Energy tax harmonisation in the European Union: A proposal based on the internationalisation of environmental external costs

Abstract:

Energy tax harmonisation represents a fundamental target within the European Union. In fact fiscal harmonisation is a crucial step towards the creation of a single market. In this article the possibility of achieving such an objective is discussed. The paper consists of two sections. In the first the European taxation on energy products is analysed. This analysis is useful in showing the differences that exist between the European countries that account for the difficulties met so far in the process of harmonisation. In this respect the authors comment on the recent proposal of the Directive of the European Union, which lays down the obligation of minimum levels of taxation in all European member states.

In the second section, after simulating the effects related to the adoption of a common environmental taxation (a first best solution based on the internalisation of environmental external costs), the authors propose, as a second best solution, an excise tax harmonisation model taking into consideration the specificity of each country and being, as far as possible, coherent with the environmental objective. This model proposes: the introduction of a minimum level of taxation on all products equal to the external cost due to the greenhouse effect (a common carbon tax); the possibility, given to the Member States, of deviating from such minimum levels, in accordance with their specific requirements, internalising in the price of the different products, by means of taxes additional to that CO2 minimum, the external costs associated with other pollutant agents (the same in all countries); the opportunity, in case it should be necessary to exceed the entire external cost, for the Member States to apply increases that are in accordance with the environmental objective.