Financing the EU budget: an assessment of five proposals for new resources

Four of five new European Union budget ‘own resources’ proposed by the European Commission should go ahead with changes; the fifth should be scrapped.

The European Commission’s July 2025 proposal for the 2028-2034 European Union budget – the Multiannual Financial Framework – set out five ideas for new ‘own resources’, or revenues for the EU budget (European Commission, 2025a). Of the five, harnessing revenues from the EU emissions trading system (ETS) and carbon border adjustment mechanism (CBAM) were proposed previously, while generating revenue from e‑waste, tobacco consumption and corporate turnover are new.

What are the revenue implications of these proposals, and do they align with EU priorities? We review the proposals according to the framework for selecting own resources in Darvas et al (2025), finding that the proposed new own resources would not create ‘new money’ in the sense of not taking resources from national budgets. Rather, they would redistribute burdens across countries compared to the baseline GNI-based own resources. Therefore, their main rationale should be to finance or support EU public goods.

The Commission proposes shifting 30 percent of revenues from the auctioning of emissions allowances under the current ETS from national budgets to the EU budget (European Commission, 2025a). This arrangement would exclude the new ETS2 for road transportation and buildings, revenues from which would remain entirely national.

The EU’s share of ETS revenues would be calculated based on the total volume of allowances attributable to each EU country, regardless of whether they are auctioned or redirected, for example, to the Modernisation Fund.

This prevents EU countries from reducing their contribution by altering auction practices.

Diverting ETS revenues to the EU budget is economically sound and aligns financing with policy objectives because the ETS addresses a cross-border problem and climate mitigation is an EU public good. However, limiting the EU’s share to 30 percent of ETS revenues and excluding ETS2 undermine this rationale. Emissions from transport and buildings generate the same cross-border harms as those covered by the ETS. The ETS2 exclusion appears mainly political, reflecting the desire of EU governments to retain control over revenues. Economically, this differentiation is difficult to justify. Public revenues are fungible and earmarking them for specific policy goals can lead to inefficiencies, as the earmarked amount may be either more or less than what is actually needed to achieve the policy goal.

An ETS-based own resource would be administratively simple. It relies on data from an existing, harmonised EU system. Auctions are largely centralised, with transparent prices and volumes, making revenues verifiable and comparable between EU members. No new tax base or reporting systems would be required.

With a 30 percent call rate, the Commission (2025a) estimates average annual EU budget revenues of about €9.6 billion for 2028-2034, based on a carbon price of €88 per tonne of carbon dioxide (2025 prices). However, the actual average price for 2025 was €74.20. In February-March 2026, the price fell below €70. This volatility – fluctuating by roughly €50-€100 per tonne in recent years (Figure 1) – makes annual revenues uncertain. 

Moreover, the ETS is designed to reduce emissions, implying a shrinking tax base over time. Revenue should, nevertheless, be substantial during 2028-2034 – and would be significantly higher if ETS2 were included. Ideally, all ETS and ETS2 revenues should be allocated to the EU budget, excepting small amounts to cover local collection costs, for which a cost-calculation methodology should be developed.

Carbon border adjustment mechanism 

CBAM aims to prevent carbon leakage (relocation of carbon-intensive production to, or increased imports from jurisdictions with less-stringent emissions standards) by applying a duty on certain imports. CBAM thus supports EU climate goals and helps safeguard the competitiveness of European firms operating on the internal market. Its links to trade policy (an exclusive EU competence) and EU‑wide objectives provide a strong justification for allocating CBAM revenues to the EU budget.

CBAM has applied since October 2023 and began generating revenue in 2026. This currently accrues to national budgets, but the Commission (2025a) proposes that, from 2028, 75 percent be allocated to the EU budget.

Introducing CBAM as an EU revenue source appears straightforward. By 2028, CBAM will have been in operation for four years, including two years of revenue collection. This experience should help resolve any implementation and reporting inconsistencies. 

The Commission estimates a “moderate” revenue potential: up to €1.2 billion annually for the EU budget in 2028-2034 with a 75 percent call rate, plus an extra €0.2 billion when CBAM extends in 2028 to additional imported products⁷. Revenues would fall if measures to address export‑related carbon leakage are adopted (European Commission, 2025b), or if exporting countries introduce their own carbon pricing systems, negating the EU’s mandate to collect border levies – CBAM’s main purpose is after all climate ambition and competitiveness, not revenue generation.

All CBAM revenues should be allocated to the EU budget, excepting collection costs, defined through a clear methodology.

Tobacco excise duty own resource (TEDOR)

The proposed TEDOR would support public health, reduce distortions from cross-border shopping and generate EU budget revenue (Council of the EU, 2025). It would apply a uniform call rate of 15 percent, calculated from volumes of tobacco and tobacco-related products released for consumption, multiplied by applicable minimum EU excise duties on tobacco products. EU countries would pay the levy from national budgets.

