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The European Commission will renew its bid for EU-wide carbon taxes when it initiates its overhaul of the rules on energy taxation.

Algirdas Šemeta, the European commissioner for taxation and customs, will next week (13 April) outline proposals calling for separate carbon dioxide and consumption taxes on fuel, to help Europe meet its climate-change targets and bring more “fiscal coherence” to the internal market.

EU member states would be obliged from 2013 to set minimum rates of CO2 taxes at €20 per tonne for fuel for transport and for heating, according to a recent version of the draft directive.

Minimum energy taxes on consumption would be calculated according to a fuel’s energy-intensity, rather than volume, as under the current rules. This could mean higher taxes on coal and diesel, two forms of energy-intensive fuel that get favourable treatment under the current regime.

Carbon taxes would not apply to electricity companies and others firms that trade carbon in the European emissions trading scheme (ETS), where the price of CO2 is currently hovering around €17 per tonne.

The last revision of the EU’s energy taxation directive took six years, and carbon taxes have been debated for two decades with little consequence. But observers see an opportunity for carbon taxes since a series of supportive statements on stimulating low-carbon energy have been endorsed by EU heads of government.

“You might still get prolonged discussion, but the political impetus is much stronger,” said Christian Egenhofer, head of the climate and energy programme at the Centre for European Policy Studies. “The concept is probably acceptable…the question is whether some member states would reject it on principle even if they like the idea.”

Any EU tax rules have to be approved by unanimity, which gives a lot of influence to countries that are traditionally cool on EU tax ideas, such as Ireland and the UK.

A British official said that the UK government was “strongly opposed” to EU-wide carbon taxes. “We really don’t see the argument for a pan-European carbon tax.”

Several European countries already have some form of carbon and energy taxes, including the Nordic countries, the Netherlands and the UK. But France was forced to abandon a plan for a carbon tax in 2009, after it was ruled unconstitutional by a French court.

Time to adapt

Most European commissioners are in favour of carbon taxes, according to officials. However, the proposals have been altered since the Commission’s discussions last year, so as to give some industries more time to adapt to the new rules.

Commission officials say that they are not expecting big changes, because many member states already set energy taxes above EU minimums, although there is no common carbon tax.

Business representatives oppose the initiative. “Going for a standard energy tax and a relatively high carbon tax is going to be a little bit of a shock and some thought about how it is introduced is important,” said Chris Lenon, a tax policy adviser at Rio Tinto, who chairs BusinessEurope’s ‘green tax’ group.

“Most businesses use diesel in vans, trucks and lorries,” he pointed out. “Making this change has an important impact on the supply chain around Europe and we want to see that all the impacts have been considered.”

But Kai Schlegelmilch at Green Budget Europe, an environmental coalition favouring market measures, said that the proposal was unlikely to have a big impact on overall levels of taxation, although it would change the structure of energy taxation. “The impact will not be that great, but some countries will have to change their structure quite a bit.”

Schlegelmilch described the proposal as “a step in the right direction, but…not sufficient”. The minimum carbon price should be €30 per tonne, roughly in line with all-time highs reached by the ETS, to drive investment in low-carbon technology, he said.

The proposal would also exempt fuels made from biomass from carbon taxes, a proposal that causes concern to some environmentalists, because some types of biofuel have been shown to generate more greenhouse-gas emissions than they save.

European Voice, 7 April 2011