Today, we can present you the set of new own resources which we adopted in today's last College meeting of the year, which will ensure that the next generation will truly benefit from NextGenerationEU.
We propose three new sources of revenue based on:
-a carbon border adjustment mechanism, and
-a share of the reallocated profits of very large multinational companies (better known or related to the Pillar I of the OECD agreement).
This well calibrated package will not only provide a steady stream of revenue, used for the repayment of NextGenerationEU, but also align the revenue side of the EU budget with the EU's policy goals: the green and digital transitions.
There is in particular a strong link between the new own resources and our climate ambitions as the new sources of revenue will also finance the Social Climate Fund. This fund that we proposed last July will help to ensure that the transition to a low carbon economy leaves no one behind and will be an important element to increase the acceptance of the proposed Emissions Trading System covering road transport and housing.
In July, as part of the fit for 55 package, we presented the centrepiece of Europe's effort in becoming the world's first climate-neutral continent by 2050 and making the European Green Deal a reality: the revision of the Emissions Trading System Directive.
In future, emission trading will also apply to the maritime sector, over time all aviation allowances will be auctioned, and a separate new emissions trading system for road transport and buildings will be established.
Emissions trading is an EU-wide European instrument translating our ambitious commitments into reality. It therefore constitutes an excellent base on which to establish an own resource.
Once up and running, this own resource will contribute €12.5 billion (2018 prices) to the EU budget annually.
The carbon border adjustment mechanism, which the Commission also proposed in July 2021. It will put a carbon price on imports corresponding to what would have been paid, had the goods been produced in the EU (for instance, for cement, aluminium, steel and iron, fertiliser, electricity).
Thereby, we will address the risk of carbon leakage, support our increased global ambition to fight climate change.
While climate policy is of course not an exclusive competence of the EU, the benefits of the reduction of emissions, which the carbon border adjustment mechanism would help achieve, would accrue across national borders. This measure will trigger from our perspective positive reactions. Therefore, it is another confirmation that this kind of revenue is a natural candidate for Union's own resources.
When in place, we will be able, according to our calculations, to generate €0.8 billion (2018 Prices) per year for the EU budget.
Finally, about the third own resource. On 8 October 2021, the G20 endorsed a historic agreement to create a fairer international tax system.
Part of this OECD/G20 agreement - the so called Pillar One - on its basis, it will be possible to re-allocate the right to tax a share of residual profits from the world's largest multinational enterprises to participating countries worldwide.
We will need to translate it into EU law taking into account our Single Market and the Commission will propose a directive on this later in the year.
Therefore, our consideration is that Pillar One can form a very good basis for an EU own resource, because it is linked to global challenges like fair taxation and we link the digital transition to the revenue side, and therefore fulfil our interinstitutional commitment.
This own resources will contribute, according our calculations, between €2.5 and €4 billion per year (2018 prices) to the EU budget every year. If we add everything together, we can expect revenue of around €15.8 until €17.3 billion per year (in 2018 prices) at least for the years 2026 until 2030 when we expect that the revenue flow will arise at cruising speed.
To complete the package we present today, we are presenting a proposal for a targeted amendment to the current multiannual financial framework to allow for the financing of the Social Climate Fund and NextGenerationEU repayment.
With today's package, we reaffirm our strong commitment to linking the revenue side of the EU budget with EU policy priorities and in particular the Fit for 55 package.
At the same time, we deliver on the commitment of NextGenerationEU repayment with new own resources, in line with the agreement on the Multiannual Financial Framework and the NextGenerationEU recovery instrument.
This proposal is the final piece or as a colleague in the College today said “we manage to square the circle” for the NextGenerationEU puzzle, and it is a milestone which will pave the way for a more policy oriented and independent EU budget, financed from the next generation of EU own resources.
And for those who are interested in historic issues, for the first time, there was a commitment to introduce new own resources in the year of my birth, it is not a particular secret, it was in 1957. And the decision which was never implemented, was reconfirmed in 1970, and since then we did not make a real progress. So this is indeed an historic moment, that we are now producing something very concrete and as you know all this is based on an Interinstitutional Agreement between the Council, the Parliament and the Commission to really implement it or at least agree in the course ideally of this year. This is not the end of the story as we have today communicated our intention to present the second basket of new own resources already in 2023 (in the Interinstitutional Agreement we have committed to do it in 2024) but with this we will ensure that the full repayment of NextGenerationEU will be possible from the new own resources. In this €15.8 until €17.3 billion in 2018 prices, it also include the budget for the Social Climate Fund which is calculated of around 8 billion. So what remains for the moment is around 9 billion for the repayment as of 2026-2027 onwards and as you know the need is to have around €15 billion per year. This is why we need a second proposal. It was always clear that we needed to have two proposals, now we are covering almost two thirds of the needs. The other third will be subject to a proposal in 2023. I am very confident that we also reassure the capital market in all our activities, because our message is always that we raise the money now, we issue bonds but we are ready to repay from the EU budget by creating new own resources and this is correct to speak about an historic moment.