Proposal for a COUNCIL DECISION authorising Denmark to apply a differentiated rate of excise duty to heavy fuel oil and heating oil used by certain firms, in accordance with Article 8(4) of Directive 92/81/EEC

(presented by the Commission)

EXPLANATORY MEMORANDUM

1. Submission of request

By letter of 2 August 2001, Denmark applied for permission under Article 8(4) of Council Directive 92/81/EEC of 19 October 1992 on the harmonisation of the structures of excise duties on mineral oils, [1] to apply a differentiated rate of excise duty to heavy fuel oil and heating oil used by energy-intensive firms to produce heating and hot water. In response to a request for further information, the Commission received the final details it required to examine the application on 11 October 2001.

[1] Directive published in OJ L 316, 31.10.1992, p. 12, as last amended by Directive 94/74/EC (OJ L 365, 31.12.1994, p. 46).

In 1995, the Danish Parliament adopted a package of environmentally friendly measures which required all firms to pay a tax, as from 1998, on the energy that they consumed to produce heating and hot water.

In 1998, it also raised the excise duty on electricity and fuel used to produce heating and hot water by almost 20%. The increase was phased in between 1998 and 2001.

In 1999, it was discovered that firms were paying much higher taxes on heating than had been foreseen when the scheme was adopted in 1995. In 2000, the amount should have been DKK 910 million (EUR 122 million) whereas, according to a December 2000 estimate, firms would in fact pay 1 350 million kroner (EUR 181 million) that year in taxes on heating, i.e. almost 50% more than had originally been intended.

In December 1999, therefore, the Danish Parliament adopted a law [2] allowing firms consuming large amounts of energy on heating and hot water to obtain a reduction on the CO2 and energy taxes. However, each firm had to agree to undertake investments designed to improve the energy efficiency of their heating and hot water installations.

[2] The legal basis is Law No 1107 of 29 December 1999.

The reduction in excise duty amounts to 22% of the CO2/energy tax on the production of heating and hot water:

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The reduced rates applied are higher than the minimum rates laid down by Community legislation.

The differentiation is designed partly to compensate for the fact that the tax on heating is much higher than originally intended when the package of green measures was adopted.

To qualify for the reduced rate of excise duty, firms must pay taxes on heating which exceed 2% of the growth in their value added (value of sales minus purchases, but equal to at least 10% of sales). According to forecasts, some 60 to 80 firms should be willing to agree to improve their energy efficiency and therefore qualify for the proposed subsidy. These include both energy-intensive manufacturers and other firms in the business and service sectors.

The scheme should result in estimated subsidies of between DKK 20 to 25 million per year (EUR 2.7 to 3.4 million).

The Commission has decided that, with the exception of the agricultural component which is still being studied, the scheme in question is compatible with the State aid rules on environmental protection. [3]

[3] Commission decision of 6 June 2001 on dossier N/840/A/2000 (letter SG(2001) 289001).

The Ministry of Energy and the Environment is authorised to fix the date of entry into force of the law as soon as it receives the Commission's approval. The planned duration of the scheme is ten years which corresponds to the period of validity of the authorisation given by the Commission under the State aids rules.

The current subsidy scheme is submitted to the Commission in accordance with the Community State aid rules. The Commission approved the scheme on 6 June 2001 pursuant to the Community guidelines on State aids involving environmental protection (N 840/A/2000). Those parts of the scheme applicable to the agricultural sector are in keeping with the guidelines on State aids in that sector.

2. Evaluation by the Commission

Under Article 8(4) of Council Directive 92/81/EEC, the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce further exemptions or reductions of excise duties for specific policy considerations.

By letters dated 2 August 2001 and 11 October 2001, Denmark applied for permission under Article 8(4) of Directive 92/81/EEC to apply a differentiated rate of excise duty to heavy fuel oil and heating oil used by energy-intensive firms to produce heating and hot water.

In accordance with the abovementioned Directive, the other Member States have been notified of this request.

The financial details of the application are as follows:

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This complies with the minimum Community rates specified in Articles 5 and 6 of Directive 92/82/EEC.

Moreover, the Commission has examined the measure notified by the Danish authorities in the light of Articles 87 and 88 of the EC Treaty. The Commission has concluded that, apart from the agricultural component, the aid in question is compatible with the common market.

As regards the agricultural component of the application, Article 8(2)(f) of Directive 92/81/EEC states that, without prejudice to other Community provisions, Member States may apply total or partial exemptions or reductions in the rate of duty to mineral oils used under fiscal control exclusively in agricultural and in horticultural works. A derogation under Article 8(4) of the Directive is consequently not necessary for the excise duty exemptions proposed by the Danish authorities for mineral oils used exclusively in agricultural works. The granting of aid to the agricultural sector therefore depends on the prior decision of the Commission under Article 87 of the Treaty and requires no specific authorisation from the Council on a proposal from the Commission.

