Monti backtracks on EU energy tax rebates

EU competition commissioner says energy tax rebates will be allowed for longer

EU governments should be allowed more flexibility to exempt industries from energy taxes than originally envisaged under forthcoming guidelines on state aids for environmental protection, European competition commissioner Mario Monti said today. The climbdown follows member state opposition to his earlier plans to encourage businesses to pay full environmental costs by clamping down on subsidies in the form of energy tax rebates and derogations. Plans to restrict subsidies for renewable energy generation remained unchanged, however.

Addressing the European Parliament's environment committee, Mr Monti said businesses should be able to benefit from energy tax exemptions - granted in some form by most governments that have introduced an energy tax - for a maximum period of ten years. In draft guidelines circulated earlier this year the commissioner had proposed ending such subsidies after only five years (ENDS Daily 23 March).

The extra period would be conditional on businesses paying a net tax rate equal to or greater than a future EU minimum energy tax rate. A directive to introduce harmonised minimum tax rates has been agreed by all member states except Spain, which is blocking its adoption. The rate is expected to be very low in comparison to energy taxes currently operating in EU countries.

If rebates meant companies' net tax rate fell below this level, the commissioner said, such subsidies should last a maximum of 5 years. This, again, is a relaxation on his previous stance that they should not be allowed at all. The extra flexibility now being proposed will provide comfort to energy-intensive industries, which argue that energy taxes cripple their competitiveness. It may also help Mr Monti win support for his proposals, which were rejected unanimously by member states earlier this year.

Mr Monti added that criticism of his proposal to restrict subsidies to renewable energy generators had been based on misunderstandings, and that he had not changed his mind. Plans to end price support for renewables in five years' time have been fiercely attacked by environmentalists and MEPs, which argue that they conflict with a separate Commission proposal to harmonise support schemes after five years. However, Mr Monti said a second option would allow member states to restrict support in terms of a number of kilowatt-hours of power output, thus allowing support schemes to continue beyond five years.

The new guidelines will be published for further discussion in September and are due to come into force in January 2001. Originally planned for introduction this month, the heavy opposition forced an extension of existing guidelines to give Mr Monti's department time to go back to the drawing board.

Follow Up:
European Commission, tel: +32 2 299 1111; European Parliament environment committee, tel: +32 2 284 2111.

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