Brussels has already started the process of harmonisation of energy taxes. Council Directive 2003/96/EC restructuring the Community framework for the taxation of energy products and electricity have been governing several aspects of energy taxation (the Energy Taxation Directive). It lays down common rules on what should be taxed and sets out minimum tax levels for products used in heating, electricity and motor fuels, which EU Member States are required to levy although they are allowed to set their own national rates above these minimum rates. Presently, minimum rates are based on the volume of energy consumed. However, the Commission has been trying, for a long time, to introduce minimum levels of taxation on different types of fuels related to the intensity of their emissions. Despite the opposition of some Member States, particularly the UK, the European Commission has recently proposed an EU-wide minimum tax on carbon, by reviewing the Directive on energy taxation. Hence,Member States would be obliged to levy a CO2 tax on fuels in order to cut emissions if such proposal is adopted. Under the Commission’s proposal,Member States would be required to redesign their national energy tax regimes, which is unacceptable.
Under Article 113 TFEU, the Council may adopt “provisions for the harmonisation of legislation concerning excise duties” but only if such “harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition.” However, there is no evidence that the single market would be distorted. Such proposal breaches, therefore, the principle of subsidiarity. The Economic Secretary to the Treasury, Justine Greening, told the European Scrutiny Committee that the Government believes that the “effective functioning of the single market” does not needs action at EU level “requiring Member States to implement two distinct tax bases for energy taxation.” The European Scrutiny Committee (ESC) asked the Commission to reconsider whether this proposal complies with the principle of subsidiarity and with the requirements of Article 113 TFEU. Bill Cash, Chairman of the ESC, wrote to the President of the Commission expressing the committee’s concerns. The committee believes that the Commission has presented no evidence that “the internal market will be distorted if EU legislation is not adopted.” According to the Committee the Commission has failed to comply with Protocol 2 – on the “application of the principles of subsidiarity and proportionality.” The Committee concluded that the main purpose of the legislative proposal is “compliance with energy and climate change objectives” but not “good functioning of the internal energy market.” Hence, further harmonisation on energy taxation has not been justified.
Presently, Sweden, Denmark, Finland and Ireland apply a carbon tax, and some other Member States are planning to introduce it. The Scandinavian countries support the Commission’s proposal whilst Germany and Poland are concerned that their coal and steel industries would be disproportionately affected by the proposed tax. The Commission’s proposal is also facing opposition from the UK. It is important to recall that taxation is one of the very few areas where unanimity is required, under the Lisbon Treaty. Hence, unanimity is required at the Council for the proposal to be adopted, and consequently, the UK government can, in fact, veto it. The Government must, therefore, veto such proposal otherwise UK taxpayers will face another tax.
If the proposal is adopted, Member States would be required to impose taxation on energy products in accordance with the draft Directive. The Commission proposed to exempt from the carbon emissions tax energy products that are already subject to the EU Emissions Trading System. The Government does not support these “mandatory exemptions”, because, according to Justine Greening, “this would remove the EU vires for the Government’s planned carbon price floor on electricity generation” which will come into effect in 2013, and “it regards as an important step in reforming the UK’s electricity markets and in delivering the long term investment needed in the power sector.”
As above-mentioned, presently energy taxes are based on volume, under the Commission’s proposal energy taxes on fuel consumption would be calculated taking into account energy-intensity. The Commission’s proposal introduced a distinction between energy taxation specifically linked to CO2- emissions attributable to the consumption of the products concerned (CO2-related taxation) and energy taxation based on the energy content of the products (general energy consumption taxation). The minimum tax rate, set at EU level, would be divided into two parts. The Commission has proposed a minimum rate for CO2 emissions of €20 per tonne of CO2 emitted by sectors not covered by the EU ETS. Member States would be, therefore, obliged to introduce minimum rates of CO2 taxes at €20 per tonne for fuel for transports and heating. Moreover, the Commission proposed new minimum tax rates based on energy content of a fuel. Under the Commission’s proposal “General energy consumption taxation would be calculated in EUR/GJ on the basis of net calorific value of the energy products and electricity.” The Commission has proposed different minimum tax rates for motor fuels and for heating fuels. Hence, the overall rate at which a product would be taxed, would be a combination of both CO2 and energy content elements. The Commission has specified that the minimum rates would be linked to inflation and to the development of the CO2 price. According to Justine Greening, the Government does not support such provisions “requiring two distinct tax bases or relative national rates for competing fuels” as this breach the subsidiarity principle.
Member States would be allowed to introduce their own rates but just above the EU minima. Nevertheless, the Commission has specified, “the same rates and structure must then be applied to all fuels used for the same purpose (motor fuels or other fuels).” The European Scrutiny Committee noted that the Commission’s proposal requirement “for national tax rates to be structured in a way that ensured competing energy products were taxed in relative proportion to their tax base” would mean “that for the carbon emissions tax base, national tax rates for competing energy products would have to be set at the same rate per carbon emission, even if they were above the minimum rate; and for the energy content tax base, competing energy products would have to be taxed at the same rate per energy content.” Consequently, the ESC believes that “both proposals will have considerable consequences on the autonomy of Member States' energy tax regimes, and on businesses operating in the energy market.”
The Commission also proposed to abolish the existing difference between business and non-business use of the energy products used for heating and of electricity. Member States would no longer be able to apply a lower level of taxation to commercial use of gas oil as motor fuel. The minimum level of taxation applicable to gas oil would also be abolished so that it and petrol are taxed at the same level. Gas oil is presently taxed at a lower rate per litre than petrol in all EU Member State, except in the UK. Consequently, diesel prices would rise in many member states. Germany has seriously invested in diesel engines and it has already raise concerns over the proposal.
The proposal is subject to the special legislative procedure, hence the European Parliament would be merely consulted. The Commission is expecting the revised Directive to enter into force in 2013. However, Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Romania and Slovakia would benefit from an extended transitional period, till January 2021, to introduce CO 2-related taxation.
