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COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 26.03.1997 
COM(97) 9 final 
COMMUNICATION FROM THE COMMISSION 
Environmental Taxes and Charges in the Single 
Market 

FOREWORD 
The Commission has several times given its support to an increased use of fiscal instruments 
to make environmental policy more efficient and cost-effective. Most of these instruments are 
implemented at Member State level. This Communication is presented in order to support 
these activités, and ensure that the environmental taxes and charges are used in a way 
compatible with Community legislation. 
The Communication is a first step in the Commission's treatment of the use of environmental 
taxes by the Member States. It aims to explain the existing legal framework for the use of 
environmental taxes and charges by Member States within the framework of the single 
market. It also aims to clarify both the possibilities and constraints for Member States to act 
in this field. This Communication will not discuss the advantages and disadvantages in terms 
of economic efficiency and environmental effectiveness of using environmental levies at 
Member States level. Nevertheless, it will provide Member States with a view of the legal 
obligations in question, which have to be considered, when environmental levies and charges 
are designed. It shows that there is considerable room for action by the Member States to 
implement fiscal instruments, while respecting Treaty obligations. 
Environmental taxes and charges are increasingly used in the Member States. This opens up 
the scope for a more cost-effective environmental policy. Environmental taxes and charges 
can be an appropriate way of implementing the "polluter pays" principle, by including the 
environmental costs in the price of goods or services. Fiscal instruments are considered as 
incentives for producers and consumers, steering choices towards more environmentally 
sustainable activities. The present use of environment taxes in the Member States is set out in 
an appendix to the Communication. 
Obviously, these instruments should be used in a way which is compatible with Community 
law. In particular, competition, single market and taxation policies affect how environmental 
taxes and charges, and the resulting revenues, may be used. The legal framework basically 
aims to ensure that Member States do not distort competition by discriminating against 
products/services from other Member States. However, the detailed legal framework is quite 
complex, which is the reason why the Commission deems it important to clarify it in this 
Communication. The document also specifies the control measures existing in the 
Community, known as the rules of notification. 
The Commission, in cooperation with all interested parties, intends to continue to explore the 
avenue of environmental levies and charges by : 
i) Systematic collection of experience from Member States of the existing levies 
and charges, 
ii) Systematic analysis of the environmental impact of the use of environmental 
taxes and charges within Member States, 
iii) Systematic analysis of the impact of environmental taxes and charges on the 
internal market and the competitiveness of European industry 
The results of this work will be used to draw policy conclusions on the further use of these 
instruments on Community and Member State levels. 
CONTENTS 
I. OBJECTIVES AND SCOPE OF THE COMMUNICATION , 1 
II. DEFINITIONS AND LEGAL CONTEXT 3 
a. Definitions 3 
b. Different types of environmental levies 4 
c. Legal context 5 
III. GUIDELINES 5 
A. GUIDELINES FOR THE USE OF ENVIRONMENTAL LEVIES 5 
a. Environmental objective of the levy 5 
b. Custom duties and charges having similar effects 6 
c. Internal taxation 7 
d. Secondary legislation on indirect taxation 9 
e. State aid 11 
Existence of aid 
Compatibility of aid with EU state aid legislation 
f. Quantitative restrictions, and measures having equivalent effect 15 
B. GUIDELINES ON COMMUNITY CONTROL MECHANISMS 17 
a. Notification requirements in the field of state aid 17 
b. Notification requirements in the field of Directive 83/189/EEC and 
secondary Community environmental law 19 
c. Notification of national measures transposing Community Directives 20 
d. Complaints and Commission's own initiative investigations 20 
IV. CONCLUSION 20 
APPENDIX 
Overview of environmentally related taxes and charges in EU/EEA Member States. 
& 
I. OBJECTIVES AND SCOPE OF THE COMMUNICATION 
1. The Community Fifth Environmental Action Programme1 and its 1996 review2, present the 
broadening of the range of environmental policy instruments as one of its key priorities. On 
several occasions, the Community Institutions have called upon the Commission and the 
Member States to explore to a larger extent the potential of new environmental policy 
instruments, in particular of a fiscal nature. In December 1995 the European Council of 
Madrid concluded: "In order to exploit the job-creation potential of environmental protection, 
these (environmental) policies should - to a greater extent than at present - rely on market 
based instruments, including fiscal ones." The European Council of Florence of June 1996 
sent a similar message3. 
2. In order to reach environmental objectives, which are increasingly set in the context of 
framework legislation at EU level, Member States have, apart from measures harmonised at 
Community level, a multitude of economic, technical, and voluntary instruments at their 
disposal. Environmental taxes and charges form part of the range of environmental 
instruments and can be an appropriate way of implementing the polluter pays principle, by 
including the environmental costs in the price of a good or service. These instruments can 
thereby induce consumers and producers into environmentally more sustainable behaviour. 
3. One of the purposes of environmental taxes and charges is to reach an environmental 
objective, and consequently, they should have an effect on the market. It is therefore 
important that the rate of an environmental tax or a charge is set at a correct level: a levy 
which is too low will not be able to fully correct a distortion on the market, while a levy 
which is too high replaces one distortion with another. 
4. Revenues from environmental taxes and charges can be used to finance environmental 
protection activities. In some cases, these instruments can also provide large and stable 
revenues. They can then be used to decrease other taxes which are perceived as distorting the 
economy, such as labour taxes. Such an approach was proposed to the Member States in the 
2 OJnoC 138, 17.5.1993, p. 1. 
COM (95) 647, 24. 01.1996 
It requested the Council to submit to it a report on the development of the tax systems within the 
Union, "taking account of the need to create a tax environment that stimulates enterprise and the 
creation of jobs and promote a more efficient environmental policy". 
