Luxembourg fuel sales are expected to fall 8% in 2021
Luxembourg will net €140m through its CO2 tax on fuel in 2021 but over the medium-term the impact on public revenues is expected to be negative, a Statec report has found.
Research published on Monday suggests that consumption habits, particularly by non-resident diesel drivers, will shift as a result of the gradual tax, which follows a polluter pays principle.
The carbon tax translates into an additional cost, including VAT, of 6 cents per litre of diesel in 2021 and 9 cents in 2023. The increased cost is expected to lead to a 8% fall in fuel sales in 2021, a decline that could reach 15% by 2023, Statec reports. Consumption of gas and oil fuel would meanwhile fall 2% in 2021 and 4% in 2023, compared to before the tax.
The impact on public revenues is estimated to be neutral in 2021 and negative in the medium term. Statec says this is because there will be lower sales volumes of fuel and tax products, and related tax revenues, combined with increased costs of social compensation measures for low-income households, notably tax credits.
The carbon tax is one strategy for meeting the 2050 zero net emissions target outlined in the Paris agreement.
In 2021, the tax is applied at a rate of €20 per tonne of CO2, increasing by €5 respectively in 2022 and 2023. It is expected to reduce greenhouse gas emissions by 6% in 2021 and 11% in 2023.