This summer, the European Commission unveiled five new proposed “own resources” to fund the EU’s next long-term budget — the Multiannual Financial Framework (MFF) covering 2028–2034. While two of these ideas, the “Corporate Resource for Europe” (CORE) and the “Tobacco Excise Duty Own Resource” (TEDOR), have drawn the loudest resistance from member states, the real financial workhorse of the Commission’s fiscal ambitions is already in place: the EU’s Emissions Trading System (ETS).
Originally designed as a market mechanism to curb greenhouse gas emissions, the ETS has quietly evolved into one of the most significant tax-like instruments in the EU’s history — one that already dwarfs most of the new revenue sources Brussels is proposing. And yet, as the Commission seeks ever more funding powers, few policymakers seem willing to confront the economic damage that the ETS’s cost burden is inflicting on Europe’s industrial base.
The Expanding Web of EU Taxation
The Commission’s new budget plan includes five sources of income. The most controversial among them, CORE, would impose a levy on companies earning more than €50 million annually, expected to bring in around €6.8 billion per year. Germany has sharply criticized the proposal, warning that it could undermine competitiveness and even questioning whether the measure is legally sound under EU treaties. Diplomats reportedly found no member state openly supporting it.
Similarly, the proposed TEDOR would tax tobacco and nicotine-related products, including vapes that contain no tobacco at all. Fourteen countries — from Italy and Greece to Sweden and Portugal — have already declared their opposition. They argue that any new EU-level income stream should reduce national contributions to the EU budget, not replace them with yet more centralized taxation.
Commissioner Wopke Hoekstra’s insistence on treating alternative nicotine products as equally harmful as traditional cigarettes has further alienated governments. Critics point out that the UK health authority has found e-cigarettes to be 95% less harmful than regular smoking. In contrast, Sweden’s long exemption for “snus,” a smokeless tobacco product, has led to the EU’s lowest smoking rate and drastically fewer tobacco-related deaths — evidence of a harm-reduction approach that Brussels continues to ignore.
Even more troubling is that Commissioner Hoekstra appears unwilling to examine what has actually worked to dramatically cut smoking rates. One such success story is snus, a long-standing alternative to cigarettes. Although it has been banned throughout the EU, Sweden was granted an exemption when it joined the Union in the 1990s — effectively turning the country into a real-world control group.
Three decades later, the results speak for themselves — and they are deeply embarrassing for EU health policy. Sweden now boasts some of the lowest smoking rates in Europe, along with significantly fewer smoking-related diseases. In the 1960s, nearly half of Swedish men smoked. Today, only about 5% of Swedish adults do, compared to an EU average of 24%. Sweden also reports 44% fewer tobacco-related deaths, 41% lower lung cancer rates, and 38% fewer overall cancer deaths than its European peers.
While snus traditionally contained tobacco, newer versions are tobacco-free and deliver only nicotine. Yet, several EU member states have chosen to ban these products as well. Banning unhealthy items might help a small segment of the population, but Sweden’s experience clearly shows that offering safer alternatives for nicotine users — ones that avoid the harmful effects of combustion — can be far more effective. Unfortunately, policymakers like Hoekstra seem oblivious to this pragmatic and evidence-based approach.
Exclusive: Commission’s new corporate, tobacco levies under heavy fire from EU countries https://t.co/t81kfGxO7y pic.twitter.com/ZQmnstD7yl
— Euractiv (@Euractiv) September 22, 2025
ETS: Europe’s Hidden Climate Tax
Then while CORE and TEDOR dominate the political headlines, the Commission’s most powerful fiscal tool, the ETS, is already operating — and expanding.
The EU’s Emissions Trading System, launched in 2005, was initially presented as a flexible cap-and-trade mechanism — a way to let the market find the cheapest route to carbon reduction. In practice, it has become a massive de facto tax on energy consumption. The price of carbon allowances has soared in recent years, dramatically increasing costs for electricity, cement, steel, and chemical producers.
Today, the carbon cost embedded in the EU’s natural gas price is roughly twice the total U.S. gas price. American manufacturers pay a fraction of what European competitors do for the same energy input, largely because the U.S. has no comparable nationwide carbon tax. As a result, European industry — especially energy-intensive sectors like chemicals, aluminium, and fertilizers — faces an unprecedented cost squeeze.
