The offsetting measures being developed by the Ministry of Finance regarding green taxes remain a complex puzzle, and are not expected to be presented or implemented before the upcoming summer.

According to Brief, Finance Minister Makis Keravnos is concerned about the potential impact of green taxes on low-income households. His concerns are informed by studies from recognized experts, in addition to ongoing research by the University of Cyprus’ Economics Research Centre, which is leading the broader tax reform process.

The Ministry is aware that “the implementation of green taxes without a well-developed public transport network raises questions of social fairness, as it disproportionately affects lower-income groups. This scenario could undermine the environmental objectives of these taxes,” a source told Brief.

The primary goal of environmental taxes on fuels is to incentivize more sustainable transport choices. However, in the context of Cyprus, the lack of a robust public transport system casts doubt on the effectiveness of this strategy.

>>Government Responds to Pressure, Postpones Green Taxes<<

As a result, consumers—particularly those in vulnerable economic positions—are expected to face increased financial burdens without viable alternatives. This may lead to unfair consequences rather than the desired behavioral shift toward sustainability.

A recent assessment by the University of Cyprus’ Economics Research Centre on the impact of green taxes on households and businesses in 2024 concluded that a fuel tax would “reduce household welfare.” The study estimated that fuel and water taxes would raise average household expenditure by 0.37%, with lower-income households being most affected.

So-called green taxes, such as fuel levies, are used to reduce carbon emissions in transportation, but their effectiveness depends heavily on factors like the quality of public transport. In countries like Cyprus, where public transit is still underdeveloped, the social and economic consequences of such taxes require careful consideration.

Government technocrats argue that green taxes must be embedded in a broader strategy that includes significant investments in sustainable, efficient, and accessible public transport. For this reason, they propose targeted subsidies or rebates to reduce the financial pressure on vulnerable populations and ensure a fair and effective transition to green practices.

These environmental taxes aim to reduce the cost gap between conventional fossil fuels and alternative energy sources while fostering ecological awareness. Cyprus aims to reduce its greenhouse gas emissions by 32% by 2030.

The most significant impact is expected to come from the proposed carbon tax on petrol and diesel, which will initially raise prices by 5.95 cents per liter and is projected to reach a 10-cent increase by 2026.

Additionally, the European Union’s Emissions Trading System 2 (ETS2) is scheduled to be implemented in 2027 and is expected to result in a further increase of around 18 cents per liter in fuel prices.

The proposed water tax of €0.01 per cubic meter has already been approved by the Council of Ministers. Pending approval are a waste surcharge, to be included in municipal garbage fees, and a tourism overnight levy for hotel stays.