Commission White paper "Growth, Competitiveness, and Employment"4; and endorsed by 
the European Council of Brussels in December 1993. This question is also dealt with in the 
Commission Report5 "Taxation in the European Union, Report on the Development of Tax 
Systems", prepared for the European Council in Dublin, December 1996. 
5. Environmental taxes and charges are being used in all EC/EEA Member States6 and they 
also play an increasing role in environmental policy in the Central and Eastern European 
countries that have applied for EU membership. Where appropriate, Community-wide rules 
have been adopted to enable such taxes to be applied within the framework of the single 
market (e.g. taxation of mineral oils; see paragraph 23). On the other hand, in line with the 
principle of subsidiarity, an increasing number of national initiatives in the form of taxes and 
charges are being taken to deal with local environmental problems, which often also are more 
efficiently dealt with at that level. 
6. The use of environmental taxes and charges and of their revenues impinges, directly or 
indirectly, on several areas of Community legislation other than environmental policy, and in 
particular on competition, single market and taxation policies. Many concrete cases have 
shown the importance of improving integration between these different areas of policy. In the 
agricultural sector, additional considerations might sometimes be required, due to the 
Community agricultural policy. The use of environmental taxes and charges may also affect 
obligations towards third countries, e.g. in the context of the WTO. Member States need to 
take account of all these linkages in order to ensure that national environmental taxes and 
charges are implemented in a way which is compatible with their WTO and Treaty 
obligations7. 
7. For the reasons set out above, the Commission deems it important to clarify the legal 
framework applicable for Member States wishing to introduce environmental taxes and 
charges. The framework is defined by the Treaty, secondary EC legislation, the jurisprudence 
4 
5 
6 COM (93) 700 final 
COM (96) 546, 22.10.1996 
See further Appendix 1. 
Although this document concerns aspects related to the single market, Member States should be aware 
that there may potentially be conflicts between what is permitted by EU and WTO rule, especially in 
the field of Border Tax Adjustments. See further Commission Communication on Trade and 
Environment, COM (96) 54 (OJ no C , 28.02.1996). 
of the Court of Justice, as well as the decisions and legal steps the Commission has taken to 
put this legal framework into practice. The Commission also deems it important to highlight 
which further elements it may take into consideration when assessing national environmental 
taxes and charges. The objective of the document is, however, not to analyze the advantages 
and disadvantages in terms of economic and environmental efficiency of using 
environmental taxes and charges at Member State level. The information should provide 
useful guidelines for Member States in designing, implementing and evaluating such 
instruments. The aim is to ensure a balanced and efficient use of the instruments at Member 
State, regional or local level, and a transparent assessment by the Commission. 
8. The Commission will keep the use of environmental taxes and charges at national level 
under review, having regard to the impact of such measures on the functioning of 
environmental policy, the single market and on European competitiveness, and other relevant 
policies such as energy policy. If a multiplication of different national solutions to similar 
problems become evident, or when environmental objectives can be reached in a more cost-
effective way, the Commission will put forward new proposals at Community level despite 
the difficulties which arise because of the current unanimity requirements for the adoption of 
fiscal measures. 
9. Chapter II of this Communication deals with the question of definitions and sets out the 
general legal context, while detailed guidelines are set out in Chapter III. It should be stressed 
that this Communication cannot provide definitive answers on future cases, and consequently, 
each individual case will have to be considered on its own merits. 
II. DEFINITIONS AND LEGAL CONTEXT 
a. Definitions 
10. In the area of environmental taxation, different meanings are often given to similar terms 
in different Member States, and no precise definitions are offered by EU legislation. 
Nevertheless, it is important to stress that it is the characteristics and the effects of a measure 
which determines how it will be judged with respect to Community law and not the 
denominations used in the Member States. Accordingly, this Communication does not set out 
to define the various types of instruments used in Member States. 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). In this Communication the word levy will be used to cover "taxes and charges" 
as defined above. Levies covered by more specific provisions in Community directives will 
fall under the legal context of respective directive. 
11. One likely feature for a levy to be considered as environmental would be that the taxable 
base of the levy has a clear negative effect on the environment. However, a levy could also be 
regarded as environmental if it has a less clear, but nevertheless discernable positive 
environmental effect. One such example could be differentiations of any tax or charge based 
on environmental criteria, such as between leaded and unleaded gasoline. In general, it is up 
to the Member State to show the estimated environmental effect of the levy, if that would be 
needed in assessing its compatibility with Community law. 
b. Different types of environmental levies 
12. Experience has shown that environmental taxes and charges are very different in nature 
but can be divided into two main categories8. 
Emission levies involve payments that are directly related to the real or estimated pollution 
caused, whether emitted into air, water or on the soil, or due to the generation of noise. 
Existing examples are charges on emissions of NOx from large combustion plants, and 
charges on pollution to water from waste water treatment plants. Levies on the emission of 
noise exist in the field of aviation. In so far as these levies are applied to stationary sources 
(such as industrial plants) they will to a large extent fall outside the scope of this 
Communication, as the cost of paying them falls only on domestic producers9. 
Product levies are applied to raw materials and intermediate inputs such as fertilisers, 
pesticides, natural gravel, and ground water, and on final consumer products such as batteries, 
one way packaging, car tyres and plastic bags. Some product levies that have existed for 
many years, mainly in the field of energy, are increasingly regarded as contributing to the 
See further e.g. "Environmental Taxes; Implementation and Environmental Effectiveness", European 
Environmental Agency, 1996, and "Environmental Taxes in OECD Countries", OECD, 1995. 
