BRUSSELS Feb 3 Progress on transport fuel
tax changes to encourage energy efficiency and the use of
greener sources is a priority of the Danish European Union
presidency, which will be leading the bloc's discussions for the
first half of this year.
The reforms are being discussed at working party level and
are expected to be debated by finance ministers in March, with a
view to a possible political agreement before the end of the
Danish presidency, a Commission spokeswoman said.
The aim is to update existing law to reflect greater
environmental ambition and stop taxing carbon-intensive coal
less than much more environmentally-friendly fuel sources.
Another effect would be to make diesel prices rise in the
majority of EU member states and cease being cheaper than
Eventually, a litre of diesel would be subject to 10 percent
more tax than a litre of gasoline, but that would only be after
a 10-year transition period to give business time to adapt.
Tax changes are difficult because they can only be passed on
the basis of unanimous agreement across all 27 EU member states.
Discussions on revising the law have been going on since the
present directive was introduced in 2003.
Then, as now, the holder of the EU presidency was Denmark,
which has a strong commitment to making EU policy greener.
"Negotiations are extremely cumbersome," said Magnus
Nilsson, a senior campaigner at environmental non-government
"Denmark managed to bring in the existing law and if any
government can make progress, it's Denmark."
WHAT ARE THE COMMISSION'S AIMS?
The directive does not seek to tax one fuel at the expense
of any other, EU officials say, but to be technically neutral
and create a level playing field.
Presented in 2011, with the aim of beginning enforcement
from 2013, the proposed changes seek to take account of the
carbon emissions as well as the energy content of a fuel.
They would complement the EU Emissions Trading Scheme (ETS),
which sets limits for the amount of carbon heavy industry and
the power sector can emit. It would apply a carbon tax to the
transport sector and domestic heating fuel currently outside the
scope of the ETS.
The reforms also fall in the context of the Commission's aim
to reduce carbon emissions from transport fuels by 6 percent by
2020 as part of wider goals to cut carbon emissions and improve
Changes to ensure energy tax accurately reflects how much
energy a fuel source generates would automatically reward
efficiency, Commission officials say.
WINNERS AND LOSERS?
At present, only Britain imposes exactly the same level of
tax on diesel as on petrol. Other EU states tax diesel either
less or much less.
Some smaller countries have used the existing regime to
boost tax revenue by lowering their diesel taxes, encouraging
lorries carrying freight across Europe to fill up at their fuel
stations, rather than in neighbouring countries.
In western Europe, Luxembourg has one of the lowest levels
of diesel tax, an attraction for long-distance lorry operators.
One consequence is that Luxembourg is among three EU states
that are falling short of Kyoto targets to cut carbon emissions
(the other two are Italy and Austria), but its higher tax
revenues more than compensate for costs arising from buying
carbon allocations to offset its emissions, analysts say.
Prices at the pump are not the only consideration when
choosing a vehicle. Other sales taxes come into play and some
analysts say the proposed changes might slow diesel growth, but
might not cut its use significantly.
HOW DOES IT WORK?
For now, energy is taxed on the basis of volume, which the
Commission says creates unfair competition between fuel sources
and unjustifiable tax benefits for some fuels.
Renewables are taxed at the same rate as the energy sources
they are meant to replace - so biodiesel is taxed at the same
rate as diesel, for instance. Under the new regime, biofuels
would be taxed less than their fossil fuel equivalents.
The new law proposes splitting the minimum tax rate into two
parts. One would be based on the CO2 emissions of the energy
product and would be fixed at 20 euros per tonne of CO2.
The other would be based on energy content: on the actual
energy a product generates measured in gigajoules. The minimum
tax rate would be fixed at 9.6 euros per gigajoule for motor
fuels, and 0.15 euros per gigajoule for heating fuels.
Since a litre of diesel contains more energy and carbon than
a litre of gasoline, minimum tax rates per litre for diesel
would eventually be higher for diesel than for petrol.
HOW STRONG IS THE OPPOSITION TO/SUPPORT FOR THE PROPOSAL?
The plans have drawn support from the refining industry,
while the Organization of the Petroleum Exporting Countries
(OPEC) said in a report last year they could provide a fillip
for European refineries, which have come under strain from poor
Environmental groups also welcome the proposals. They argue
cheaper diesel helps to make people choose heavier and therefore
less fuel-efficient cars and that the existing system penalises
governments seeking to use tax to reduce CO2 emissions.
In contrast, representatives of the German car industry,
which has invested heavily in diesel engine technology, have
been among the critics of the reforms.
Britain could benefit from the changes as long-distance
diesel drivers enter and leave Britain without refuelling under
the current regime. But even Britain would be expected to be
opposed in principle because it does not believe the EU should
have jurisdiction over its taxation.
(Editing by Anthony Barker)