Wednesday, April 13, 2011

Proposed EU carbon tax to be blocked by Britain

A draft directive obliging European member states to set minimum rates of CO2 taxes at Euros 20 per tonne for diesel and coal used for transport and heating from 2013 is likely to be blocked by Britain, where fuel prices are already high.

The draft revision of the Energy Tax Directive, which includes a carbon tax and is to be presented today, proposes separate carbon dioxide and consumption taxes on the fuels, linked to inflation which would be adjusted every three years.

It would compel EU states by 2020 to institute taxation of fuels based on their energy content and CO2 emissions, rather than the volume-based system currently used.

This would create higher taxes for energy-intensive fuel such as coal and diesel, adding around 8% to a litre of diesel and encouraging a switch to diesel.

But "the aim is not to increase rates for diesel," Commission spokesman David Boublil told journalists on Monday. "The plan is that we should put all fuels on the same footing ... It will mean an adjustment to make sure they are taxed in the same way."

The Commission argues that big prices hikes are not likely as many national governments like the UK already set diesel taxes above the EU minimum of Euros 330 per 1000 litres, and therefore they do not have to pass the tax on to consumers.

Diesel currently attracts lower taxation rates than petrol. Consequently, much of Europe's commercial fleets use the cheaper fuel, including most hauliers. A switch to petrol would not only improve CO2 emissions but local air quality as well, improving people's health.

The aims of the tax

According to Algirdas Šemeta, the EU Commissioner for Taxation and Customs Union, Audit and Anti-Fraud, the proposals are not so much to do with creating a new tax as about restructuring existing taxation (with a CO2-tax element) to meet the EU痴 climate change, energy efficiency and fair competition goals, shifting taxation from labour. They have three objectives:
  1. to introduce two elements in the rate structure: one based on CO2 emissions and another based on the energy contents of each product. These objective criteria for taxation will provide for a consistent treatment of the energy sources and energy consumers

  2. the CO2 element will provide a framework for Member States to apply CO2 taxation in areas currently missed by the EU Emission Trading System

  3. it will create an appropriate framework for taxing renewable energies, in particular biofuels, reflecting their lower CO2 emissions and energy content.

British opposition

But British MEPs are known to be sympathetic to the motor lobby in the UK, which is strongly opposed to the proposed tax. The Automobile Association has said it would be "madness" to introduce it at the current time of high fuel prices - even though it would not take affect for a few years.

Under European Commission voting rules, opposition from any single state can kill the move.

"We're not going to support new measures in this area," a British EU diplomat said. "Taking into account the opposition of other states as well, it is certainly one we would oppose and that therefore points you towards what we might do in the Council."

The UK motor lobby's position is contradicted by the facts. The UK has always had the highest diesel taxes in Europe - the same level as petrol. But, largely due to the fall of the pound against the euro, UK fuel taxes have dropped by a 32% since their high point in 2000.

But UK MEP Jacqueline Foster, the Conservative transport spokesperson in the European Parliament, still disagrees with the move: "We all want to reduce CO2 emissions from vehicles but it should be done by placing incentives on people, not by clobbering them," she said. "With so many goods transported by road, further increases in fuel costs will send inflation soaring."

Geoff Dunning, chief executive of Britain's Road Haulage Association, agreed: "the price of fuel has already gone through the roof. To add to that would be madness. It would cripple the British economy."

The draft law also calls for the abolition of special low rate for 'red' diesel, used by the farming and fishery industries. This has brought howls of outrage from the National Farmers Union.

Supporters of the move argue that since any price increases would not enter into force until 2018, by which time it should have encouraged the shift to less polluting petrol, it will not affect the current economic situation.

Taxes are lower now

A new report from the think-tank Transport and Environment (T&E) adds weight to those who see a need for change. It claims that "the average fuel tax levied on road fuels in the old EU15 is in real terms 10 Euro cents per litre lower today than it was in 1999".

This means that "had governments not let fuel taxes slip but kept them constant, CO2 emissions of EU27 road transport would have been some 6%, or 60 Mtonnes, lower, and today's oil imports would have been Euro 11bn lower. If the additional Euro 32bn revenues had been spent on lowering labour taxes, roughly 350,000 jobs could have been created."

The report adds, "Compared with other regions in the world like the US, China or Japan, the EU has relatively high fuel taxes. In many ways this is a major strength for the EU's economic and environmental performance as (among other things) it lowers CO2 emissions and oil demand because, contrary to popular belief, taxing fuel brings down consumption. In the long run, 10% higher fuel prices reduce the overall fuel consumption of cars by 6 to 8%, and of lorries by 2 to 6%."

T&E's director, Jos Dings, does think the Directive is wrong on biofuels, which it wants to exempt completely from taxation. "Biofuels are not zero carbon. Their performance varies widely and we would like to see their taxes reflect their actual performance and not by default a zero rating."

Also, "on the air and maritime transport side, it is very disappointing that the Commission has not had the guts to end the prohibition on fuel taxation in those sectors."

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