EU safeguards tax breaks for greener fuels

Commission proposes more regular review of reduced excise duty on petroleum products

The European Commission has proposed tighter controls on the tax break system that EU member states use to promote the uptake of more environmentally-friendly oil products such as low-sulphur motor fuels. The controls would introduce more regular reviews of all tax breaks and abolish some of them within two years.

At first sight the proposal appears to threaten a number of breaks introduced by EU countries for environmental reasons by suggesting that they should be reviewed after five years while previously being relatively free from scrutiny.

But environmentalists say that, under a regulatory climate in which the Commission is making a concerted effort to crack down on all state aids, including those for environmental purposes, the move will in fact safeguard green initiatives. "This is pretty much an extension of a guarantee rather than a threat," Frazier Goodwin of transport and environment group T&E told ENDS Daily today.

Under a 1992 directive, any EU country wanting to preferentially discount excise duties on petroleum-derived fuels has to justify its move to the European Commission and other member states. In reality, few objections have been raised and many of the tax breaks can be extended automatically at the end of the authorisation period.

This has led to over one hundred "derogations" for lower fuel and oil excise duties. A large proportion are billed as having an environmental motive, while some aim to meet social or developmental goals. Now, however, the Commission says that to reduce distortions in the EU's internal market, the automatic extension of derogations should end.

"We think it is prudent to introduce regular reviews [of environmentally-motivated tax breaks]," a spokesman for internal market commissioner Frits Bolkestein told ENDS Daily. "But that does not in any way imply that they should end at the end of this period."

Nevertheless, the Commission is proposing that a handful of tax breaks on cleaner diesel fuels for commercial vehicles be abolished in two years' time. These were "initially dictated by broader national policies of environmental protection," the Commission said, but were now redundant.

Follow Up:
European Commission, tel: +32 2 299 1111, with a press release and table of proposed controls on excise duty derogations.

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