17th Aug 2022

EU carbon tax kicked into the long grass

European commissioners are in a holding pattern over whether to introduce a tax on carbon across the EU, a proposal that if backed by the EU executive could prove to be one of the most controversial and bitterly fought over pieces of legislation Brussels has mooted in years.

Under initial proposals by taxation commissioner Algirdas Semeta, from 2013, sources of greenhouse gases that are not currently covered by the EU's flagship environmental endeavour, the Emissions Trading Scheme (ETS) - sectors such as agriculture, as well as transport and households - would see a flat, minimum fee of between €4 and €30 per tonne.

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  • Carbon taxes need to be investigated further, the commission believes (Photo: vistavision)

Mr Semeta himself is known to favour a price of €20 per tonne, although there is as yet no firm price tag and member states would be free to slap additional taxes on top.

The proposals would not involve fresh legislation, but a review of an existing energy tax directive, which sets minimum rates for energy products used in heating, electricity and motor fuels.

At the moment, energy taxes are based on volume. According to the proposals, this would be based on carbon and energy content.

However, the tax would not be imposed on electricity or other sectors already within the ETS, which covers half of the bloc's greenhouse gas emissions.

EU commissioners held an initial debate on the issue on Wednesday (23 June). Ultimately the idea was kicked into the long grass, with the commissioners only resolving to engage in a second impact assessment of the proposal taking into account the ramifications such a move would have in a climate of economic crisis.

A first assessment was made back in 2008.

Taxation spokeswoman Emer Traynor said that during a "very useful and constructive discussion," there was "wide support for the broad objective presented by commissioner Semeta," and "general agreement that good preparatory work has been done in this area."

One clear line did emerge from the debate, which was that the commission backs a common EU CO2 minimum taxation rate, so member states would not compete amongst each other in offering less onerous rates.

Once the commission agrees on further moves, the next step would be a formal legislative proposal from the commission, which must then be approved by the European Parliament and, as the subject of taxation requires it, unanimity from all member states - at this point a very unlikely scenario.

Red lines for angels

For the UK in particular, despite being one of the bloc's green 'angels,' commonly running with those member states backing more stringent environmental laws, taxation is a red line.

London does not want to deliver up to Brussels tax raising powers.

At the same time, the move has support from some unusual quarters. The Italian government is open to the idea as a way to shift away from progressive, income-based taxation to flat, consumption based taxation.

Outside of some eastern European states, flat taxes have been beyond the pale politically as they charge the same rate of taxation on the poor as they do on the rich.

But in some conservative quarters, normally strong opponents of new taxes and more sceptical of environmental concerns, the introduction of carbon taxation is seen as a way of stealthily introducing flat taxes under the cover of the battle against climate change.

Climate action commissioner Connie Hedegaard, herself a Danish conservative, backs the Semeta initiative and supports "the need to shift the burden of taxation away from labour."

In December last year, French government attempts at introducing a carbon tax were struck down by the country's constitutional court.

Householder burden

The judges found that President Nicolas Sarkozy's carbon tax framework placed the overwhelming burden of the tax, set at €17 per tonne of CO2 emitted, on households instead of industry.

"The large number of exemptions from the carbon tax runs counter to the goal of fighting climate change and violates the equality enjoyed by all in terms of public charges," the court ruling read.

Some EU directorates-general, the European equivalent of government departments, are also believed to be opposed to the idea, while the agriculture and transport sectors are likely to mount a campaign against it as well.

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