End to six-year deadlock over energy taxes in sight

Date: 02/07/1998

By Tim Jones

TOP national treasury officials look set to break the deadlock over EU energy levies by watering down European Commission proposals to tax consumption of electricity, gas and coal.

If the compromise is accepted by members of the Union's taxation policy group when it meets tomorrow (3 July), it could herald the end of six tortuous years of negotiations and lay the cornerstone of the EU's strategy for cutting greenhouse gas emissions agreed at last year's Kyoto conference.

In a paper prepared for the meeting, the Commission outline s two options for ending the log-jam which has bedevilled various fuel levy plans since common taxes on carbon energy use were first proposed back in 1992.

Under the first, member states would agree to a framework directive for the taxation of energy products and also set positive minimum rates of excise duty on electricity, natural gas and coal. In special cases, exemptions could be permitted and some countries might be allowed a transitional period before full rates were levied.

The second option, attractive to several governments which have long been sceptical about introducing common energy taxes, would establish a framework directive, hike up excise duties where they already exist on road fuels but allow member states to set a zero rate for coal, gas and electricity.

The taxation group, made up of top national tax officials or junior finance ministers, is expected to give the go-ahead to a combination of the two options. Diplomats believe Taxation Commissioner Mario Monti will be able to live with the compromise since it falls within the stated aim of his proposal, which is to provide member states with a "coherent framework" for the taxation of energy products and not to introduce a new tax.

Monti's original proposal would extend the Union's system for taxing mineral oils to competing sources of energy including coal, coke, lignite, bitumens and their products, natural gas and electricity.

Since minimum duty rates for mineral oils introduced six years ago are now well below those applied in most EU countries, the Commission called for these to be increased between 1998 and 2002 and for new rates to be established for motor and heating fuels and certain products used for industrial purposes.

As soon as the alternative approaches have been agreed, the taxation policy group will ask the Austrian government, which took over the presidency of the EU from the UK this week, to draft a compromise proposal.

Austrian Finance Minister Rudolf Edlinger, whose government this week promised to push for harmonisation of member states' tax policies during its presidency, is cautiously optimistic about the energy tax plan.

"We must see whether we can build on the basis which has been outlined, whether we will need to do more or whether indeed the notion that even a small step would be major progress will stand up," he said.

"We want to make progress by the end of the presidency provided it really is a step in the right direction."

Ken Collins, chairman of the European Parliament's environment committee, welcomed the move towards zero rates for coal, gas and electricity, saying MEPs had been the first to push for them as a means of making progress on the energy tax dossier.

"It was a Parliament idea in the first place. The principle is terribly important to establish. If we could get member states to accept the principle, there might be a later development," he said.

Eurofer, the lobby group for Europe's heavy energy-using steel and iron industries, said it was opposed to any energy taxes, whatever route was chosen. "We are vigorously opposed to them. They will not achieve their aims. They will only increase our costs but not improve our effectiveness," said technical director Hans Herlitz.