Q 
Exemptions from emission levies and the use of revenues from such levies may, however, fall under 
state aid rules (see further below). 
integration between environmental and energy policies. Typical examples are taxes on 
gasoline, diesel and heating oils and electricity. 
c. Legal context 
13 The legal appraisal of environmental levies is complex since the instrument is 
comparatively new and developing and since the Treaty was not conceived with this type of 
environmental policy instrument in mind. The basic legal context surrounding environmental 
levies is given by the following articles: 
customs duties levied on intra Community trade, or charges having equivalent effect 
(Articles 9-12); 
quantitative restrictions on importations and exportations of goods between the 
Member States, or measures having equivalent effect (Articles 30 - 36); 
provisions on transport policy, that are less favourable in their effect on carriers of 
other Member States (Article 76). 
state aid creating distortions of competition affecting intra community trade (Articles 
92-93); 
internal taxation discriminating against products of other Member States or otherwise 
protecting national production (Article 95) and legislation concerning excise duties 
and other forms of indirect taxation based on Article 99; 
Article 13Or stating the objectives of Community environmental policy. 
III. GUIDELINES 
A GUIDELINES FOR THE USE OF ENVIRONMENTAL LEVIES 
a. Environmental objective of the levy 
14. Article 2 of the EC Treaty states that "sustainable and non-inflationary growth respecting 
the environment" is one of the main tasks of the Community. Article 130r states that 
Community policy on the environment shall contribute to preserving, protecting and 
improving the quality of the environment, protecting human health and prudent and rational 
utilisation of natural resources. The preventative aspect is a key principle as well as the 
polluter pays principle and the precautionary principle. Furthermore it is stated that 
environmental protection requirements must be integrated into the definition and 
implementation of other policies. When introducing environmental levies Member States 
should provide a sound justification on the need to solve the environmental problems. 
Particular attention should be paid to the relation between these measures and the elements 
included in Article 13 Or of EC Treaty, Community environmental legislation and related 
jurisprudence, the Fifth Environmental Action Program10, and international agreements to 
which the European Community has acceded. 
b. Customs duties and charges having equivalent effect 
15. According to Articles 9 to 12 of the EC Treaty, Member States shall refrain from 
introducing any new customs duties on imports or exports or any charges having equivalent 
effect. Such customs duties in the strictest sense no longer exist between Member States. 
Nevertheless, the Court has decided that any pecuniary charge levied on products only 
because they cross a frontier has an equivalent effect to a customs duty. If a levy falls only on 
foreign products, it may therefore be regarded as equivalent to a customs duty. However, if 
such a levy is part of a general system of taxation of products, according to objective criteria 
without regard to the origin of the products, it will have to be examined on the basis of 
Article 95. 
16. A general system of taxation under which a very large portion of national production is 
exempted may still be regarded as a charge having an effect equivalent to a customs duty. In 
this connection the Court has made it clear that it may be necessary to take into account the 
appropriation of the revenue from the levy. A levy applying to products of other Member 
States and domestic products according to the same criteria can therefore constitute a charge 
having an effect equivalent to customs duties, if the revenue is used to fully compensate 
domestic producers of the taxed products. However, using the revenue to support the 
consumers of the taxed products would not fall in this category, but would have to be judged 
according to state aid law (see paragraphs 33 - 34). A levy could be regarded as having an 
effect similar to customs duties, and illegal state aid, as it can be governed both by the 
provisions of Article 9-12 and by Article 92. 
10 OJnoC 138, 17.5.1993, p. 1 
c. Internal taxation 
17. Article 95 aims at guaranteeing the neutrality of internal taxation by-prohibiting 
discrimination against products of other Member States and protection of domestic products. 
The relevant jurisprudence developed by the Court of Justice is based on three main 
principles : 
1) Member States are, subject to certain limits, in principle free to choose the system 
of taxation which they consider most suitable; 
2) The system applied to domestic products constitutes the point of reference for 
determining whether products of other Member States are taxed more heavily than 
domestic products; 
3) Article 95 is infringed if a product of another Member State is more heavily 
charged than a domestic product. 
18. As regards the first point, the Court has consistently held11 that Member States may 
differentiate levies between products, even if they are "similar". To be legal, such 
differentiation 
1) must be based on objective criteria, such as the nature of the raw materials used or 
the production processes employed12; 
2) must pursue objectives of economic policy which are themselves compatible with 
the requirements of the Treaty and its secondary legislation; and 
3) in addition, the detailed rules must be such as to avoid direct or indirect 
discrimination of products from other Member States or protection of competing 
domestic products. 
The Court has pointed out that a levy cannot be considered discriminatory solely because 
only products of other Member States fall within the most heavily taxed category, if this 
results from the application of objective and not discriminatory criteria13. If, however, 
products of other Member States are , on the basis of arbitrary and/or discriminatory 
1 ' Judgement of 4 March 1986 Case C-106/84, Commission v. Denmark [1986] ECR 833 and judgement 
of 7 April 1987 Case C-196/85 Commission v. France [1987] ECR 1597. 
12 Judgement of 14 January 1981, Case 46/80, SA Vinal v. Orbat [1981] ECR 77. 
13 Judgement of 30 November 1995, Case C-l 13/94, Casarin [1995] ECR 4203. 
conditions, excluded in advance and/or by definition from benefitting from a reduced rate of 
the levy, there would be a breach of Article 9514. 
19. As regards point 2, the system of taxation must be transparent, at least to the extent that it 
must be possible to determine objectively whether the burden falling on products of other 
Member States exceeds that falling on similar domestic products15. Moreover, the system 
must apply equally to domestic products and products of other Member States. In particular, 
according to the Court, to assess if Article 95 has been infringed, it is necessary to take into 
consideration : 
- the rate of the levy, 
- the provisions relating to the taxable base, 
- the control systems for charging the levy, and 
- the detailed rules for the collection of the levy. 
