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22nd Oct 2020

EU proposes 'greener' energy tax

  • Biofuels could gain an edge over diesel if the new plans are adopted by member states (Photo: jurvetson)

EU taxes on motor and heating fuels will focus on carbon emissions and energy content in the future, under draft rules published by the European Commission.

The proposed overhaul of the bloc's energy taxation directive is designed to promote energy efficiency and environmental friendly products, but will need the backing of all 27 EU countries if it is to be implemented, with reports suggesting the UK and Germany may veto the plans.

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"The modernised energy taxation system comes at the right moment. Member states are now defining their strategies to exit from the crisis," EU taxation commissioner Algirdas Semeta said on Wednesday (13 April) in Brussels as he presented the document.

"This proposal sets a strong CO2-price signal for businesses and consumers," he added.

The current version of the energy taxation directive outlines minimum tax thresholds for products such as petrol and diesel, calculated on a 'volume' basis which the commission says is now outdated.

Instead, the EU executive body wants to split energy taxes into two components based on CO2 emissions and a fuel's energy content. Together they would determine the overall rate at which a product is taxed, with firms covered by the EU's Emissions Trading Scheme (ETS) set to gain an exemption from the CO2 component.

Minimum taxes on energy-rich diesel will rise under the EU plans, although the commission has stressed that this will not automatically result in a rise in diesel prices at the pump. It points to Germany and other member states where diesel taxes are already above the proposed new minimum threshold of €412 euros per 1,000 litres.

The Fédération Internationale de l'Automobile (FIA) which represents 36 million motorists across its 100 member Motoring and Touring Clubs was critical of the fuel-tax plans. "Diesel has been consistently encouraged over the past decade due to its better fuel efficiency. It makes no sense to now penalise those consumers who have chosen this technology," said Jacob Bangsgaard, director general FIA Region I.

Environmental groups were equivocal in their support.

"Raising minimum rates is good for high fuel-tax countries like the UK and Germany," said Jos Dings, director of the Transport & Environment (T&E) campaign group. "They will lose far less revenue to fuel-tax havens like Luxembourg that profiteer from the current system by attracting truckers to fill up in huge numbers."

But T&E were critical of the commission's decision not to end the ban on taxation of aviation and shipping fuels.

Biofuels controversy

One group that stands to gain if Wednesday's proposals are implemented are biofuel producers, whose fuels are currently subject to heavy taxation rates despite their relatively low energy content.

Biofuels-industry group ePURE gave them a strong welcome. "Finally, the paradox of clean renewable fuels being taxed at a higher rate than polluting fossil fuels would be solved," said ePure secretary general, Rob Vierhout.

As part of its bid to cut carbon emissions, the EU wants to see biofuels account for 10 percent of all transport fuel by 2020, but the target has proved to be increasingly controversial as critics point to the negative effects biofuel production can have on biodiversity rates, global food prices and local communities, forced from their land.

A report published on Wednesday by the Nuffield Council on Bioethics, an independent body in the UK, called biofuels 'unethical' and called for the EU target to be lifted temporarily until new safeguards are put in place.

Another issue raised by environmental groups is the question of 'indirect land-use change' (ILUC), the removal of important carbon-sequesting plants to make way for biofuel crops, a process which some studies suggest makes the burning of fossil fuels more environmentally friendly.

The commission will come up with a detailed assessment of the potential policy approaches for dealing with ILUC issue this summer, before potentially then coming forward with appropriate legislative amendments to the renewable energy directive which sets out the 10 percent target.

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