Tax is a turn-off for eco-friendly citizens

An observer watching the EU political scene in recent months might be fooled into thinking that the taxman has the answer to all our environmental problems. New tax policies are the best way to reduce energy demand, according to Energy Commissioner Andris Piebalgs, who presented an energy efficiency plan in October.

A few weeks later French Prime Minister Dominique de Villepin was also talking taxes, calling for levies on imports from countries that do not have binding CO2 emission-reduction targets. At the same time Enterprise Commissioner Günter Verheugen was thinking along similar lines, according to a letter setting out his climate change agenda.

The idea of using taxes to make EU behaviour ‘greener’, forcing changes to business and consumer habits, has been creeping up the political agenda for years. But making these taxation dreams a reality will not be easy.

Green tax breaks have for a long time been a regular feature of national budgets. In several member states this led, at least for a while, to a progressive ‘green tax shift’, transferring the highest taxes to the worst polluters. The UK’s budget report yesterday (6 December) doubled taxes on flights from the UK and put up petrol prices in line with inflation. Interest in similar measures has taken longer to rise to EU level but quickly gained momentum.

In 2004 a review of the EU Lisbon Agenda for growth and jobs recommended tax breaks to encourage investment in eco-technologies. The Dutch government, at the time holding the rotating EU presidency, followed this up with a ‘Clean, Clever, Competitive’ campaign touting fiscal incentives as a way to reconcile environmental and business concerns.

The idea quickly caught on, cropping up in conference conclusions and green group press releases across Europe.

MEPs then called for trade sanctions on non-Kyoto countries, in effect a precursor of the border tax recommended by Verheugen and France.

Green taxes won their clearest high-level endorsement with the statements from Piebalgs, Commission President José Manuel Barroso and Villepin this year.

But a look at just a few national and EU-level efforts to save the environment through taxation shows just how many problems Europe will have to overcome if it hopes to take the idea any further.

In October, Sweden became the latest EU country to abandon its green tax shift, deciding that "effective policy instruments" were a better option.

A Commission study last year concluded that emissions trading would be a more effective ‘market measure’ than taxation when it comes to tackling CO2 emissions from air travel.

The EU car industry has called for tailored tax measures to help bring down its own CO2 emissions. Environment Commissioner Stavros Dimas has said that, for now at least, binding legislation and the threat of legal sanctions will be a more effective tool.

The most obvious overarching problem is that changes to tax rules require unanimous approval from 25 - soon 27 - governments, always wary of losing votes in national elections by handing more power to Brussels.

Piebalgs hoped to find a solution by turning the problem around and talking about benefits rather than costs. "With energy taxation we have already done quite a lot with taxes on things," he commented in October. "Why did we never think about incentives?"

The reason why, as Piebalgs will have been well aware, is that tax breaks are too often another name for state aid. As such, they risk violating both EU and World Trade Organization legislation. The French border tax idea would also face international legal barriers.

And last year, when the Commission’s analysis showed that fiscal incentives for certain filters to cut diesel emissions would not be illegal, countries led by Germany began to worry that tax breaks would lead to a budget shortfall.

Another barrier, perhaps the most significant, is found in the latest EU survey of public opinion on environmental issues.

Only 7% of Europeans questioned for the Eurobarometer poll thought that making everyone pay more taxes was the best way to solve environmental problems.

Only 5% said they would be prepared to pay more themselves.

An observer watching the EU political scene in recent months might be fooled into thinking that the taxman has the answer to all our environmental problems. New tax policies are the best way to reduce energy demand, according to Energy Commissioner Andris Piebalgs, who presented an energy efficiency plan in October.