Would suspending CO2 taxes hurt Putin?

This morning, Richard Sulik, the Slovak Minister of Economy, was on “Informationen am Morgen”, Germany’s most influential radio news broadcast. He was invited because Slovakia is trying to soften the announced oil embargo of the European Union on Russia.

Slovakia has good reasons for being hesitant. Not only does Slovakia get large parts of its oil from Russia. What makes it even more difficult is that large amounts of the oil is coming into the country via a pipeline. Such a close connection is difficult to change. Countries whose oil imports come into the country mainly by ship have it much easier to switch suppliers.  

Mr Sulik, however, brought up a quite questionable proposal. During the interview (he spoke German), he repeatedly argued that EU countries should temporarily lift taxes and expenses on CO2. His message: Less climate protection is the price that has to be paid now in order not to keep filling Putin’s war chest. Because the currently high energy prices would do just that. A suspension of the CO2 levy would lower the energy price, and therefore Putin would get less money, Sulik said. 

That’s pretty obviously wrong.

Indeed, a CO2 levy (whether due to national taxes or the European emissions trading scheme) increases the price of fossil energy. But the money from that does not go to Putin but to the coffers of the European states.

In fact, a CO2 levy harms Putin. The increased customer price means that consumers are increasingly looking for and finding alternatives to fossil fuels. As a result, demand in oil is falling, and price pressure is easing. 

So the idea that we have to choose between climate protection and a Putin embargo is wrong, at least on this point.

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