Power sector tax breaks test Union policy

Date: 06/07/2000

By Renée Cordes

GERMANY's environment ministry looks set to drop its demand for some gas and steam turbine power plants to be granted a ten-year exemption from a planned mineral oil tax, paving the way for the government to win European Commission clearance to introduce a five-year tax break.

Earlier this year, the Commission concluded that the special tax treatment being offered to certain sectors of Germany's economy was compatible with EU state aid guidelines. But officials signalled that any tax exemptions for industrial sectors should be restricted and asked Berlin to explain the reasoning behind the move.

The main question is whether the tax breaks are defined as operating aid or subsidies for existing plants, which are limited to five years under current state aid guidelines, or as investment aid for new plants, which would allow for a ten-year exemption.

The case is seen as a key test of the extent to which member states can offer companies incentives to invest in certain kinds of environmentally friendly energy as the Commission presses ahead with a planned revision of its state aid guidelines.

So far, Germany's environment ministry has been at odds with its finance and economics counterparts, with the former insisting that a ten-year exemption is necessary to promote clean energy while the latter argue that a five-year tax break would be sufficient to lure potential investors. But an environment official said this week that his ministry was "ready to compromise".

The move comes as Germany seeks alternatives to nuclear power following last month's agreement to phase out the controversial energy gradually. But some experts say a reduction in eco-taxes would not necessarily promote more cleaner power as long as coal remains heavily sub-sidised. "Surely they could achieve the same effect by reducing coal subsidies?" said Rob Bradley of Climate Network Europe.