Europe Reaches Agreement on Energy Tax Framework

BRUSSELS, Belgium, March 21, 2003 (ENS) - Finance ministers from across the European Union have finally reached political agreement on a proposed common framework for energy taxation, six years almost to the day after the plan was first put forward by the European Commission, the EU's legislative branch.

The framework is seen as a key element in the EU's climate change policies. But its influence will be felt only in the medium to long term as minimum EU tax rates have been watered down in the six years since the Commission's initial proposal. In addition the draft law is now larded with derogations and transition periods for various countries and economic sectors.

Gas fired power plant, Sutton Bridge, England (Photo courtesy FreeFoto)

Harmonized minimum tax rates should reduce distortions of competition between European Union states and between energy products.

The proposal's environmental policy significance is that it provides a basis for the European Union collectively to raise energy prices over time, thus increasing incentives for more efficient usage.

An agreement on EU wide minimum energy tax levels was originally scheduled to be reached by the end of 2002. But conflicting demands from a number of countries caused a series of postponements in the early weeks of this year.

Italian Finance Minister Giulio Tremonti (Photo courtesy Office of the Minister)

At last, ministers reached agreement after Austria withdrew a last minute attempt to prevent energy intensive industries from being exempted from minimum tax rates.

Despite repeated haggling by ministers in recent months, the eventual agreement is very similar to proposals made by the then Spanish EU presidency in May 2002.

At that time, EU Internal Market Commissioner Frits Bolkestein compared the proposals to cheese "with too many holes." Though the number is now even larger, Bolkestein today bowed to political reality and declared himself "delighted" with the agreement, which he said would have "immeasurable" benefits for the environment and transport.

The ministerial deal must be scrutinized by the European Parliament before it can be formally adopted. However, Members of the European Parliament have only consultative powers on the law, as with all tax measures, making the agreement virtually final.

{Published in cooperation with ENDS Environment Daily, Europe's choice for environmental news. Environmental Data Services Ltd, London. Email: envdaily@ends.co.uk}