EU energy tax "would have triple dividend"

Consultancy studies project lower carbon dioxide emissions, more jobs, higher growth

An EU-wide energy tax would create jobs, boost economic growth and cut carbon dioxide emissions, says an internal European Commission paper obtained by ENDS Daily.

Drawn up at the request of finance ministers, the working paper aims to support a draft directive on energy taxes proposed by the Commission in March (ENDS Daily 13 March). The directive proposes minimum tax rates for a range of fuels, including minimum rates for coal, electricity and natural gas for the first time at EU-level. The taxes would come into effect in 1998 and automatically be increased in 2000 and 2002.

Although a majority of EU countries support such a tax, a significant minority are opposed. As the proposal requires unanimous approval of EU members to become law, the Commission is working overtime to ensure that the draft directive has a better chance of success than its ill-fated carbon tax proposal.

To add weight to its claim that an EU-wide energy tax would deliver a triple dividend, the Commission asked three consultancies to predict the draft directive's economic impacts. Each employed a different macro-economic model, but all three assumed overall fiscal neutrality through reduced labour taxes to compensate for higher energy taxes. According to the Commission's working paper, all three studies find that an EU-wide energy tax would create a "win-win-win" situation.

Shifting taxes from social security contributions to energy, the studies conclude, would stimulate the economy by making labour cheaper and reinjecting income into the system. The consultants estimate a positive effect on GDP growth of between 0.02% and 0.2%. The studies also predict that employment would rise by between 155,000 and 457,000 jobs as labour costs fell. Third, increased energy prices are projected to cut carbon dioxide emissions by between 0.5% and 1.6%.

EU industry groups remain unconvinced by the Commission's optimism. Daniel Cloquet of the European industry association, UNICE, told ENDS Daily that the studies were based on "tremendously simplified hypotheses". All the scenarios assume that EU countries will offset increases in energy costs by reducing labour costs, said Mr Cloquet. However, this is one area where the EU has "no competence" over member states.

Follow Up:
European Commission, tel: + 32 2 295 1111; UNICE, tel: + 32 2 237 6511.

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