To enable the Commission and the Council to periodically review exemptions granted pursuant to Article 8(4) of Directive 92/81/EEC and exercise a reasonable level of control, specific exemptions are allowed in practice for a maximum of six years.

Lastly, the Commission considers that differentiation of excise duty is in keeping with the overall context of environmental protection policy. The Commission notes in particular that the reduce rate is granted only to firms which agree to improve their energy efficiency.

3. Decision

In accordance with Article 8(4) of Directive 92/81/EEC, the Commission proposes that the Council decide to authorise Denmark to apply a differentiated rate of excise duty of a maximum of EUR0.0095 per kg to heavy fuel oil and of EUR0.008 per litre to heating oil for a period of six years starting on 1 February 2002.

The reduced rates of duty must comply with the terms of Council Directive 92/82/EEC of 19 October 1992 on the approximation of the rates of excise duties on mineral oils, and in particular the minimum rates laid down in Articles 5 and 6 thereof.

This proposal does not concern heavy fuel oil and heating oil used exclusively for the purposes referred to in Article 8(2)(f) of Directive 92/81/EEC.

Proposal for a COUNCIL DECISION authorising Denmark to apply a differentiated rate of excise duty to heavy fuel oil and heating oil used by certain firms, in accordance with Article 8(4) of Directive 92/81/EEC

(only the Danish text is authentic)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Directive 92/81/EEC of 19 October 1992 on the harmonisation of the structures of excise duties on mineral oils, [4] and in particular Article 8(4) thereof,

[4] Directive published in OJ L 316, 31.10.1992, p. 12, as last amended by Directive 94/74/EC (OJ L 365, 31.12.1994, p. 46).

Having regard to the proposal from the Commission,

Whereas:

(1) Denmark has requested authorisation to apply a differentiated rate of excise duty to heavy fuel oil and heating oil used by energy-intensive firms to produce heating and hot water, excluding the mineral oils referred to in Article 8(2)(f) of Directive 92/81/EEC.

(2) The other Member States have been notified of Denmark's request.

(3) The aim of the differentiated rate of duty is partly to compensate for the fact that the actual tax is much higher than was intended when the national measures were adopted increasing the CO2 and energy taxes on the use of heavy fuel oil and heating oil to produce heating and hot water.

(4) The reduced rate is granted to firms which agree to improve their energy efficiency. The financial details of the application are as follows:

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The zero-rate for heating oil is authorised by the second paragraph of Article 5(3) of Council Directive 92/82/EEC of 19 October 1992 on the approximation of the rates of excise duties (92/82/EEC) on mineral oils. [5] In Denmark, the monitoring charge is DKK 50 (EUR6.7) per 1000 litres of heating oil.

[5] Directive published in OJ L 316, 31.10.1992, p. 19, as last amended by Directive 94/74/EC.

(5) The differentiated rate of excise duty proposed by Denmark therefore complies with the minimum rates referred to in Articles 5 and 6 of Directive 92/82/EEC.

(6) The requested exemption is in keeping with environmental policy. In particular, the reduced rate is granted only to firms which agree to improve their energy efficiency.

(7) On the basis of information available, except for the agricultural sector, the Commission and all the Member States consider that the application of differentiated rates of excise duty to heavy fuel oil and heating oil will not result in a distortion of competition contrary to the common interest nor will it hinder the operation of the internal market.

(8) The exemptions should be granted for a limited duration. A period of six years, with the possibility of an extension, is compatible with the requirements of Community tax policy.

(9) The Commission regularly reviews reductions and exemptions to check that they will not distort competition, hinder the operation of the internal market or be incompatible with Community policy on protection of the environment.

HAS ADOPTED THIS DECISION:

Article 1

Denmark is authorised to apply a differentiated rate of excise duty, from 1 February 2002 to 31 January 2008, to heavy fuel oil and heating oil used by energy-intensive firms to produce heating and hot water.

The maximum amount of the authorised differentiation in the excise duty is EUR0.0095 per kg on heavy fuel oil and EUR0.008 per litre on heating oil.

Article 2

The reductions in excise duty referred to in Article 1 must comply with the terms of Council Directive 92/82/EEC, and in particular the minimum rates laid down in Articles 5 and 6 thereof.

Article 3

This decision shall be without prejudice to Article 8(2)(f) of Directive 92/81/EEC.

Article 4

This Decision shall expire on 31 January 2008.

Article 5

This Decision is addressed to the Kingdom of Denmark.

Done at Brussels,

For the Council

The President