Swiss CO2 Act rejected: What’s next for businesses? Swiss CO2 Act rejected: What’s next for businesses?

Following the referendum that took place last Sunday, 13 June 2021, 51.6% of Swiss voters rejected the revised Swiss CO2 Act. The decision of Swiss voters could put at risk Switzerland's climate targets and turn the CO2 levy into a bottom-line cost directly affecting businesses.

Opponents campaigned against the revised CO2 Act arguing that the new text would have imposed excessive costs on Swiss households due to the increase of the CO2 tax, the progressive ban on oil and gas heating systems and the proposed incentive tax on airline tickets. 

At the same time, the mix of tax and incentive measures foreseen by the revised CO2 Act on the basis of the “polluter pays” principle were probably considered too extensive and intricate and, thus, failed to convince the Swiss voters.

The rejection of the new CO2 law could mean that Switzerland may fall behind its commitments according to the Paris Agreement to reduce carbon emissions by 50% of 1990 levels by 2030. The Swiss Federal Council has however indicated that Switzerland will remain in the Paris Agreement. Most importantly, this setback is happening at a time when other countries, including the EU, are moving forward with the introduction of carbon-related policies and environmental tax measures, such as the implementation in the EU of the Carbon Border Adjustment Mechanism (CBAM).

The rejection of the proposed revision of the CO2 Act means that the Swiss political parties will need to work together with the representatives of the impacted economic sectors to identify which elements of the law could remain viable. In order to avoid a new accumulation of oppositions, it will be crucial to find a compromise on a new text of the CO2 Act and different approaches may have to be considered (e.g. passing legislation on a sector-by-sector basis, define new instruments / mix of incentive policies and tax measures, etc.).

As an immediate next step, the Swiss government will have to determine whether those measures provided in the current CO2 legislation which are expected to expire at the end of 2021 can be extended beyond this year to ensure continuity of the Swiss CO2 emissions reduction policy. Those measures include, amongst others, the possibility for specific business sectors to claim an exemption from the CO2 levy on thermal fossil fuels to the extent that they commit to improve the efficiency of their installations and reduce their carbon emissions. Especially for the industrial sector, businesses using thermal fossil fuels could be significantly impacted as they may no longer be able to claim the tax exemption. Therefore, unless this measure is extended beyond 2021, the CO2 levy could become a bottom-line cost directly affecting businesses. 

Other measures set to expire at the end of the year include the obligation for importers and producers of fossil fuels in Switzerland to compensate their CO2 emissions, the amount of the CO2 levy on thermal fossil fuels (current annual threshold set at 120 francs) and the determination of concrete annual targets for the reduction of CO2 emissions in Switzerland. 

Finally, it will be important for businesses to carefully monitor whether they may be affected by other environmental policies and pieces of legislation, such as the bill on the expansion of renewable energies that the Swiss government is expected to table this summer and the alignment of Switzerland with the carbon tax policies expected to introduced in the EU in the coming months.

Our team will continue monitoring and keep you informed on the latest developments regarding the implementation of environment-related taxes in Switzerland and abroad. If you have any questions, please do not hesitate to contact our specialists.