Needed: An EU energy tax

Needed: An EU energy tax

Bulletin article
Nina Marenzi
02 August 1999

There is no EU-wide energy tax, despite the fact that green parties now have a strong presence in the European political landscape and that such a tax could make the single market more effective. In the period since the 1997 Kyoto climate change protocol, member-states have produced more words than deeds.

The current EU proposal, known as the Monti directive after Commissioner Mario Monti, proposes to introduce a tax on energy products by extending existing minimum rates of tax on mineral oils to coal, natural gas and electricity. In addition, minimum rates for mineral oils would be increased in several phases. One aim of this tax is to reduce differences in national energy taxation levels, which can cause companies to lose competitiveness or distortions in cross-border trade. Another aim is to reduce CO2 emissions, which are probably the major cause of global warming. The tax should help to promote energy efficiency and renewable energy sources across the EU.

Global warming is a problem which, by definition, needs to be tackled at an international level. Therefore the EU is the proper institution to promote environmental protection not only within its borders but also on the world stage. The majority of EU member-states have already introduced taxes on several energy products, but the wide gap between these countries and those applying less strict standards should be closed, not least to prevent unfair tax competition. For most of the countries the EU's proposed tax would still be below their national levels. Greece, Luxembourg and Spain, however, would have to raise their petrol and diesel prices by 6-11 per cent (according to 1998 figures from the Commission) because of the increased tax on mineral oils.

The Monti proposal was watered down during negotiations under the German presidency, which sought to find a compromise to address concerns raised in particular by Spain. The Spanish argued that the tax would be inflationary and damaging to their industry, and they have successfully blocked progress by threatening to use their veto. The Spanish government is eager to retain Spain's status as a low-cost location in the EU and is reluctant to risk unpopularity on this issue.

Yet most of the EU's economically strong members have quite strict environmental standards that do not appear to hamper growth. In Germany, for example, the need to meet environmental requirements, such as waste reduction and the introduction of catalytic converters, gave industry a strong incentive to innovate. As a direct result, German industry has developed production methods based on new technologies. Over a million people now work in the environmental sector, which is as many as are employed by the entire German car industry.

The Commission's 1993 White Paper on growth and employment suggested that one way of raising employment levels would be to finance a reduction of labour costs by increasing environmental taxes. The Commission's study of the Monti proposal says that it could create 400,000 jobs, if combined with the lowering of labour costs.

Dutch Finance Minister Gerrit Zalm suggested in July that, in the absence of EU-wide agreement, like-minded countries could create a common system of minimum energy taxes. He wanted negotiations to continue at the EU level, but proposed that if the impasse could not be broken, countries in favour of the measure should reach agreement among themselves. This idea must not be allowed to detract from efforts being made to push through the Monti proposal, since even in its weakest form it not only obliges all countries to introduce minimum energy taxes, but also ensures that all energy products are taxed.

Supporters of the Monti proposal pin great hopes on the Finnish Presidency, because Finland's Environment Minister Satu Hassi is set to push for its adoption at the Helsinki summit. She considers energy taxes "one of the most important tools" to combat climate change.

The Monti proposal must not be abandoned because of the current stalemate, or because it is weaker than some would like. Instead, Europe's heads of government should push for its adoption. Putting the environment at the top of the agenda is also a way of showing that the EU can make a difference on a subject that matters to millions of EU citizens.

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