Opinion of the Economic and Social Committee on the 'Communication from the Commission: Environmental taxes and charges in the single market` (97/C 355/15)

On 26 March 1997 the European Commission decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on the above-mentioned communication.

The Section for Protection of the Environment, Public Health and Consumer Affairs, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 15 July 1997. The rapporteur was Mr Gafo-Fernandez.

At its 348th plenary session (meeting of 1 October 1997) the Economic and Social Committee adopted the following opinion by 72 for, none against and two abstentions.

1. Introduction

1.1. Within the existing body of Community legislation the present Commission communication seeks to clarify the legal framework applicable to Member States wishing to introduce environmental taxes and charges (levies). The aim is to ensure a balanced and efficient use of such instruments at Member State, regional or local level, as well as a transparent assessment by the Commission.

1.2. The communication stems from the conclusions of the European Councils in Madrid 1995 and Florence 1996 to the effect that environmental policy must be increasingly based on economic instruments, including fiscal measures. Similarly the White Paper on Growth, competitiveness and employment () argued that the funds collected from these environmental levies should be used to reduce other taxes such as those on employment.

1.3. The communication reviews the environmental levies being developed in the Member States and analyses their compatibility with other policies such as competition, the single market, taxation and the CAP, as well as with obligations towards third countries in the context of both the World Trade Organization (WTO) and bilateral and multilateral agreements.

1.4. As the Commission document points out, 'In the area of environmental taxation, different meanings are often given to similar terms in different Member States (...)`. The document likewise states that 'the term taxes and charges` should be understood to cover all compulsory, unrequited payments, whether the revenue accrues directly to the government budget or is destined for particular purposes (e.g. earmarking).

1.5. Fiscal theory nevertheless draws a distinction between the concept of 'taxes` and 'charges`. Taxes are general in nature and in particular tax revenue accrues to the common fund of the overall budget of a state, regional government or local community. Charges or their national equivalent in each Member State on the other hand imply payment for the use of a good or public service (in this instance the public environment), with revenue used to partially or totally defray the costs of providing the service or of offering the individual use of a common good.

1.6. The Commission states that it is important 'to ensure a balanced and efficient use of the instruments at Member State, regional or local level, and a transparent assessment by the Commission`. It also indicates willingness to put forward proposals at Community level despite the current unanimity requirements for fiscal measures 'if a multiplication of different national solutions to similar problems becomes evident, or when environmental objectives can be reached in a more cost-effective way`.

1.7. The communication makes a detailed analysis of the criteria which should govern the imposition of such environmental levies. To this end it analyses the Treaty articles which could be relevant to these levies and carries out a thorough review of the relevant Court of Justice case-law.

1.8. The Commission's analysis shows that the basic criteria for judging the compatibility of these environmental levies with Community law are as follows:

1.8.1. Environmental objective of the levy. Member States must provide proper justification of the need to solve environmental problems, which includes the presentation of scientific evidence; the environmental protection objective of the measure itself is never questioned, but proportionality, i.e. the relationship between environmental protection measures and their impact on the single market, does come under scrutiny.

1.8.2. Transparency of the tax system. To achieve this:

- the administrative control measures - but not the amount of the levy itself - must be proportionate to the environmental objective pursued;

- objective criteria must be applied;

- the detailed rules governing the levy must avoid discriminating, directly or indirectly, against imported products.

1.8.3. No discrimination on grounds of nationality. The levies must affect national and imported products equally and the proceeds may not be used in full to compensate national producers of the taxed products (but may be used to compensate national consumers of these products).

1.8.4. Compatibility with the Community system of state aid. This requires an analysis of a number of specific situations, namely:

1.8.4.1. Subsidies to accelerate or facilitate the introduction of a new, more environmentally-friendly product or to encourage more environmentally-friendly production methods. In this case the following criteria must be met:

- the aid or subsidy must be applied universally to all similar products irrespective of origin;

- the subsidized activities must be analysed to see whether they could operate on a commercial basis without such aid, and whether such a measure is in the public interest;

- the subsidy must be phased out before the new product or production method becomes mandatory;

- the subsidy/incentive must be lower than the cost needed to meet the new product specifications;

- the subsidies must be notified to the Commission within the set time-limits.

1.8.4.2. Levies to finance systems for the collection and disposal of dangerous products or substances. Such systems are authorized provided that the proceeds are used to pay companies for the collection and disposal of the products in question.

1.8.4.3. Redistribution to the collective that paid the levy. Product levies can affect both domestic producers and those of other Member States. If the revenues are used to fully offset the burden borne by domestic producers, the levy can be regarded as having equivalent effect to a custom duty and would then be prone to be prohibited under Article 12 of the Treaty. If the revenues partly offset the burden borne by domestic producers, the levy would have to be examined in the light of the non-discrimination provisions of Article 95.

