EU Commissioner for Taxation and Customs Union, Audit and Anti-Fraud
"Revising the Energy Taxation Directive for a more efficient, greener and competitive EU economy"
Brussels, 13 April 2011
This morning, the Commission adopted a proposal that will ensure that energy products are taxed in a smarter way in Europe.
Energy Taxation is an issue that affects everyone: Member States, businesses as well as citizens.
What is at stake?
Until now, taxation of energy products was a mere revenue raising instrument for Member States. With today's proposal, it could become a much stronger policy tool. I believe energy taxation could help Member States and the EU as a whole to reach their energy and climate change targets while ensuring that the Single Market functions properly.
This is an initiative that my colleague Michel Barnier also presented under the 12 measures which are key to the re-launch of the Single Market.
The challenge we are facing is to ensure that energy taxes continue generating revenues for Member States, while promoting energy efficiency and encouraging the use of less polluting energy products.
I believe that smarter energy taxation will play a crucial role in moving towards a more resource-efficient, greener and more competitive EU economy.
The current Energy Taxation Directive does not sufficiently reflect the objectives above. It may even contradict them, for instance providing lower levels of taxation and thus giving incentives for more polluting products. The Directive does not provide for a proper taxation of biofuels. It does not take into account the EU Emission Trading Scheme.
The revision of the Energy Taxation Directive is urgent: it should allow Member States to make their overall tax system not only "greener" but also to foster growth and employment.
Let me stress a major element. Our proposal is not about introducing a new tax. It is about restructuring energy taxation so as to meet the EU's high priority goals of climate change, energy efficiency and fair competition. Given that many Member States are now defining their policy strategies to exit from the economic and financial crisis and are considering structural reforms to their fiscal policies and tax systems, our proposal comes at a particular appropriate time.
Main features of the proposal
Let me now turn to the main elements of the proposal:
First, it will split the minimum tax rate into two elements: a first element based on CO2 emissions and a second one based on the energy content of each product. It will therefore base taxation on objective criteria and provide for a consistent treatment of energy sources and energy consumers regardless of the source of energy that they consume. All energy products for a given use – for instance use as motor fuel – are subject to the same minimum rates. Over time, this would be reflected in the rates applied by Member States.
Second, our proposal will introduce a CO2 element in all areas where the EU Emission Trading System does not apply. Of course, companies subject to the EU Emission Trading System will not be subject to CO2 taxation.
Third, it will address taxation of renewable energies, in particular biofuels, reflecting their lower CO2 emissions and energy content. This will lead to lower taxation of biofuels than under the current system in which they are in principle taxed at the rate of the fossil fuels they are supposed to replace.
Impact of the proposal
Finally, I would like to say a word about the expected impact of the proposal.
The new taxation system is based on objective criteria – CO2 emissions and energy content. In the long term, it will have an impact on the rates Member States have to apply. The actual impact will depend on their current national rates and on how Member States will implement the new framework. However, it could reach up to 2% of total EU emissions or about 4% of emissions outside the EU ETS. In absolute numbers this corresponds to 92 million t CO2 and represents more than one third (about 37%) of the GHG reduction effort needed outside the EU ETS.
Possible additional revenue from energy taxation could be used to reduce the employers' social security contributions. According to our models, the number of additional jobs created as a consequence of reforming the ETD could reach up to 1 million in 2030.
As regards sector-specific impact, the goal of the proposal is to tax all motor fuels at an equivalent level, this will change the relationship between taxation of different fuels. The Commission is aware that moving to such equivalent taxation cannot be introduced overnight and therefore foresees a sufficiently long transitional period.
As a general feature, the proposal also addresses specific sectors. For instance, industrial [and agricultural] sectors and companies not covered by the EU Emission Trading Scheme would be partly exempt from the CO2 tax. This would happen when they are deemed to be subject to "carbon leakage", meaning the risk of relocation of the activities to third countries.
As regards households, the proposal acknowledges the social dimension of energy taxation and maintains the possibility for Member States to apply exemptions or reductions for energy products used for domestic heating.
To conclude, I want to underline again the importance of the adoption of today's proposal. Once it will be fully in place, I believe it will provide the right incentives for citizens and companies to switch to cleaner fuels and use energy more efficiently. It will contribute to green growth policies. It will foster competitiveness and employment in Europe.