Industry fights energy tax restrictions

Date: 04/02/1999

By Chris Johnstone

HEAVY industry is up in arms over moves to restrict the use of compensation schemes designed to cushion the impact of proposed EU-wide taxes on energy consumption.

The European Parliament's economic and monetary affairs committee has called on Union finance ministers to scrap plans for broad exemptions and reduced-rate contributions for energy-intensive industries.

Instead, it insists, individual companies should have to seek approval from both national and Union authorities for any such exemptions and be forced to argue the case for their retention every three years.

Irish Liberal MEP Pat Cox, who is guiding the proposed legislation through the Parliament, argues that these amendments would ensure that tax exemptions were focused on those companies that most needed them.

However, furious lobbying has begun in an effort to block the proposal ahead of a vote on Cox's ideas by the full Parliament next Tuesday (9 February), even though the institution's opinion on the plan does not have to be heeded by EU governments as a final decision on the proposals rests solely with finance ministers.

"We think this is sending the wrong signal," said Ian Goldsmith of the UK Steel Association. "The committee's discussions of the proposals for initial exemptions would be long and uncertain during which time irreparable damage could occur to business."

Heavy fuel-consumers such as steel-makers, glass manufacturers, and the chemicals and aluminium refining industries have long been opposed to the Commission's long-stalled plans for a tax on energy use.

Their outright hostility has been tempered slightly by the institution's plan to let them reclaim much of the tax. Under the current proposals, governments would have to pay back all the fuel tax levied from companies whose energy bill accounted for more than 20% of their overall production costs and could choose to repay much of the tax when energy charges came to more than 10% of the cost of output.

This has gone some way towards meeting industry's complaints that it could suffer a competitive disadvantage if European companies had to pay energy taxes while their rivals in the US and Japan did not.

Nevertheless, steel-makers argue that a negotiated agreement rather than an imposed tax would be the best approach to cutting energy use and, consequently, pollution. The industry claims that, without regulatory interference, it is already using 40% less energy to produce a tonne of steel now compared with 30 years ago.

But MEPs want tougher regulations and are also calling for a year-on-year increase in the energy tax burden on industry.

This would be done by introducing an automatic annual hike in charges equal to the rate of inflation plus two percentage points. This formula would take effect for the first five years of the lifetime of the tax, and any changes could only be made with the unanimous approval of finance ministers from all 15 EU member states.

Supporters claim that this should defuse the risk inherent in the current Commission proposals that tax rates could become mired in political controversy when they are reviewed every two years.

In return for guaranteed tax income, governments would have to spell out exactly how they intended to use the revenues from energy taxes to cut the tax burden on labour.

Cox argues that the simplified exemptions and guarantees that the effects of the tax would be neutral would make Internal Market Commissioner Mario Monti's current plans for an energy tax more acceptable.

His proposals, which would broaden existing excise duties on mineral oils to cover all forms of energy including gas, electricity, and coal, have been blocked for more than a year by fierce opposition from a handful of governments.

The German presidency is keen to push ahead with Monti's proposal, since it recently introduced a national tax on electricity and diesel with exemptions for 27 branches of industry.

However, Spain, Greece and Ireland underlined how difficult it will be to get agreement on the plan last week by reiterating their hostility to Monti's ideas at a meeting of national tax experts.