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Brussels, 28 March 2007

Commission launches debate on further use of market-based instruments to support environment and energy related policy purposes

Right after the successful Spring European Council that set very ambitious goals in the area of energy and climate change, the European Commission adopted today a Green Paper on the use of market-based instruments for environment and energy related policy purposes. Since market-based instruments have proven to be cost-effective means of achieving policy goals, the paper aims to stimulate a broad public debate on how taxes, tradable emissions rights and other market-based instruments can be used more widely and effectively for environmental and energy policy purposes at Community and national level. This green paper is a joint project by Commissioners Dimas and Kovács, in association with Commissioners Barrot and Piebalgs.

Environment Commissioner Stavros Dimas said: "Market-based instruments such as emissions trading, environmental taxes and targeted subsidies harness the power of market forces to protect the environment. This more flexible and cost-effective approach has proved its value but it is still underutilised. In launching this Green Paper our goal is to promote the use of market-based instruments whenever they are appropriate to the circumstances so that Europe's environment is protected most effectively."

László Kovács, the Commissioner responsible for Taxation and Customs Union said: "Fiscal policies will have an important role to play in the delivery of the ambitious objectives endorsed by the last European Council." He added: "Taxation should in the first place discourage what is undesirable rewarding at the same time all sorts of positive behaviour, being it energy savings or environment-friendly activities. Tax revenues can then be used to favour economy-friendly activities, such as innovation or jobs."

The Green Paper covers a wide range of areas where market-based instruments (mainly taxes, emissions trading rights) can be further promoted, in particular in energy use, transport's impact on the environment and in other specific areas of environmental policy such as sustainable management of water, waste management, protection of biodiversity and reduction of air pollution.

In particular it focuses on possible ways forward to make the Energy Taxation Directive more directly supportive of the Community's energy and environmental objectives.

The Green Paper also suggests the creation of a new forum that could encourage and facilitate exchanges of experience and best practice between Member States on the use of market-based instruments and co-ordination of national approaches as well as national experiences with Environmental Tax Reforms.

Next steps

The Green Paper concludes that there should be an increased use of market-based instruments to achieve environmental and other policy objectives, both at Community and national levels. The Commission is inviting reactions to the Green Paper from other EU institutions, Member States, all stakeholders and the public. It will decide on appropriate follow-up in the light of the responses received.

In particular, the Commission intends to take the reactions on the Green Paper for the upcoming review of the Energy Taxation Directive (IP/03/1456).


More intensive use of market-based instruments is advocated in the Sixth Environmental Action Programme (6EAP) and in the EU Sustainable Development Strategy. By influencing prices (through taxation or incentives), or setting absolute quantities (emission trading), or quantities per unit of output, market-based instruments implicitly acknowledge that firms differ from each other and therefore provide flexibility that can substantially reduce the costs of achieving given policy objectives.

At EU level, several market-based instruments with an environmental or energy motivation have already been introduced, including the EU Emissions Trading Scheme for greenhouse gas emissions (MEMO/05/84), the Energy Taxation Directive (IP/03/1456) and, in the field of transport, the Eurovignette Directive. Moreover Member States also use market-based instruments for environmental purposes at national level to a greater or lesser degree.

Further information on the green paper as well as its technical annex can be found at:

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