Filenews 9 March 2024 - by Angelos Nicolaou
A new tax on motor fuels comes from 2027 under the new Emissions Trading System (ETS2) that includes road transport. A tax that, if taken into account with the implementation of the Green Tax Reform, which is a commitment of the Republic of Cyprus in the Recovery and Resilience Plan and comes into force in the next period (1/4/2024 based on the proposed bill on carbon tax), will further skyrocket motor fuel prices.
All this comes at a time when fuel prices have risen again and it is established that this upward trend will continue with international prices rising and new cargoes expected in Cyprus to be at more expensive prices. Therefore, from 1 April those who refuel their cars at petrol stations will find that prices will be 8.33 cents a litre more expensive than they are currently a consequence of the government's decision to abolish the subsidies currently in place, restoring excise duty to the levels it was at before the tax cut was decided.
Based on the proposed bill to impose a carbon tax on energy products in the coming period and after approval by Parliament, the price of fuel will increase by 5 cents per liter. The proposed bill includes a table where it increases the carbon tax per year to reach 25 cents a litre by 2033. In 2027 the increase under the proposal would reach 14 cents a litre. In case the government goes beyond the adoption of the carbon tax and the implementation of ETS2 in 2027, the amount of fuel will increase even more.
It is estimated that the government will review this ETS 2 tax once green taxation on liquid fuels is introduced in the coming months. Cyprus needs to align with the new ETS for buildings, road transport and additional sectors on 30 June 2024. Therefore, it is expected that after the Easter holidays this bill will be submitted to Parliament. If the Green Tax Reform is not implemented by then, then the government will still have a hoarse face when two differential bills are debated in parliament that will burden households even more with two separate taxes on fuel.
In this case, the already increased prices from the carbon tax will be further added to the prices with the new tax on air pollutant emissions that will target those who run on conventional fuels starting in 2027. Unlike the carbon tax where the increase is horizontal for transport fuels, the assessment of the impact of ETS2 on retail fuel prices is different. In fact, before the end of the decade the increase will be in the order of 5-15% in liquid fuels with a smaller percentage increase in the price of gasoline and LPG and a higher percentage increase in the prices of heating oil and fuel oil.
In 2027 the price of gasoline will increase by 6.8 cents and diesel by 8. In 2028 gasoline will be 10.8 cents more expensive and diesel 12.8, in 2029 12.2 cents gasoline and 14.4 diesel and in 2030 13.5 cents gasoline and 16 cents diesel.
Therefore, in retail prices additional to 42.9 cents and 40 cents per liter on gasoline and diesel respectively, as an excise duty plus VAT of 19%, two new taxes are imposed based on the drafts, the first as a carbon tax and the second as a tax from the ETS2. That is, in 2027, based on estimates, the price of gasoline will be more expensive by 12 cents and diesel by 13 cents. Under the same proposals, additional taxation in 2030 at current prices would increase the price of gasoline by 35.5 cents and diesel by 38 cents a litre.
Switching to electricity and RES and saving energy
The new Greenhouse Gas Emission Allowance Trading System for Buildings, Road Transport and Additional Sectors (ETS2) will contribute to achieving the EU-wide greenhouse gas emissions reduction target under the European Green Deal by implementing financial incentives to reduce the use of fossil fuels in road transport, buildings and light industry.
ETS2 is expected to increase retail prices of liquid fuels, which may lead to a slight increase in the cost of living.
An impact analysis carried out on behalf of the Ministry of Agriculture, Rural Development and Environment by the Cyprus Institute states that households and businesses that can save energy or switch to electricity and/or RES will not be affected by ETS2.
Cyprus will have significant revenues from ETS2, both due to the auctioning of emissions and its participation in the Social Climate Fund. It will also reduce fuel import bills from abroad. If the benefits of reducing air pollution due to reduced fuel use are taken into account, then ETS2 can bring a net benefit to the Cypriot economy and society during its period until 2032.
Given that central government spending on fuel in 2022-23 ranged between €15-40 million. Annually, a gradual increase in fuel prices of up to 15% is expected to burden public expenditure by €3-6 million. at the end of the period 2027-2032 or by €15-25 million. for the entire six-year period. This amount is much lower than the revenues of the Republic from auctions of emission allowances under the ETS 2 of at least €392 million. Also, revenue losses are expected due to reduced consumption tax receipts due to lower fuel consumption in the coming years, which may amount to €15-€50 million. at the end of the period.
It is estimated that ETS2 will have a positive impact on the budget balance, allowing for the implementation of appropriate compensatory measures of a social nature. However, these compensatory measures should not involve subsidizing fossil fuel prices, but rather helping vulnerable households and businesses invest in zero-emission equipment and vehicles to adapt to the needs of the green transition.
ETS carbon tax2 ETS2
€/litre €/litre €/litre
Year petrol/diesel petrol diesel
2024 0.05
2025 0.07
2026 0.10
2027 0.14 0.068 0.08
2028 0.19 0.108 0.128
2029 0.21 0.122 0.144
2030 0.22 0.135 0.16
2031 0.23
2032 0.24
2033 0.25
