Several Member States, including the UK, have been against the European Commission attempts to introduce minimum levels of taxation on different types of fuels related to the intensity of their emissions. However, despite the opposition of some member states the European Commission has proposed, last year, a 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.
According to 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. Thus, such proposal breaches the principle of subsidiarity. In fact, Bill Cash Chairman of the European Scrutiny Committee wrote to the President of the Commission expressing the Committee’s concerns and asked the Commission to reconsider whether this proposal complies with the principle of subsidiarity and with the requirements of Article 113 TFEU. According to the Committee 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. The European Commission Vice-President Šefèoviè wrote to the ESC on 19 December 2011, unsurprisingly the Commission believes “that it has fulfilled all the procedural obligations as provided for by the Protocol on the application of the principles of subsidiarity and proportionality.” Moreover, the letter reads "Having regard to the above, the Commission does not share the view that Article 113 TFEU is inapplicable because the proposed revision pursues predominantly environmental rather than single market objectives as a priority.” The Commission has also drawn attention “to the Court's jurisprudence whereby, in case an internal market Directive has already removed obstacles to trade in the area that it harmonises, the Union legislature cannot be denied the possibility of adapting that act to any change in circumstances or development of knowledge having regard to its task of safeguarding the general interests recognised by the Treaties.” According to the ESC the Commission’s letter “contents do not satisfactorily address the subsidiarity concerns” that they raised.
It is important to recall that taxation is one of the very few areas where unanimity is still required at the Council for the proposal to be adopted. Member States are deeply divided over this issue. The Commission’s proposal is facing opposition from the UK. Whilst Germany and Poland are concerned that their coal and steel industries would be disproportionately affected by the proposed tax, the Scandinavian countries support the Commission’s proposal. It is important to note that presently, Sweden, Denmark, Finland and Ireland apply a carbon tax. The UK government must veto such proposal, otherwise UK taxpayers will face another tax.
The proposal is subject to the special legislative procedure, hence the European Parliament is merely consulted and the Council is not bound by the Parliament’s opinion. However, it is important to mention that the MEPs have recently voted against the Commission’s proposal to abolish the minimum level of taxation applicable to gas oil, so that it and petrol are taxed at the same level.
If the proposal is adopted, Member States would be required to impose taxation on energy products and electricity 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”, according to the then Economic Secretary to the Treasury, Justine Greening, “as this would remove the EU vires for the Government's planned carbon price floor on electricity generation” which will come into effect 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.”
Presently energy taxes are based on volume, however, 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 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. As regards petrol, the minimum tax rate would be fixed at €9.6/GJ and will be applicable from January 2013. The Commission proposed various rates per GJ for gas oil (8.2€/GJ from 2013 and 8.8€/GJ from 2015), kerosene (8.6€/GJ from 2013 and 9.2€/GJ from 2015), LPG (1.5€/GJ from 2013 and 5.5€/GJ from 2015) and Natural Gas (1.5€/GJ from 2013 and 5.5€/GJ from 2015) but the aim is to apply the same rate, €9.6 per GJ, by January 2018. The minimum levels of taxation, which would be applicable from January 2013, to motor fuels used for agriculture purposes and machinery used in construction have been set, by the Commission, at €0.15/GJ. The Commission also proposed €0.15/GJ for heating fuels, which would be applicable from 2013.
The overall rate at which a product would be taxed, would be a combination of both CO2 and energy content elements. The Government does not support the provisions “requiring two distinct tax bases or relative national rates for competing fuels” as these breach the subsidiarity principle.
According to the Commission’s proposal 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 diesel would be abolished so that it and petrol are taxed at the same level. Diesel 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.
Jacqueline Foster, the Conservative transport spokesperson in the European Parliament, pointed out "With so many goods transported by road, further increases in fuel costs will send inflation soaring. The knock-on effects for our economy could be significant.” It is important to note that the European Parliament voted against the Commission’s proposal to abolish tax benefits for diesel fuel, whereby member states would be required to stop their practice of taxing diesel at lower rates than petrol. Europe is going through a period of austerity and there is high fuel costs, consequently, according to the MEPs it is not the time to introduce such measures. Marina Yannakoudakis, ECRG MEP, said, “In the middle of an economic crisis, families are feeling the pinch. Does the EU really want to tax its citizens further just for driving their kids to school or for turning on the heating?” Moreover, she noted “The EU needs to take a long hard look at what’s going on in the real world, at how ordinary families are struggling to make ends meet and I am pleased that at least MEPs have recognised this by rejecting plans for higher motor fuel duty.”
