CO2 levy for greenhouse horticulture:
Finding the balance between ambition and feasibility

Herijking CO2-heffing glastuinbouw
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For the Ministry of Finance, we addressed a critical question for Dutch climate policy: what CO2 levy is needed for the greenhouse horticulture sector to achieve its 2030 emission target of 4.3 megatons CO2-equivalent? The assignment involved recalibrating an existing calculation model to account for new policy developments and updated sector projections. Throughout this process, we engaged in valuable dialogue with the Netherlands Environmental Assessment Agency (PBL) to align methodological approaches.

Why was a recalibration needed?

The Dutch greenhouse horticulture sector accounts for the majority of agricultural CO2 emissions related to energy use, using natural gas for heating, lighting, and as CO2 feedstock for crop growth. Through the Energy Transition Covenant 2022-2030, the sector committed to a residual emission target of 4.3 megatons CO2-equivalent by 2030. Following our previous tariff study, legislation established a flat CO2 levy starting at 9.50 euros per ton in 2025, increasing to 17.70 euros per ton by 2030.

However, two developments necessitated recalibration. First, the Ministry of Finance requested assessment of new policy variants, specifically the impact of incorporating greenhouse horticulture into the European ETS2 emissions trading system and the introduction of a green gas blending obligation, both scheduled for 2027. Additionally, the Ministry requested insight into the cost implications for different types of growers under these policy scenarios.

Second, PBL's Climate and Energy Outlook 2024 calculated higher emissions for 2030 under the same levy, necessitating detailed comparison of assumptions regarding energy consumption and behavioural responses to carbon pricing. This comparison revealed that the sector's energy use proved higher than anticipated in our 2024 study. The 'rebound effect' – where growers increased energy consumption following the period of high energy prices – exceeded previous projections, fundamentally altering the baseline from which emission reductions must be achieved.

The analysis employed a detailed calculation model capable of simulating grower investment decisions under varying policy conditions. The model accounts for sector heterogeneity across crop types, cultivation strategies, heating technologies, company sizes, and geographic locations. A tomato grower faces fundamentally different cost structures and decarbonisation options compared to an ornamental plant grower. The model evaluates technology packages including combined heat and power installations, heat pumps, geothermal energy, and industrial waste heat, while explicitly accounting for regional constraints such as grid congestion. The recalibration process refined model parameters while maintaining our cost-based investment decision framework.

How high should the levy be according to the recalibrated model?

The recalibration yielded a substantially revised assessment. To achieve the 2030 target with adequate confidence, the necessary net CO2 price was calculated at approximately 53 euros per ton CO2 – considerably higher than the 17.70 euros in current legislation. This revision reflects both updated baseline assumptions and new policy instruments scheduled for 2027.

The government's designated "rijksscenario" introduces additional complexity. From January 2027, greenhouse horticulture will be incorporated into the European ETS2 emissions trading system, with an anticipated carbon price of approximately 54 euros per ton, alongside a green gas blending obligation. To prevent excessive financial burden, the government committed to compensating the sector such that the effective net CO2 price corresponds precisely to the level required for target achievement, implemented through reduced energy taxation and a sector-specific compensation scheme. The separate national CO2 levy will be discontinued from 2027 to avoid regulatory overlap.

Large implications from possible restrictions

The sensitivity analysis revealed considerable responsiveness of the required CO2 price to underlying assumptions. Energy intensity proved highly impactful: a 20% increase in sector energy intensity would necessitate a net CO2 price of 218 euros per ton, while a 20% decrease would result in the target being exceeded without pricing mechanisms. Infrastructure constraints emerged as another critical factor, with a three-year delay in grid expansion investments elevating the required CO2 price to 170 euros per ton. The availability of SDE++ subsidy budget also proved decisive: increasing the budget by 50% would reduce the necessary CO2 price to less than zero, whereas halving it would require 122 euros per ton. Sector scale similarly demonstrated significant impact, with a 10% expansion in greenhouse area necessitating a CO2 price of 100 euros per ton. These sensitivities underline that CO2 pricing effectiveness depends fundamentally on the availability and accessibility of decarbonisation alternatives, rather than price signals alone.

Balancing ambition with economic viability

The analysis demonstrates that effective CO2 pricing for greenhouse horticulture requires navigating substantial heterogeneity and competing concerns. Certain grower segments can transition relatively smoothly to sustainable alternatives, while others face prohibitive costs. External energy companies supplying heat to greenhouses cannot access sector-specific compensation schemes, bearing the full ETS2 cost burden. Company size influences investment capacity substantially, and geographic location determines access to geothermal energy or industrial waste heat.

The compensation mechanism attempts to balance emission reduction objectives against economic viability. By setting the effective CO2 price at the level necessary for target achievement while preventing excessive financial burden, the policy aims to drive decarbonisation without undermining competitiveness or triggering market exit. The findings quantify the price signals required under different policy configurations and identify the key sensitivities determining policy effectiveness. The substantial difference between the initially legislated levy and the recalibrated requirement illustrates how rapidly evolving circumstances necessitate policy adjustment in transition processes.