Fiscal action just one aspect of energy-saving

Date: 18/02/1999

By Renée Cordes

WHILE EU governments continue their efforts to thrash out agreement on an Union-wide energy tax, the handful of member states who have taken the lead in introducing national levies are constantly seeking to bolster their measures.

As far back as the late 1980s and early 1990s, Nordic countries such as Denmark and Sweden began introducing energy taxes, (broadly defined as charges aimed at both raising money for government and changing industrial and consumer habits).

These measures were intended to provide an incentive to industry to reduce its output of pollutants such as carbon dioxide (CO2), which contributes to global warming.

While industry has, for the most part, been opposed to taking on the additional financial burden, employers have been willing to accept it as a trade-off for lower corporate taxes and wage costs.

Energy taxes are generally still too new for their real impact to be assessed. But neither environmental campaigners nor industry are yet convinced that they will have a significant impact on greenhouse gas emissions.

"The taxes that we have are either quite new or it is very difficult to tell what their effects have been," said Liam Salter, an energy specialist at Climate Network Europe. "In general terms, when you put these national measures in the context of the overall taxation burden or relative to the total amount the government receives, it is hard to disentangle."

As world energy prices have recently dropped to record lows, the effectiveness of the national measures has been muted, at best. "A lot of the energy taxes are quite weak in numerical terms," said Salter, adding: "When you combine that with very low oil prices, you are not really sending any massive signals to conserve energy use."

Denmark, the home country of Environment Commissioner Ritt Bjerregaard, has been the Union's leading advocate of energy taxes.

The country's mixture of 'green' levies generates revenue equal to nearly 5% of gross domestic product. Danish taxes on energy use, introduced in 1991, are set to rise again between now and 2002. Heavy energy-users, such as cement and steelmakers, are also offered rebates if they sign up to energy-saving programmes.

But although the Danish authorities believe that taxes are the best incentive for industry, they fear the country will still have difficulty achieving its target of a 20% reduction in carbon dioxide emissions between 1990 and 2005.

"We expect at the moment that we will only achieve a 15% reduction if nothing new happens," said Jesper Gundermann, a physicist in the Danish Energy Association's energy planning and climate division. "This is mainly due to growth in the transport sector."

In part, Denmark and the other member states which blazed a trail in setting nationals emissions targets are discovering that their goals, which were established well before the commitments agreed at Kyoto in 1997, were too ambitious. As Gundermann put it, "Do we really need to do so much when everybody else is not doing anything?"

Both the Swedish and Finnish approaches illustrate the importance of attacking the problem from the outset.

In 1993, Sweden cut its energy and CO2 tax burden by 80% to prop up industry, which was in the midst of a deep recession. Three years later, it increased the tax by 5%. Finland, which introduced 'green' taxes in 1994, expecting the rest of the Union to follow suit soon afterwards, increased them a year later. The Netherlands is the only other EU member states with energy taxes.

While the jury is still out on the real benefits of energy taxes, many experts agree that they are just one part of the equation in the drive for long-term reductions in emissions.

"In general, energy taxation is just one of the ways to finance the structural changes which are needed," insisted Sarah Blau, a clean air policy specialist at the European Environmental Bureau.

Article forms part of a European Voice survey on taxation, p13-20.