The European Court of Justice has ruled that Hungary’s carbon dioxide quota tax, introduced in 2023, conflicts with EU law, stating that the measure undermines the compensation purpose of free emission allowances.
The tax, set at 36 euros per ton of CO₂ emissions, applies to companies whose emissions exceeded 25,000 tons over the previous three years. It was implemented by the Orbán government in connection with the state of danger declared due to the war in Ukraine.
The ruling came after a referral from the Veszprém Regional Court, which sought clarification on whether the tax aligns with the EU Emissions Trading System directive. The court emphasized that the national judiciary must assess whether the tax undermines the directive’s goals of preserving competitiveness and preventing carbon leakage.
The case was brought to the European Court’s attention by László Bige, CEO of Nitrogen Works, who has long challenged the compatibility of the tax with EU law. The court noted that while the tax “appears to be contrary” to EU legislation, it is the responsibility of Hungarian courts to conduct a full examination.
The decision has been described as a significant legal setback for the Hungarian government, with observers noting its potential impact on energy-intensive industries and broader economic effects through increased costs and prices.