The case law of the Court also points out that the mere fact that the tax is levied 
predominantly on imports is not enough to deem it discriminatory16. The decisive criterion is 
the actual financial burden of each levy falling on national products on the one hand and on 
products of other Member States on the other. 
20. Article 95 does not give the Community a right to judge whether a levy in a Member 
State is excessively high in relation to its environmental objective17. Jurisprudence on Article 
95 has confirmed the application of the criteria of proportionality, which involves balancing 
the gain for the environment with the potential impact on the single market, only for 
administrative control measures of the levy 18. 
21. As regards point 3, in order to establish if Article 95, first paragraph, is infringed, the 
"similarity" between national and foreign products must be assessed. The Court has held that 
"similar products" are those that " have similar characteristics and meet the same needs from 
14 
15 
16 
17 Judgement of 27 May 1981, Case 142 and 143/80, Salengo, [1981] ECR 1413 and Judgement of 3 
July 1985, Case 277/83, Commission v Italy [1985] ECR 2049. 
Judgements of 26 June 1991, Case C-152/89, Commission v Luxembourg [1991] ECR 3141 and Case 
C- 153/89, Commission v Belgium, [1991] ECR 3171. 
Judgement of 16 December 1986, Case 200/85, Commission v Italy, [1986] ECR 3953. 
Judgement of 5 April 1990, Case C-132/88, Commission v. Greece [1990] ECR 1567. 
Judgement-of 7 April 1987, Case 196/85 Commission v. France [1987] ECR 1597. 
the point of view of consumers"19. In this context, it should be considered whether goods with 
the same function but with different environmental properties due to content or differences in 
production methods could be regarded as being different goods20. 
22. If the goods are not "similar", but still are at least partially or potentially competing with 
foreign products , the second paragraph of Article 95 requires that the levy must not have the 
effect of protecting domestic products21. In the assessment of this aspect, not only the actual 
situation but also the potential market for foreign products, if no protectionist measures were 
involved, should be taken into consideration. It is also necessary to take into account how the 
revenue from the levy is used. The Court ruled that when the revenue from a levy is used to 
partly offset the burden borne by domestic products, the charge constitutes discriminatory 
taxation within the meaning of Article 95 of the Treaty22. In addition, a levy could be 
regarded as being both discriminatory and illegal state aid, as it can be governed both by the 
provisions of the first paragraph of Article 95 and by Article 9223 (see paragraphs 26 ff). 
d. Secondary legislation on indirect taxation 
23. Community legislation adopted under Article 99 contains 
a) harmonised rules on tax structure and minimum rates for excise duties on mineral oils, 
tobacco and alcoholic beverages 
b) other general provisions in directive 92/12/EEC, allowing Member States to introduce 
indirect taxes on products provided that those taxes do not give rise to border-crossing 
formalities in trade between Member States. 
19 
20 
21 
22 
23 Judgement of 7 May 1987, Commission v. Italy, Case 184/85 [1987] ECR 2013. In order to assess 
similarity, the Court considered whether products satisfy the same consumer needs and both legal and 
factual circumstances are relevant. 
Under Council Regulation on a Community eco-label award scheme (EEC No 880/92 of 23/3 1992, OJ 
no L 99, 11.04.1992, p. 1.), eco-labels can be awarded for products (e.g.paper) with the same function 
but with different ecological properties. 
Judgements of 7 May 1987, Case 184/85, Commission v Italy, [1987] ECR 2013 and case 193/85, Co-
frutta, [1987] ECR 2085. 
Judgement of 16 December 1992, Case C-17/91, Georges Lornoy [1992] ECR 6523. 
Judgement of 21 May 1980, Case 73/79, Commission v. Italy [1980] ECR 1533. 
An important provision of Directive 92/81/EEC24 is that in general, only one tax rate per 
product can be used. Directive 92/12/EEC25 provides Member States with the possibility, 
within certain restrictions, to introduce other national taxes on mineral oils. Such taxes must 
comply with the rules applicable for excise duty and VAT 26. Member States may request 
authorization from the Council to apply reduced tax rates or exemptions, e.g. for 
environmental reasons27. In addition, Member States have the right to apply reduced tax rates 
or tax exemptions on mineral oils used for specific purposes, for example, in the field of 
public transport and within the agriculture sector. 
24. Directive 93/89/EEC28, sets out framework conditions for the application of taxes , tolls and 
user charges (Eurovignette) on heavy goods vehicles in Member States. The Commission 
presented in July 1996 a proposal29, based on Article 75, for replacing this Directive30. The 
proposal would allow road charges (annual vehicle taxes, tolls and user charges in general and in 
particular on sensitive routes) to be differentiated to take account of external costs. More 
generally, the Commission launched a debate on the use of economic instruments in the transport 
sector with its Green Paper "Towards fair and efficient pricing in transport: Policy options for 
24 
25 
26 
27 
28 
29 
30 Council Directive 92/81/EEC of 19 October 1992, on the harmonisation of the structures of excise 
duties on mineral oils (OJ no L 316, 31.10.1992, p. 12). 
Council Directive 92/12/EEC of 25 February 1992 on the general arrangements for products subject to 
excise duty and on the holding, movement and monitoring of such products (OJ no L 76, 23.03.1992, 
p.l). 
Laid down in Directives 92/81/EEC of 19 October 1992, on the harmonisation of the structures of 
excise duties on mineral oils (OJ no L 316, 31.10.1992, p. 12) and 92/82/EEC of 19 October 1992, on 
the approximation of the rates of excise duties on mineral oils (OJ no L 316, 31.10.1992, p. 19). 
So far some 70 derogations have been granted. Some derogations concern tax differentiation 
depending on environmental criteria of fuels such as reduced rates on environmentally improved diesel 
and on reformulated unleaded and leaded petrol. The Community wide stipulated tax differentiation 
between leaded and unleaded petrol has been created by treating the two different fuels as different 
products. 
