In order to meet the climate goals, private homes in the Netherlands will also have to undergo changes. For example, how will we wean the Netherlands off natural gas? One of the people involved in this task is Arjen Schep, employed at the Erasmus School of Law (ESL). Schep is a researcher but also an alumnus; he studied tax law, and stayed. ‘ESL is the only law faculty in the Netherlands with tax law specialists in the field of local taxes.’
What is the relationship between tax law and sustainability?
‘You have to start with the Paris Climate Agreement, for which the Netherlands committed itself to meeting the climate goals, which include reductions in CO2 emissions. Negotiations about Dutch climate policy are taking place around various tables: who will contribute or give up what? Part of the greenhouse gas reduction will have to come from residential homes and other buildings.
One important issue is how to make private homes gas-free. This is difficult for home owners: insulating your house, making it sustainable and installing an alternative heating source is expensive. Moreover, you cannot be sure whether the investment will pay off, especially if you sell your house three years later, for example.
And this is all under the assumption that you have the money or can borrow the necessary capital to carry out renovations, which is not the case for everyone. So, funding is a real problem when it comes to making homes sustainable. An enormous investment is needed.’
Why is that investment so large?
‘We need to adopt an alternative to gas with the same enthusiasm with which we started using gas. But natural gas is a good heat source. All the currently available alternatives produce less heat. So, all homes will have to be insulated. For many of the standard homes in the Netherlands built in the seventies and eighties, it will cost between 20,000 and 25,000 euros to make them sustainable.’
And why is tax law relevant here?
‘We currently have a consortium of parties looking at the possibilities for building-based financing. The types of financing currently available, such as mortgages and loans, are subject based. They are based on the income and debts of the owner of the property. Object-based financing is based on a building: what is it worth, when was it built, how much will it cost to insulate? And: how much will be saved in monthly costs? The amount of money available for investment is the result of the capitalization of the monthly saving in energy costs to twenty years. That sum is available for sustainable investment in the building, independent from the income of the current owner. The plan is to have these renovations financed through the municipality by big financial institutions like the Bank of Dutch Municipalies (BNG) or pension funds. To pay off the debt, the municipality will levy a tax for the coming twenty years. If the home owner sells his home, the municipal tax will stay connected to the home and automatically will be passed on to the next owner of the house until the investment is payed off. The cost of living for the current home owner remain the same. Instead of paying for gas and electricity, he will pay more or less the same amount of money in the form of a municipal tax. I prefer to call it a ‘sustainability contribution’ (‘verduurzamingsbijdrage).'
Verduurzamingsbijdrage, that’s a nice term.
‘I think so too. Actually, it’s not really a tax. It’s more like a repayment.
I am currently responsible for the tax aspect of the plan. There is a municipal tax that we can use, the betterment levy. I have developed an application for this. As a resident, you sign up for the voluntary tax, so to speak. This is a temporary solution so that we can get started with pilot projects. Eventually, a legislation will be required for this ‘sustainability contribution’ to make this instrument efficiently applicable at a large scale. I am also discussing the development of this legislation with the Ministry of the Interior.
What makes this complex from a tax law perspective is that a municipality cannot say: we are going to introduce this tax. The plan crosses the boundaries of private ownership; it is still your home. You cannot be forced to renovate, but you have to do it regardless. It’s a tense issue. Property rights are some of the best protected rights that we have. So, we will have to entice people rather than force them.’
'It’s a tense issue. Property rights are some of the best protected rights that we have. So, we will have to entice people rather than force them.'
Arjen Schep
But what is your motivation as a citizen - if you do not care about climate goals, for example - to cooperate?
‘It doesn’t have to be finalised tomorrow. Environmentally conscious people can get started now. On the other hand, things that will have consequences have been established in the climate agreement. Every municipality will have to have a plan regarding natural gas within the next two years. In larger municipalities, a collective heating system may be an option, like district heating. In smaller municipalities, other solutions will have to be conceived.’
Do you mean that it will eventually be obligatory?
‘Eventually it will. One day, everyone will get a letter announcing the removal of natural gas from the district. It will be a phased process. Starting with the districts for which there is a solid business case.’
And are we on time with regards to climate goals?
‘We are already behind. Eventually, 300,000 homes will have to be made sustainable each year, up to a total of 6 million homes. And even if we develop a financial solution, the technical aspects may prove to be an even larger problem than financing: is there enough manpower and resources to carry out the renovations? Will we have to import prefab roofs with pre-attached solar panels from China?’
In recent weeks, articles appeared in the Volkskrant and HP/De Tijd declaring that ditching natural gas and making homes sustainable is actually impossible.
‘I would be inclined to agree that it is not yet possible on a large scale in terms of available manpower and resources. That is why the coalition agreement assumes that only 50,000 homes can be disconnected from natural gas in this administration’s term of office.
It may not currently be possible on a large scale, but it will have to happen in the long run. So, we must develop the necessary instruments so that it will be possible in the near future. Once the government has established a clear framework for the climate agreement, then the technical sector will gain momentum. That is what I expect will happen.’
Where will you start?
‘There are several municipalities and regions that are currently interested in becoming forerunners in this issue and want to start experimenting on a small scale and at the district level. We want to start discussions with these municipalities. For example, the municipality Sliedrecht has received four million from the government to start experimenting. We are in negotiations with the Drechtsteden to look for possibilities to start one of our pilot projects there in 2019. They have specific districts that they would like to wean off gas in the coming years.’
What is your personal motivation to work on this?
‘It is extremely important. And everyone with a home will be involved at some point. I get the opportunity to help solve the puzzle. A puzzle that cannot be solved from the perspective of one field: it has a financial side, a fiscal side and a technical side. It demands a truly multidisciplinary approach. That is why it is taking so long, and why the climate agreement has not yet been a success. For me, it is enjoyable and interesting to make a contribution to this puzzle. I also think object-based financing is fair: it makes it possible to create sustainable homes for future generations and to share the costs for doing so.’
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Challenge Accepted is a joint campaign from the Erasmus University Rotterdam and Erasmus Trustfonds, that calls on all scientists, students and alumni to contribute to advancing three ambitions that help shape the future.
In Fostering Inclusive Prosperity we’ll try to find answers to questions like: How can entrepreneurship and economic activities drive sustainability and fairness? What disruptive technologies can become a force for positive change? How can financial systems become drivers for inclusive prosperity?
