Opinion of the Economic and Social Committee on the 'Proposal for a Council Directive on restructuring the Community framework for the taxation of energy products` () (98/C 19/25)

On 8 April 1997 the Council decided to consult the Economic and Social Committee, under Article 99 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for Economic, Financial and Monetary Questions, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 14 October 1997. The rapporteur was Mr Schmitz.

At its 349th plenary session (meeting of 29 October 1997) the Economic and Social Committee adopted the following opinion by 83 votes to 23, with 13 abstentions.

1. Introduction

1.1. The ESC has spoken out in various opinions in favour of economic regulatory instruments in the field of environmental policy. The Commission's proposals for a CO2/energy tax were basically welcomed by the ESC, despite some criticism on details ().

1.2. The ESC strongly agrees with the idea that eco-taxes must not be allowed to lead to a higher overall tax burden. To ensure tax neutrality, taxation of the labour factor must be reduced proportionally. Optional rules are not sufficient here. Rules are needed binding the Member States, which have responsibility for tax law.

1.3. The ESC has pointed out in various opinions that the introduction of eco-taxes must not be allowed to lead to European firms becoming less competitive and to jobs being lost, especially in energy-intensive sectors. But steps should be taken to ensure that low-income groups do not face greater hardship.

1.4. In its role as Single Market Observatory, the ESC has also asked the Commission and Council to reduce distortions in the single market caused by national tax policies. Energy taxes, especially those on mineral oils, vary widely between Member States. In the fuels sector this leads to unjustifiable distortions of competition, especially in frontier regions.

2. General comments on the proposal

2.1. After the deadlock within the Council on the proposals for a CO2/energy tax, the Commission is - not least at the Council's urging - now trying a new approach by means of a proposal for minimum taxes on energy products.

2.1.1. The ESC supports this initiative but has a number of criticisms to make.

2.1.2. As soon as the Amsterdam Treaty is ratified it will be possible, if unanimity cannot be reached in the Council, for the implementation of the Commission proposal to be decided by a group of countries at least, through the introduction of the 'enhanced cooperation` instrument (). The ESC does not, however, consider such a development to be desirable, as it could lead to further distortions of competition in the internal market.

2.2. Compared with its earlier proposals for a CO2/energy tax, the Commission is now setting its sights much lower. This generally pragmatic proposal will, however, have an extremely limited impact as an environmental regulatory instrument. Other instruments, for example voluntary measures listed by the Commission in its communication 'An overall view of energy policy and actions` (), are in some cases more efficient.

2.2.1. The Commission is linking its new proposal to the existing directives on minimum tax levels for mineral oils (92/81/EEC and 92/82/EEC). Like them, other fuels and electricity would be subject to a minimum tax level.

2.2.2. The earlier proposal for a CO2/energy tax sought above all to tax CO2 content and primary energy (there were special rules for electricity). Now, only the final form of energy is to be taxed. The environmental regulatory impact is therefore less pronounced, as the energy conversion process can no longer be influenced, and there is still no account taken of the specific CO2 component.

2.2.3. With its proposal, the Commission wants to set minimum rates of excise duty on energy products. The business sector is to be largely unaffected by the taxation. Thus, all energy products that are not used as motor or heating fuels are untaxed. Neither are energy products that are basically used as raw materials, such as energy products and electricity that are basically used for chemical reduction or in metallurgical and electrolytic processes. The ESC regrets that the Commission's proposal does not seek to provide tax relief for forms of energy other than electricity that are used in industrial production. In the fuels sector, there are special rules for certain industrial and commercial uses; firms with particularly high energy costs will be given some tax relief.

2.2.4. As the Commission proposal concerns the excise duties on energy products, the environmental regulatory impact is largely limited to consumer behaviour. It is intended to encourage people to buy products (vehicles, tools, etc.) which require less energy. Indirectly, manufacturers will be induced to market products requiring less energy. A further environmental effect will be felt in the heating of buildings.

2.3. The proposed tax rates, especially those for fuels, appear very low.

2.4. The Commission is proposing moderate tax increases up to 1 January 2000. Target rates are put forward for 1 January 2002. The proposed increases in the fuels sector are far too cautious. This is incomprehensible, given the big increases in CO2 emissions from traffic. The ESC would also refer here to Article 16 in the Commission proposal, which empowers Member States to levy taxes on motor fuels below the minimum rate if specific charging systems for road transport are introduced.

2.4.1. When the tax rates for LPG (liquefied petroleum gas) and natural gas (methane) as a fuel are fixed, its relative environmental friendliness should be taken into account. The proposed rates of increase should be less than those for petrol and diesel.

2.4.2. The higher taxes on motor fuels could have unacceptable economic disadvantages for some regions of the Union. The Member States should be given the right to take site-linked compensatory measures (e.g. petrol coupons) for Objective 1 - and Objective 6 - regions, over and above the existing arrangements for certain remote islands.