Directive 93/89/EEC (OJ no L 279, 12.11.1993). 
Proposal for a Council Directive on the charging of heavy goods vehicles for the use of certain 
infrastructure, COM (96) 331, 10.7.1996. 
The Court annulled the Directive on 5 July 1995 on grounds of procedural irregularities. The 
effects of the Directive are however to be maintained until legislation replacing the Directive is 
adopted. 
10 
internalizing the external costs of transport in the European Union.31" Further action to follow up 
the Green paper will be brought forward by the Commission later this year 
25. The Directives 91/542/EEC32, 93/59/EEC33, 94/12/EC34, adopted under Article 100a, 
concerning polluting emissions from motor vehicles contain specific frameworks for fiscal 
incentives related to the purchase of new vehicles. The system aims at allowing Member 
States to encourage marketing of new cleaner vehicles, while avoiding fiscal measures 
constituting de facto technical requirements other than those harmonised at Community level. 
These fiscal incentives are authorised provided that they respect the following principles: 
they must apply to all new vehicles in conformity with future emission limits foreseen 
in the Directives 
they must be phased out when the new emission limits become mandatory, 
they must be lower than the extra cost needed to meet these future emission standards, 
they have to be notified in due time to the Commission. 
e. State aid 
26. According to Article 92 of the Treaty, any aid granted by a Member State which distorts 
or threatens to distort competition shall be incompatible with the common market. As a 
general rule, an aid element contained in a levy system cannot be authorised by the 
Commission if other provisions of the Treaty are being infringed. Thus, it first has to be 
assured that an environmental levy does not run counter to these other provisions, in 
particular Articles 9, 12, 30-36 and 95. If an aid element does not run counter to these 
provisions, the aid may be deemed compatible with the common market as described below. 
a) Existence of aid 
27. Before deciding on the compatibility of aid with EC state aid provisions, the Commission 
has to clarify if aid is involved. Revenues from environmental levies constitute "state 
31 Com (95) 691 final 
32 OJ no L 295, 25.10.1991, p.l. 
33 OJ no L 186, 28.07.1993, p.21. 
34 OJ no L 100, 19.04.1994, p.42. 
11 
resources". If such revenues are assigned to the general state budget, its future use does not 
come within the scope of this communication. If, on the other hand, the revenue is destined 
for a special purpose, state aid may be involved if certain enterprises or productions are 
favoured. Exemptions from product or emission levies also constitute state aid, even when 
these exemptions are necessary to prevent domestic firms from being placed at a disadvantage 
compared with their competitors in countries that do not have such levies. 
b) Compatibility of aid with EC state aid provisions 
Use of revenues 
28. Article 92 paragraph 2 lays down categories of aid which shall be deemed compatible 
with the common market, while paragraph 3 specifies some categories of aid which may be 
deemed compatible with it. Article 93 gives provisions for a procedure in order for the 
Commission to assess state aid in the light of Article 92. The principles according to which 
aid schemes pursuing environmental objectives shall be assessed by the Commission are set 
out in the Community guidelines on State aid for environmental protection35. The assessment 
is normally made by weighing the adverse effects on competition with the benefits for the 
environment. 
29. When assessing state aid cases the Commission takes into account both the origin and the 
use of revenue in order to get a complete picture. An analysis of the use of revenues in 
isolation, which did not take the origin into account, would give an incomplete figure as it 
would seem as if there was simply a distribution of public funds. To this effect the Court has 
stated that the Commission must take into consideration all those factors which directly or 
indirectly may be involved, including indirect aid, the financing of the aid and the connection 
between the financing and the amount to be distributed as aid36. 
30. In order to facilitate the assessment by the Commission, Member States are encouraged to 
state clearly how the revenues from the environmental levies are to be used. In all cases it is 
desirable that the criteria used are open, transparent, non-arbitrary and provide incentives for 
a desirable behaviour. The following are the most common ways of using revenue: 
35 OJ No C 72, 10.3.1994, p. 3. 
36 Judgement of 25 June 1970, Case 47/69, France v Commission, [1970]. 
12 
1) Support to environmental investments/activities 
31. Examples of facts the Commission takes into account when assessing compatibility of 
support to environmental investments with EC state aid rules are: 
- whether the revenue is spent in the same sector of economic activity as it was collected, or 
in a different sector, i.e. if any sector receives a net benefit, 
- whether the activities financed by the proceeds of the levies can be provided on a normal 
commercial basis with a satisfactory result, or whether some form of aid is needed, 
- whether the money paid to firms can be considered compensation for undertaking activities 
that they would otherwise not perform, and that are in the public interest, 
- the intended duration of the measure, 
- if the aid element is intended to be reduced over time . 
2) Levies to finance systems for collection and disposal of dangerous products or 
substances 
32. There is an increasing number of systems for the collection and disposal of products or 
substances which are harmful to the environment. Under those systems, the Member State 
normally imposes a levy on the sale of the products or substances concerned, with the 
proceeds being used to pay companies for the collection and disposal of the products after 
38 
use . 
37 
38 For aid to agricultural activities, the rules which apply can be found in regulation (EEC) no 
2.078/92, O.J. no. L 215 of 30.07.1992, p.85. 
The Commission have assessed and agreed to three such cases, namely a Danish scheme for the 
collection of environmentally harmful batteries (State aid case N 539/95), a Danish scheme for the 
collection and disposal of used car tyres (State aid case N 684/93, OJ no C 390, 31.12.1994, p. 15) and 
a Dutch scheme for the collection and disposal of car wrecks (State aid case N 93/95 (ex N 182/95)). 
