1999 the "last chance" to agree EU energy tax

Ecotax proponents marshal arguments in support of Commission excise duty proposal

Moves to introduce minimum EU tax rates on energy products could be brought to fruition by clarifying the political obstacles and marshalling supporting arguments, according to a paper prepared by a group of environmental taxation experts.

Led by German ecotax specialist Kai Schlegelmilch, the group describes this year as the "last chance" to win ministerial agreement on a Commission proposal intended to set minimum excise duties on coal, oil, gas, electricity.

Germany could play a key role as the EU presidency in the first half of 1999 following last year's election victory for the SPD/Green coalition. The country is now among EU countries "clearly in favour of an ecological tax reform," the paper says, "after many years of blockade under the former government". Finland, which holds the EU presidency in the second half of 1999, is also in favour of higher energy taxes. Portugal and France, which take over in 2000, are expected to be less sympathetic.

The Commission's excise duty proposal could be assisted by dispelling misconceptions, the paper argues. Comparing the EU proposal with current national tax rates it shows that "cohesion" countries (Greece, Spain, Portugal and Ireland) would have to increase relatively few taxes. "The often seen distinction between southern and northern countries...is not as clear as...expected," it concludes.

Arguments that higher energy taxes would stoke inflation could be overcome by "enhancing understanding" of how inflation is measured, the paper says. On the one hand, increases in energy taxes should be balanced by cuts in other taxes such as social security contributions. On the other, it should also be taken into account that higher energy prices should reduce consumption and related pollution and damage.

A number of "windows of opportunity" for EU energy taxation are also identified. The current requirement that EU tax decisions be agreed unanimously has seriously hindered the plan, the experts note. But current negotiations over the Agenda 2000 proposals for reform and enlargement of the EU provide a "great opportunity" to alter the voting system for fiscal matters that are clearly environmental.

Negotiations for the EU's enlargement also offer "unique opportunities" for coordinated energy taxation, the paper says, claiming that "the whole accession process could become much cheaper when more market-based instruments...are applied".

Linking the tax issue with efforts to implement the "environmental integration" requirement of the Amsterdam EU treaty and to comply with greenhouse gas emissions cut obligations under the Kyoto protocol could also boost the prospects for EU energy taxation, the paper concludes.

Follow Up:
Wuppertal Institute, tel: +49 202 24920. References: Energy Taxation in the EU and Some Member States: Looking for Opportunities Ahead.

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