2.5. Insofar as the Member States have been given room for technical manoeuvre in formulating national energy taxes, this should not be allowed to lead to any distortions of competition in the single market.

2.5.1. However, the ESC wonders whether, as regards special eco-regulations (such as tax exemption for renewable forms of energy), more binding provisions should not be introduced with an eye to avoiding distortions of competition.

2.5.2. The ESC regrets that no clear indications have been given about tax neutrality. Experience unfortunately shows that newly introduced energy taxes are not balanced by corresponding reductions elsewhere in the tax system. The ESC therefore urges the European Council, in parallel with the decision on the directive in the Council, to give a commitment to use any increase in tax revenues to reduce the burden of taxation on employment. Since private households will be hit especially hard by any increase in minimum tax rates, compensatory social measures should be taken to help low-income groups in particular.

2.6. The ESC has the impression that the proposal has been prompted less by environmental objectives than by the desire to make the single market operate more efficiently by reducing distortions of competition caused by taxation. This specific objective is welcomed wholeheartedly, especially as tax policy issues in the single market are becoming of ever-increasing importance with economic and monetary union pending. The ESC feels that distortions of competition are particularly marked in the fuels sector. For the rest, the ESC does not expect this proposal to endanger the planned liberalisation of EU energy markets.

2.7. A big advantage in this proposal compared with the proposed CO2/energy tax lies at the technical level. The Commission's proposal to tax the final form of energy will involve much less red tape than a tax on primary energy.

3. Specific comments

3.1. Article 9

The wording in Article 9 contradicts that in Article 13(1)(b). According to Article 9, the heat generated during electricity production will be subject to a minimum tax. But under Article 13(1)(b) the Member States are not obliged to introduce such a tax.

3.2. Article 13(1)(b) [also applies to Article 14(1)(e)]

The ESC proposes that district or remote heating should be tax-free.

3.3. The ESC suggests that, in addition to electricity, tax relief should be provided for other forms of energy used in industrial production (chemical reduction or metallurgical and electrolytic processes).

3.4. Article 13(1)(c)

Fuels for the purpose of air navigation are to be exempted from taxation in the proposed directive. Because of the negative environmental effects (CO2/emissions), the EU should commit itself, at the same time as the directive is adopted, to reaching international agreement on the taxation of kerosene.

3.5. Article 14(1)(c)

The Member States should be obliged to exempt certain renewable energy sources (e.g. solar energy) from taxation.

3.6. Article 15(1)

The ESC feels that the planned refund should not just be granted to firms. Corresponding refunds should also be granted to private individuals (such as house owners), especially as regards heating.

3.7. Article 15(2), second sub-paragraph

If energy used in industrial production is made tax-free, the rule provided for here is unnecessary. The ESC would also point out that the Commission proposal does not state clearly how energy costs are to be calculated.

3.8. Article 18(3)

Add:

'Firms achieving the CO2 reduction objectives set in the self-commitment statements will be exempted from the scope of the directive, insofar as the reduction results for individual firms are detectable.`

Brussels, 29 October 1997.

The President of the Economic and Social Committee

Tom JENKINS

() OJ C 139, 6. 5. 1997, p. 14.

() ESC Opinion of 28. 3. 1996 on the Amended Proposal for a Council Directive introducing a tax on carbon dioxide emissions and energy. See point 2.4; OJ C 174, 17. 6. 1996, p. 47.

() ESC Opinion of 28. 3. 1996 on the Amended Proposal for a Council Directive introducing a tax on carbon dioxide emissions and energy. See point 3.1.4; OJ C 174, 17. 6. 1996.

() COM(97) 367 final, 23. 4. 1997.

APPENDIX to the opinion of the Economic and Social Committee

The following amendments were rejected but received more than 25 % of the votes cast:

Point 1.3

Insert the following after the first sentence:

'Unless there are corresponding reductions elsewhere in the tax system, increasing the current minimum rates for consumer levies and their general application to all industrial products will lead to a significant rise in production costs in the industrial and transport sectors.`

Reason

The justified warning in the first sentence of a loss of European firms' competitiveness, especially in energy intensive sectors, should be explained and emphasised in this way.

Result of the vote

For: 38, against: 68, abstentions: 6.

Point 2.4

Redraft the third and fourth sentences to read:

'Even if the problem of growing CO2 emissions from traffic is to be taken seriously, any further increases in the fuels sector should only be allowed to take place after first reducing taxes elsewhere and after an exact analysis of the impact of such a measure on growth, competitiveness and employment.`

Reason

It is a contradiction if, on the one hand, the excessive overall tax burden in Europe is deplored and, on the other, there are calls for even higher taxes on energy products. The energy taxes issue cannot be dealt with separately from the overall discussion on the economy in Europe (boosting competitiveness and employment opportunities by lowering taxes).

Result of the vote

For: 40, against: 67, abstentions: 9.