The key elements in the Commission's assessment were the following: 
(1) that the charge which finances the system is imposed on all importers/producers of the products 
concerned in a non-discriminatory way, 
(2) that the payment to the collecting firms is based on normal commercial terms and 
(3) that the systems do' not allow, directly or indirectly, the collecting companies to sell the collected 
products below market price. 
(4) that the systems should be open and transparent, and be economically efficient. 
As these requirements were fulfilled, the Commission concluded that the aid was deemed compatible 
with state aid legislation and agreed to these collection and disposal systems 
13 
3) Redistribution to the collective that paid the levy 
33. Redistribution of revenues from emission levies, only charged on domestic firms, to the 
collective that paid them would normally be uncontroversial, as long as the system follows 
general requirements on transparency and non-arbitrariness. Such systems should however 
avoid unjustifiably favouring a specific domestic sector. 
34. Product levies can affect both domestic products and those of other Member States. If 
the revenues from product levies are used to fully offset the burden borne by domestic 
producers, the levy can be regarded as being a charge having equivalent effect to a customs 
duty. It would then, as described above, be prone to be prohibited under Art 12 6f the Treaty 
(see paragraphs 15 - 16). If the revenues partly offset the burden borne by the domestic 
producers, the levy would have to be examined concerning discrimination under article 95 
(see paragraph 22). The Commission has not raised objections in cases involving product 
levies, where the revenue has been intended to solve similar environmental problems as the 
levy itself, provided that the above mentioned problems did not arise39. 
Exemption rules favourable to domestic firms 
35. As stated above, exemptions from emission or products levies may constitute state aid in 
the meaning of Art. 92(1) of the Treaty. Temporary relief from new emission levies may be 
authorized where it is necessary to offset losses in competitiveness, since emission levies 
usually only apply to domestic firms. To ensure that these reliefs do not distort competition 
unduly, and to give an incentive for the aid recipients to implement measures to reduce 
pollution, the Commission requires that the tax relief or compensation 
- is temporary, 
- does not provide the sector with a net benefit, and 
- in principle, reduces over time40. 
39 
40 In two state aid cases; concerning control of seeds in France (State aid case N 693/91), and concerning 
a levy on pesticides in Denmark (State aid case N 416/95), the Commission decided that revenues 
collected by levies on both domestic products and those of other Member States may be used to 
address domestic environmental problems that are targeted by the levy. The requirement is that the 
revenue is distributed on the basis of objective criteria, and does not support the domestic producers of 
the levied products. 
For these reasons, the Commission has, for example, accepted the Dutch (State aid case N 760/95) and 
Danish C02/Energy tax schemes (State aid case N 459/95, OJ no C 324, 5.12.1995, p.9) as compatible 
with state aid rules. 
14 
36. Exemption rules on product levies are more sensitive, since such levies affect producers 
in other Member States. Such exemptions would first have to be examined according to 
discrimination and single market rules, and if accepted, then according to stat& aid law. In 
general, Member States are encouraged to ensure that 
- the exemption rules are clearly described, open and transparent 
- the expected time frame for the system is described 
- the effects on concerned sectors analyzed 
- the exemptions not give an undue advantage to domestic firms 
- the envisaged effects both on domestic producers and importers of the concerned products 
and close substitutes is analyzed. 
f. Quantitative restrictions and measures having equivalent effect 
37. Under certain conditions set out below, a levy or some aspects of it may be assessed in 
light of Article 30, which prohibits all measures having equivalent effect to quantitative 
restrictions on imports. However, a measure with such an effect may be permitted under 
Articles 30-36, if it is judged necessary to reach the environmental objective, and if the 
effects on the internal market are considered to be proportionate to the environmental gain. It 
has to be emphasized that it is the means of protecting the environment, and not the 
environmental objective as such, which are subject to assessment under Article 30. 
Applicability of Article 30 
38. Article 30 of the Treaty does not normally apply when a levy falls under Articles 9, 12, 
16, or 95 of the EC Treaty. However, it could apply in the following circumstances: 
- when a levy is imposed on a product for which there is no similar or competing national 
production, and the levy is of such an amount that the free movement of the products may be 
impeded: the Court has, for example, indicated that if a registration tax is applied to new 
motor vehicles in a Member State where no such vehicles are manufactured, it may be 
examined under Article 3041, or, 
41 Case 47/88, Commission v Denmark [1990] ECR 4509. 
15 
- when a levy is connected with certain conditions or factors which can be separated from 
those defining the operation of the levy system, these requirements may be considered as 
falling under Article 30. Such conditions or factors could concern how the products have to 
be labelled or presented. If, for example the levy regulation requires an economic operator to 
alter the form, size or designation of the product, or the label under which the product is 
lawfully marketed in another Member State42, and if this modification is not necessary for the 
proper functioning and objective of the levy, the required modification may be assessed under 
Article 3043. Furthermore, in accordance with the jurisprudence of the Court of Justice 
concerning technical requirements, the conditions or factors referred to above may not 
channel trade in such a way that only certain traders can effect the imports of the products 
concerned, whereas others are prevented from doing so44. 
39. The Court has ruled that a measure, such as a deposit charged per bottle, as part of a 
recycling system for bottles, cannot in itself qualify as a fiscal measure, and may therefore be 
examined under Article 3045. 
Assessment criteria on Article 30 
40. Case-law on the application of Article 30 is abundant concerning non-fiscal measures, but 
the Court has not yet assessed a fiscal measure on the basis of this provision. Useful guidance 
on the judgement of necessity and proportionality can, nevertheless, be obtained from the 
case law of the Court of Justice46 in the area of non-fiscal measures, although, as mentioned 
above levies and technical regulation to some extent may have different roles to play in 
environmental policy. 