Why is EU industry bleeding? The cost of the EU's de facto climate tax (ETS, a cap and trade scheme) is about twice as big as the total US natural gas price (red vs blue bar), which is only about 1/5 of the EU's natural gas price: https://t.co/t66Vmwj6xA
— Pieter Cleppe (@pietercleppe) September 22, 2025
Companies such as Ineos, one of Europe’s largest chemical producers, have warned that the European chemical sector is “on the brink of extinction.” Meanwhile, new investments are increasingly being redirected to the United States or Asia, where energy is cheaper and regulations lighter.
What makes this situation more ironic is that the ETS has not delivered superior climate outcomes. Since 2005, when the ETS was introduced, U.S. carbon emissions per capita have actually fallen faster in percentage terms than those in the EU — despite Washington never implementing an EU-style climate tax. Technological change, cleaner energy generation, and market innovation have achieved what Europe’s tax-heavy system has not.
Chemical industry giant INEOS warns about European industry, says Europe is "sleepwalking into deindustrialisation" and demands to "scrap carbon taxes", but few policy makers – let alone the EU Commission are listening. https://t.co/f0zVJsKLnF
— Pieter Cleppe (@pietercleppe) October 21, 2025
ETS Revenues: Brussels’ Quiet Budget Lifeline
While the Commission faces fierce resistance to new taxes like CORE and TEDOR, it has become increasingly dependent on ETS revenue. Member states auction carbon permits, and a growing share of the proceeds flows directly or indirectly to the EU budget. As Brussels extends the ETS to cover new sectors — maritime transport, road fuels, and heating — its role as a fiscal cornerstone of EU integration becomes undeniable.
This new phase, often called “ETS II”, will cover households and petrol and diesel cars starting in 2027, effectively imposing a carbon price on everyday activities. Although the Commission promises to recycle part of the revenue into a “Social Climate Fund,” it remains a net tax on consumers and small businesses, further weakening Europe’s competitiveness and purchasing power.
In short, the ETS is becoming the EU’s stealth taxation machine — politically easier to defend under the banner of climate policy, but economically just as distortionary as any direct tax.
Competing Agendas: Climate vs. Competitiveness
The paradox is that while EU finance ministers call for a “tax simplification and competitiveness agenda”, Brussels continues to expand its climate-related tax base. Earlier this year, member states requested a full review of the EU’s taxation framework to reduce administrative burdens and improve the business environment. Yet in parallel, the same governments approved implementation of the 15% global minimum corporate tax rate, further eroding national flexibility and tax competition.
The EU’s climate policy architecture reinforces this contradiction. Alongside the ETS, the Carbon Border Adjustment Mechanism (CBAM) now taxes imports based on their carbon content, adding layers of bureaucracy and straining trade relations with partners such as Malaysia and Indonesia. The United States, thanks to political pressure from Washington, has largely secured exemptions — further disadvantaging European producers. Thankfully, Hoekstra recently admitted that it had a negative impact on businesses, adding he had therefore “exempted 95 percent of businesses”, saying: “I celebrate this as a success of less regulatory pressure, but it is difficult to boast that the original plan was perfect.”
CBAM is protectionism to compensate for failing climate policies. Its bureaucratic burdens also severely damages European companies. Even the European Commission now admits CBAM is a failed idea. pic.twitter.com/laT9okUWDh
— Pieter Cleppe (@pietercleppe) October 23, 2025
Instead of reassessing these systemic distortions, the Commission continues to float new tax ideas. EU Health Commissioner Olivér Várhelyi recently suggested a EU-wide tax on sugar, fat, and salt, to fund the bloc’s “EU4Health” programme. To critics, this illustrates a deeper pattern: every policy challenge — from climate to health — becomes a pretext for Brussels to claim new fiscal powers.
In the end, the European Commission’s fixation on new revenue sources — from CORE to TEDOR to ETS expansion — reflects a deeper problem: a bureaucracy that prioritizes fiscal control over economic competitiveness. Europe doesn’t need more taxes in new disguises; it needs an honest debate about whether its existing ones, especially the ETS, are doing more harm than good.
Copyright picture: Wopke Hoekstra (Belgian Presidency of the Council of the EU 2024 from Belgium, CC BY 2.0 <https://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons)