Road to common EU carbon tax strewn with obstacles

Date: 30/05/1996

WHEN fears about the deteriorating environment in developed countries first began to move from the political fringes to the heart of government, the European Commission decided to seize the moment.

Up until 1992, intergovernmental cooperation had been the order of the day in the environmental field. But that year's Earth Summit in Rio injected new urgency into the issue by setting a target of stabilising carbon emissions at 1990 levels by the end of the century.

The Commission decided to try something novel - a common European energy tax to discourage the emission of carbon dioxide.

That was four years ago. The summer of 1996 is now approaching and not only has the tax got absolutely nowhere, but it has also been altered beyond all recognition.

What was intended to be an ambitious common tax on the carbon content of fuel, rising to the equivalent of 8 ecu on a barrel of crude oil by the end of the century, is no more.

The December 1994 European summit in Essen finally put it to rest, because too many powerful member states were opposed to the idea. The summit communiqué called on the Commission to go back to the drawing board and draft “guidelines allowing member states who want to, to apply a CO2/energy tax on the basis of common parameters”.

The anti-taxers - led by the UK and including the Spanish, Greek, Portuguese and Irish governments - were jubilant.

However, they were more than a little surprised to see the Commission come forward in May 1995 with a revived proposal aimed at salvaging as much as it could from the original common tax plan.

Under the new proposal - which is still on the table - member states would be allowed to decide how soon to apply tax rates on various products. It sounds highly flexible until you see that it would apply only for a transitional period until 2000, at which time the Commission would come up with “proposals for the transition to a regime of harmonised taxation”.

The opponents of the plan were incensed. This looked like a harmonised tax on energy by the back door, so they attempted to water it down even further at meetings of member states' officials.

The Spanish EU presidency came up with a compromise which would have allowed countries to apply a zero rate of tax to several of the products specified in the first proposal.

This had the effect of making its acceptance by either of the two camps impossible.

While some supporters of a tax - the Dutch, Danes, Belgians, Italians and Finns - could live with this compromise since it contained a commitment to harmonised taxation after 2000, its strongest proponents - the Swedes, Germans and Austrians - could not because they felt it was now meaningless.

On the other hand, the very commitment to a harmonised tax at any time alienated the UK, Greece, Portugal and Ireland.

France alone wants the Commission to raise the existing minimum duty rates on oils and extend excise duties to gas, coal, peat and coke rather than invent a brand new tax.

Since the issue was last discussed by finance ministers in October 1995, the Commission has begun work on another “last effort” proposal to take account of all sides of the argument.

Nothing is expected to emerge from its deliberations until late this year and no decision could possibly be reached until after the Dutch EU presidency in 1997.

“We are at a pretty bad dead-end,” said a diplomat. “It's very difficult to see what magic formula is going to reconcile the Germans, British and Scandinavians.”