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Environmental taxes and charges
The Commission is evaluating ways to promote the use of fiscal instruments by Member States to increase the efficacy of environmental policy and ensure that environmental taxes and charges are used in accordance with Community legislation.
Commission Communication of 26 March 1997 on environmental taxes and charges in the Single Market.
In addition to framework measures harmonised at Community level, the implementation of an environmental policy also requires the provision of a number of economic, technical or fiscal instruments.
The fifth Environmental Action Programme includes the broadening of the range of environmental policy instruments as one of its key priorities. On several occasions, the Commission has been invited to explore the potential of new instruments, in particular of a fiscal nature.
Environmental taxes and charges can be a way of implementing the "polluter pays" principle by inducing consumers and producers to adopt more environmentally compatible behaviour.
The Commission has frequently encouraged the use of fiscal instruments by Member States. In this Communication, the Commission presents the applicable legal framework and sets out Member States' options and obligations in accordance with the rules of the Single Market.
The Commission defines taxes and charges as covering all compulsory unrequited payments, whether the revenue accrues directly to the Government budget or is destined for particular purposes (e.g. earmarking).
The word "levy" is used to cover taxes and charges. A levy is considered as environmental if the taxable base of the levy has a negative effect on the environment
There are two categories of environmental levies:
- those charged on pollutant emissions (taxes on water pollution and on noise emissions in the field of aviation);
- those charged on products (taxes on pesticides, excise on gasoline…).
Member States have considerable room for manoeuvre in fiscal matters (the annex contains a table of current national taxes). The revenue may be used to finance environmental protection activities, but also to decrease other taxes which are perceived as distorting the economy (such as labour taxes).
However, it is important to fix the level of environmental taxes and charges at an appropriate level to ensure that they have a real effect on the market.
Member States must take into account the following provisions of the Treaty when adopting environmental instruments of a fiscal nature:
- customs duties levied on intra-Community trade, or charges having equivalent effect (Articles 23 to 27);
- quantitative restrictions on imports and exports of goods between the Member States, or measures having equivalent effect (Articles 28 to 31);
- provisions on transport policy, that are less favourable in their effect on carriers of other Member States (Article 72);
- State aid creating distortions of competition affecting intra-Community trade (Articles 87 to 89);
- internal taxation discriminating against products of other Member States or otherwise protecting national production (Article 90) if it results from the application of objective and non-discriminatory criteria, and if the system is transparent;
- legislation concerning excise duties and other forms of indirect taxation based on Article 92;
- Article 174 stating the objectives of Community environmental policy: Member States must establish the need for a levy to solve environmental problems.
Member States must ensure that environmental taxes and charges are compatible with their Community obligations (competition, Single Market and fiscal policy) and with their obligations towards third countries (WTO rules)
The Commission's strategy is as follows:
- to collect Member States' experiences of environmental taxation;
- to analyse the economic and environmental effects of existing levies;
- to monitor the effects of the levies on the Single Market and the competitiveness of European industry.
Commission control mechanisms can be triggered in various ways:
- notification of State aids;
- notification of areas covered by Directive 83/189/EEC (laying down a procedure for the provision of information in the field of technical standards and regulations), replaced by Directive 98/34/EC, and secondary Community legislation;
- notification of national measures transposing the Directives;
- complaints by firms or Member States;
- the Commission's own-initiative investigations.