42 
43 
44 
45 
46 See e.g. Case 27/80 Fietje [1980] ECR 3839 and Case 94/82 Kikvorsch [1983] ECR 947. 
The same line of reasoning was followed by the Court in the Case 74/76, Ianelli & Volpi [1977] ECR 
557, concerning the relation between Articles 30 and 92. 
Case 104/75, De Peijper [1976] ECR 613. 
Judgement of 20 September 1988, Case 302/86, Commission v Kingdom of Denmark, Free 
movement of goods - containers for beer and soft drinks, "Danish bottle case" [1988] ECR 4607. 
See also Article 3 of Commission Directive 70/50/CEE of 22 December 1969. In case 155/82 
Commission v Belgium [1983] ECR 531, at p. 543, para. 12 etc., and in case 62/90 Commission v 
Germany [1992] ECR 2575, at p. 2605, para. 11 etc., the Court of Justice also applied the conditions 
for necessity and proportionality and found the national restrictions to the free movement of goods not 
justified on grounds of the protection of health and life of humans. 
16 
41. If Article 30 is applicable to the national measure, the protection of the environment is 
recognized as a so called "mandatory requirement" which may justify the measure47 even if it 
would hinder the free movement of goods. In accordance with case law, the following 
conditions shall be met in order for such a measure to be justified for the protection of the 
environment: 
- The measure must be non-discriminatory, i.e. applicable to domestic products and those of 
other Member States alike, 
- It should be shown to be necessary in order to meet the environmental objective, by, inter 
alia, scientific evidence48, 
- The burden which the measure imposes should be proportionate in relation to the objective 
of protecting the environment49, which implies that it should not create more trade obstacles 
than is necessary to fulfil the environmental objective and that no other measure is available 
which is less restrictive to trade. 
42. The assessment of whether an environmental levy is necessary and proportionate to fulfil 
the objective of protecting the environment has to be made on a case-by-case basis. In 
practice the assessment will often depend on factors such as the level at which the levy is 
fixed, the environmental gain expected by the measure and the amount of the administrative 
and other relevant costs connected with the regulated activity. The assessment of the 
necessity and proportionality of the measure may also depend on factors such as culture and 
consumer behaviour. 
B. GUIDELINES ON COMMUNITY CONTROL MECHANISMS 
a. Notification requirements in the field of state aid 
43. Member States have to inform the Commission, in sufficient time to enable it to submit 
comments, of any plans to grant or alter aid. However, notification is not required for aid 
coming under the de minimis rule50. The time required for the Commission to assess a case is 
Case Cassis de Dijon and Danish Bottle Case. 
48 Case 304/84, Millier, [1986] ECR 1511 and Case 178/84, Commission v Germany, [1987] ECR 1227. 
49 Case 227/82, Van Bennekom, [1983] ECR 3883. 
See Commission notice on the de minimis rule for State aid, OJ no C 68 of 6.3.1996, p.9. 
17 
normally two months. However, if the Commission considers that any such plan is not 
compatible with the common market, having regard to Article 92, it initiates the procedure 
provided for in Article 93 paragraph 2. This full investigation procedure provides the Member 
State in question as well as other Member States and all other interested parties the 
opportunity to submit their views on the planned aid. The Member State concerned cannot 
put its proposed measures into effect until this procedure has resulted in a final decision 
(Article 93 (3) EC Treaty). 
44. The full investigation procedure empowers the Commission to take a final decision on the 
compatibility of the aid. In cases of negative decisions, partly negative decisions or 
conditional decisions, the Commission orders the Member State concerned to comply with 
the decision within a stated period of time51. 
45. An aid scheme put into operation without respecting the notification requirements is 
illegal. The Commission may order the Member State to suspend the payment of the aid 
pending the outcome of the investigation. In cases of aid which has been put into effect prior 
to the Commission's decision and which the Commission declared incompatible, the final 
decision of the Commission usually orders the Member State concerned to recover the 
illegally granted aid, together with interest, from the beneficiaries. In the absence of 
compliance with the Commission decision, the Commission may refer the matter to the Court 
of Justice. The obligation for a Member State not to put its proposed measures into effect 
until a final Commission decision has direct effect, which means that a competitor to the firm 
benefitting from the aid could request a national court to take all appropriate measures in 
accordance with national law, including the suspension of further payments under the 
scheme, until the Commission has decided on the compatibility of the aid with the Treaty. 
Moreover, a national court might in its final judgement order the restitution of the aid which 
has been paid illegally52 or award damages53. 
51 
52 
53 For a detailed description of the procedures see: Guide to Procedures in State Aid Cases, in 
Competition Law in the European Communities, Volume IIA - Rules applicable to State aid, Section 
B-I, Brussels-Luxembourg 1995. 
See Case C-39/94, Syndicat français de l'Express international (SFEI) and others v La Poste and others 
(not yet reported), paragraph 71. 
See e.g. joined Cases C-6/90 and C-9/90, Andrea Francovich et al. v. Italy, [1990] ECR 5357, 
paragraph 35. 
b. Notification requirements in the field of Directive 83/189/EEC and secondary 
Community environmental law 
46. Directive 83/189/EEC54 lays down a procedure for the provision of information in the 
field of technical standards and regulations. It requires prior notification by Member States of 
any 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". The prior notification is to be sent to the Commission, 
and via the Commission to the other Member States which can emit comments or a detailed 
opinion. The normal standstill period of three months provided for by this Directive does not 
apply to technical regulations related to fiscal measures, and the comments or detailed 
opinions of the Commission or the Member States "may concern only the aspect which may 
hinder trade and not the fiscal or financial aspects of the measure"55. This notification 
requirement does not prejudge the outcome of the assessment under Article 30 or Article 95. 
