11.6 tons of CO2 per capita, compared to the EU average of 8.8 tons of CO2 per capita.
DIFFERENT RATES IN EACH COUNTRY
From the analysis of various data, it appears that each country applies different tax rates to green taxes.
In 1990, Finland was the first country in the world to introduce a carbon tax. This was followed by 20 other European countries that imposed carbon taxes, which are below €1 per metric ton of carbon emissions in Ukraine, up to and beyond €100 in Sweden, Liechtenstein and Switzerland.
Specifically, the highest carbon taxes are imposed by Switzerland and Liechtenstein, with the surcharge being €120.16 per ton of carbon emissions. It is followed by Sweden with €115.34 per tonne of carbon emissions and Norway with €83.47. On the other hand, the lowest carbon tax rates are imposed in Ukraine, at €0.75, and Estonia, at €2 per tonne of carbon emissions.
The data are included in the Tax Foundation and refer to the period until the end of March 2023. The countries that have most recently imposed this tax are Austria, in 2022, with the surcharge amounting to €32.50 per ton of carbon emissions. In 2021, this measure was also imposed by Germany, with €30, Luxembourg with €44.19 and the Netherlands with €51.07 per metric ton for carbon emissions.
THE GREEN BOND
Moreover, the Republic proceeded with the issuance of the first viable bond, amounting to €1 billion, with a ten-year maturity, with an annual yield of 4.219% and an annual nominal interest rate of 4.125%.
According to the Office of Public Debt Management (DGM), the issue was particularly successful, with the largest book of offers in the history of the Republic, with offers exceeding €12 billion. The funds raised will be used to finance or refinance projects and activities that promote sustainability, address climate change and other environmental and social purposes, as determined in the eligible costs under the Sustainable Bond Framework of the Republic.
Green/sustainable bonds are an integral part of the effort to transition to a green economy and achieve the ecological goals of the state within the framework of EU policies. The use of the green/sustainable bond as a financing tool attracts particular interest from international investors and is therefore expected to increase interest in international capital markets for the issuance of the Republic and broaden the financing options of the state, with access to new investors.
From the Cyprus edition of Forbes
