Following the meeting of Luxembourg's cabinet meeting on Friday 28 July 2023, the Ministry of Finance announced that it has approved a bill and a Grand-Ducal regulation which provide for an annual increase in the price of carbon of €5 per tonne of CO2, thus reaching €45 per tonne in 2026.
This approach is in line with the decision of the cabinet on 21 July to update the national integrated plan for energy and climate (PNEC). These actions are in line with the government's climate policy to achieve greenhouse gas emission reduction targets by 2030.
In order to mitigate the impact of this increase on low-income households, the Minister of Finance, Yuriko Backes, introduced in the same bill an increase in the additional CO2 tax credit of €24, so that it reaches a ceiling of €168.
The Minister of Finance explained: “It is important to me to further mitigate the impact of the increase in the carbon tax for low-income households, in parallel with our national strategy to achieve our environmental objectives. This is why I will table this bill in the Chamber of Deputies in the coming days, which will further increase the CO2 tax credit to €168.”
As a reminder, when the tax on CO2 emissions was introduced in 2021, the tax credits intended for employees, pensioners and self-employed workers were increased by €96 in order to compensate socially for the impact for these taxpayers. Following the agreement concluded between the government, the Union des entreprises luxembourgeoises (UEL) and the trade unions OGBL, LCGB and CGFP during the meeting of the tripartite coordination committee on 3 March 2023, the sum of €96 allocated for the compensation of the CO2 tax has been dissociated from the CIS, CIP and CII to constitute a CO2 tax credit in its own right. The law of 5 July 2023 increased the CO2 tax credit by an additional €48, which represents an increase of 50%, establishing an overall CO2 tax credit of 144 euros as of 1 January 2024. This is applicable for a gross salary income, a net profit of €936, or a pension of €300 up to an annual income of €40,000. With the entry into force of the new law, this amount will therefore be increased to €168. The tax credit gradually decreases until an income of €80,000 per year, beyond which it is no longer applicable.