The case for TEDOR is less straightforward than for the ETS or CBAM. Reducing tobacco consumption improves public health, but benefits accrue mainly at national level through lower domestic healthcare costs and improved population health. Cross-border shopping driven by tax differentials distorts the internal market (Figure 2), justifying coordinated minimum rates, but not necessarily EU-level revenue assignment. 

Moreover, the link to health objectives is indirect. Because the levy would be based on minimum rates, it would not mechanically raise tobacco prices. Whether smoking rates fall would depend on EU members raising national excise duties to offset transfers to the EU budget. Governments already taxing above minimum rates might instead absorb the fiscal cost, leaving prices unchanged. Even if duties increase, the impact will depend on the sensitivity of tobacco consumption to prices. If smokers don’t smoke less, or if they obtain illicit cigarettes or shop across borders in response to price increases, health impacts will be limited. The Commission assumes limited sensitivity of consumption to prices, implying higher revenues but only moderate reductions in consumption (Commission, 2025c).

Administratively, TEDOR would be simple, relying on existing excise systems and data on products released for consumption.

The Commission estimates average annual revenues from TEDOR of €4.9 billion over 2028-2034 (Council of the EU, 2025). However, an update is planned to EU minimum tobacco excise rates; if this is agreed, annual revenues could rise to €11.2 billion. Revenue estimates depend on uniformly applied behavioural assumptions, not accounting for differences across EU members. Over time, declining smoking rates will erode the tax base, reducing revenues.

If introduced, TEDOR should be designed to raise tobacco prices to reduce consumption. This could be achieved by increasing EU minimum excise rates and allocating the additional revenue to the EU budget, or by imposing a levy on countries with lower tobacco taxation than, say, the average of the three countries with the highest tobacco taxes, to encourage convergence. Both modifications would reduce the variation in tobacco excise rates, reducing incentives to exploit cross‑border tobacco price differences.

Non-collected EEE waste

The Commission proposes a levy of €2/kilo (indexed to inflation) on non‑collected electrical and electronic equipment (EEE), calculated as the gap between the average weight of EEE placed on the market over the previous three years and current‑year EEE-waste collection (European Commission, 2025a). This levy would be paid directly from national budgets.

EEE‑waste collection supports the EU goals of reducing health risks from hazardous substances in EEE, environmental protection and recovery of critical raw materials, such as copper, platinum and rare earth elements.

The Commission projects about €15 billion in revenue annually in 2028-2034. Revenues may decline as collection rates rise. This is appropriate, as the levy’s purpose is to boost EEE waste collection, not maximise revenue. However, the Commission (2025a) identified quality issues with data on non‑collected EEE waste and data on EEE placed on the market. ECA (2026) also highlighted quality and comparability problems with EEE market data. 

As designed, the current method of determining EEE waste can lead to a levy for non‑collected waste even when there is full collection, because of rising EEE sales (see annex). This unfairly penalises high‑growth countries (Figure 3). We recommend adjusting the methodology with sales trends to avoid such distortions.

Corporate Resource for Europe (CORE)

The Commission’s CORE proposal would require companies with an annual net turnover above €100 million to pay a fixed annual levy of between €100,000 and €750,000, depending on their turnover bracket. The Commission argues that companies benefiting from the single market should contribute to the EU budget and that turnover-based levies are simple, predictable and less vulnerable to profit shifting.

However, CORE fails to align with key principles of sound tax design. Turnover-based levies introduce tax cascading by taxing each production stage without input deductions. This creates cumulative burdens along supply chains, encourages vertical integration and reduces economic efficiency. 

Turnover levies disregard firms’ cost structures and impose identical obligations on companies with vastly different profit margins, contradicting the EU’s goals of competitiveness and fair taxation. Profitability varies significantly across sectors (from margins of over 20-percent in finance and semiconductor equipment to nearly zero in chemicals or retail) making identical turnover-based payments inequitable. 

Moreover, because the levy is regressive within brackets, effective rates fall sharply for larger firms, calling into question the fairness and efficiency of expected revenue yields (Figure 4).

The levy is simple, but simplicity alone cannot justify distortive taxation. Consequently, CORE should be withdrawn entirely.

If introducing an EU budget revenue based on corporate activity is considered politically important, reverting to a previous Commission proposal for a contribution derived from national‑accounts data on corporate profits would be a better option than CORE (Darvas et al, 2025).

Figure 4: CORE levies and their ratio to turnover

^{Source: Bruegel.}

Conclusion

We recommend endorsing four of the five proposed new own resources – those based on ETS and CBAM revenues, tobacco and EEE waste – though each requires substantial modifications to the Commission’s proposed designs. These resources will not generate ‘new money’ for the EU budget, because they would continue to burden national budgets. Rather, they would shift burdens across national budgets, as part of each country’s contribution to the new own resources would differ from the baseline GNI-based distribution of EU revenues. Their primary justification lies in supporting EU‑wide objectives. The fifth proposal, CORE, should be scrapped.

Source : VOXeu