1.8.5. Community control mechanisms. These include the following arrangements to enable the Commission to check whether the measures in question are compatible with the single market, taking into account the aforementioned proportionality criterion:

- notification of all types of environmental aid to the Commission by the Member State granting the aid, except public aid coming under the de minimis rule;

- notification to the Commission, in accordance with Directive 83/189/EEC, of all technical regulations including those 'which are linked to fiscal or financial measures affecting the consumption of products by encouraging compliance with such technical specifications or other requirements`. A similar procedure applies with Directive 94/62/EC on packaging and packaging waste;

- on the basis of this system of notification, both other Member States and firms or individuals who regard themselves as discriminated against by the planned measures or regulations may notify the Commission of their objections;

- the Commission is also to decide on the compatibility of these measures in the light of Treaty Articles 30, 95 and 100a.

1.9. In the light of the experience acquired in applying environmental levies in the Member States and their compatibility with the single market, the Commission 'will examine the need for policy initiatives in order to ensure the achievement of essential Community objectives`.

2. General comments

2.1. The ESC congratulates the Commission on issuing this communication although it would also like to forward a number of suggestions to complete the document and ensure that it is more effective.

2.2. In numerous opinions over recent years the ESC has unfailingly approved the idea of sustainable growth as set out in Treaty Article 2 as well as the fiscal guidelines contained in the conclusions to the 1995 Madrid and 1996 Florence European Councils (). It has also expressed its support for the principles set out in the White Paper on Growth, competitiveness and employment (). It has, however, also welcomed the completion of the single market, as witnessed by the setting-up within the ESC of a permanent Single Market Observatory, and approved the goal of economic and social cohesion, which forms the natural adjunct to the single market and is one of the key elements in sustainable and harmonious development in the EU as a whole. The ESC likewise considers that fiscal policy should be compatible with protection of the environment.

2.3. The ESC has also argued that these levies should not mean an increase in the overall tax burden in any of the Member States - a line which coincides with one of the resolutions of the recent European Council in Amsterdam - but feels that the revenue obtained in this way should, as far as possible, be used for environmental protection measures or for reducing taxes on employment.

2.4. The ESC has likewise emphasized the need to analyse the impact of this new environmental levy policy on the competitiveness of the Community economy and its capacity to generate long-term employment. Whenever there is an environmental levy, it is therefore important to clarify its nature, as defined in point 1.5.

2.5. The Committee is pleased that the Commission is making strenuous efforts to analyse and evaluate the economic and environmental impact of environmental levies before making more detailed recommendations, and urges it to complete its analysis as soon as possible.

2.6. The ESC considers that this communication clarifies the need to reconcile environmental protection with a fiscal policy compatible with the single market through the application of such environmental levies and feels that the levies in question have to respect the various Treaty articles and the relevant case-law developed by the Court of Justice.

2.7. The ESC nevertheless finds that the document should have made a clearer, more systematic analysis of all the legal factors connected with possible conflicts and the search for arbitrated solutions. A more systematic approach would be of help to Member States and their regional authorities in introducing environmental levies compatible with the spirit of European unification.

2.8. The Committee would therefore urge the Commission, as soon as it has completed the above-mentioned analysis of the economic and environmental impact of the levies, to draw up an additional communication setting out precisely and clearly, as a kind of information guide, the criteria which should govern the imposition of such levies by the Member States, including those introduced by local and regional authorities. It would consequently be appropriate for the Commission to submit a prior resolution to the Environment, Ecofin and Single Market Councils, underpinning this initiative legally.

2.9. This additional communication would help to get rid of the feeling that, with its present communication, the Commission is reacting after the event. In other words it would allay the Committee's second concern, namely the stance to be adopted by the Commission to the development of these levies in the Member States before general initiatives are drawn up. The Committee has good reason to be concerned that the lack of clear and precise Commission guidelines is resulting in the uncontrolled development of environmental levies differing substantially in both concept and application from one Member State to another, and even from one regional or local authority to another, and fears that such levies are not easy to control by the Commission and are posing a threat to the single market.

2.10. Hence the urgent need for a Council resolution and for the introduction of clear, specific and transparent criteria so as to provide the Member States and public authorities with precise guidelines.

2.11. The Committee is aware of the unanimity rule provided for in Treaty Article 130s(2) and further recognizes that many of these levies, by their very nature, must be defined at national or local level in accordance with the subsidiarity principle. It would nevertheless call on the Commission, in its capacity as guardian of the Treaties, to make every effort to prevent the unregulated and potentially self-interested proliferation of such levies which would jeopardize the very foundations of the European Union, namely a single market and solidarity.

2.12. To this end the Committee calls upon the Commission to carry out as soon as possible an evaluation of the economic and environmental implications of these instruments and to put into practice the general policy conclusions which can be drawn therefrom, as spelt out in point 54 of the Commission's communication. In the view of the Committee this should result in the Commission being given the role of having to stimulate action based on a more wide-ranging application of the highly promising instruments represented by environmental taxes and charges.

Brussels, 1 October 1997.

The President of the Economic and Social Committee

Tom JENKINS

() COM(93) 700 final.

() With regard to the case for basing environmental policy in the future more on market-based instruments, including fiscal measures, cf. for example the ESC's Opinion on the Commission communication on economic growth and the environment (OJ C 155, 21. 6. 1995) and its Opinion on the revision of the fifth environmental action programme (OJ C 212, 22. 7. 1996).

() Cf. above all the opinions on the economic, financial and industrial aspects of the white paper (OJ C 295, 22. 10. 1994).