47. Concerning other secondary Community environmental law, the same prior notification 
procedure as for Directive 83/189/EEC is provided for by Article 16 of Directive 94/62/EC 
on packaging and packaging waste. This Article covers measures that Member States intend 
to adopt in order to implement Directive 94/62/EC and states that a Member State may 
indicate that the notification is equally valid for Directive 83/189/EEC, if the proposed 
measure is also a technical matter within the meaning of that Directive. This so called 'one-
shop' system, enables Member States to send only one notification to the Commission, 
covering both Directives. 
48. In case a measure which is notifiable under these Directives is not notified, the 
Commission may open an infringement procedure under Article 169 of the EC Treaty and 
issue a letter of formal notice to the Member State. In such a case, the Member State 
concerned is asked to eliminate the measure from its national legal order; if the Member State 
wants to apply such a measure, it has to send a new draft to the Commission and to adopt it 
after the notification procedure. 
54 
55 Council directive 83/189/EEC of 28 March 1983 laying down a procedure for the provision of 
information in the field of technical standards and regulations - OJ no L 109, 26.04.1983, amended by: 
Directive 88/182/EEC of 22 March 1988, OJ no L 81, 26.03.1988 and Directive 94/10/EC of 23 March 
1994, OJ no L 100, 19.04.1994. 
Article 8.1 of the Directive. 
19 
c. Notification of national measures transposing Community Directives 
49. Every Directive contains a provision requiring Member States to communicate the 
measures they have enacted in order to transpose it. This also applies to levies or other 
economic instruments, when directives contain provisions referring to economic instruments, 
such as Article 15 of Directive 75/439/EEC on waste oil. In case a law transposing a 
Directive is not notified to the Commission, an infringement procedure will be opened in 
accordance with Article 169 of the EC Treaty 
d. Complaints and Commission's own initiative investigations 
50. The Commission is frequently informed on aspects related to environmental levies 
through complaints from affected firms or from other Member States. In such cases, the 
Commission is obliged to investigate the matter as it has the institutional task to ensure a 
proper implementation of the Treaty and secondary legislation. It therefore has the right to 
take the initiative in investigating and requesting information from Member States on their 
use of environmental levies. 
IV. CONCLUSION 
51. The use of environmental taxes and charges is rapidly increasing in the Member States, in 
line with the 5th Environmental Action Programme and its recent review. The Commission 
supports this evolution, as it opens up the scope for a more cost-effective environmental 
policy. However, it also entails some potential conflicts with other aspects of Community 
Policy, in particular related to the single market. This Communication aims to guide Member 
States in order to ensure that national initiatives on environmental levies and charges are 
compatible with the existing Community Framework. 
52. This Communication is a first step by the Commission in the treatment of environmental 
taxes and charges. It shows that there is considerable scope for action by the Member States 
to implement such instruments, which have shown to be particularly attractive in improving 
the efficiency of environmental policy. However, the Communication also underlines the 
importance of the legal framework related to the functioning of the single market which has 
to be respected by Member States when introducing environmental taxes and charges. In this 
context, the Commission will reflect on whether, in future examinations of levies introduced 
for environmental reasons, further attention should be given to the analysis of Article 30. 
20 
53. With the increased practical experience from the use of environmental taxes and charges 
in Member States, Commission experience of assessing these instruments, based on this 
Communication will also increase. With this information the Commission' will examine the 
need for policy initiatives in order to ensure the achievement of essential Community 
objectives. 
54. In order to assess the impact on the single market and on environmental policy, the 
Commission, plans to carry out an evaluation on economic and environmental implications of 
the use of these instruments, and policy conclusions that can be drawn from this. 
21 
APPENDIX 
Overview of environmentally-related taxes and charges in EU and EEA countries1 
As of October 1996 
Environmental Tax Measures 
Motor Fuels 
Leaded/Unleaded (Differential) 
Diesel (Quality differential) 
Carbon/Energy taxation 
Sulphur tax 
Other excise taxes 
(other than VAT 
Gasoline (quality differential) 
Other Energy Products 
Other excise taxes 
Carbon/Energy taxation 
Sulphur tax 
NOx charge 
Vehicle Related Taxation 
Sales/Excise/Regist. tax diff. (cars) 
Road/Registration tax diff. (cars) 
Agricultural inputs 
Fertilisers 
Pesticides Aus­
tria 
• 
• 
• 
• 
• 
• Bel­
gium 
• 
• 
• 
• 
• Den­
mark 
• 
• 
• 
• 
• 
• 
• 
• Fin­
land 
• 
• 
• 
• 
• 
• 
• 
• 
• France 
• 
• 
• 
• 
• Ger­
many 
• 
• 
• 
• Greece 
• 
• 
• 
• Ice­
land 
• 
• 
• 
• Ire­
land 
• 
• 
• 
• 
• Italy 
• 
• 
• 
• 
• Liech­
ten­
stein 
• 
• 
• Lu­
xem­
bourg 
• 
• 
• NL Nor­
way 
• 
• 
• 
• 
• 
• 
• 
• 
• 
• 
• Portu­
gal 
• 
• 
• Spain 
• 
• 
• 
• Swe­
den U.K. 
• I 
• 
• 
(^ 
f 
Overview of environmentally-related taxes and charges in EU and EEA countries (continued) 
As of October 1996 
Environmental Tax Measures 
Other goods 
Batteries 
Plastic Carrier Bags 
Disposable containers 
Tires 
CFCs and/or halons 
Disposable razors 
Disposable cameras 
Lubricant Oil Charge 
Oil Pollution Charge 
Solvents 
Direct Tax Provisions 
Env. Investments/Accelerated depreciation 
Employer-paid commuting expenses part 
of taxable income 
Air transport 
Noise charges 
Other Charges Aus­
tria 
• 
• Bel­
gium 
• 
• 
• 
• 
• Den­
mark 
• 
• 
• 
• 
• 
• Fin­
land 
• 
• 
• 
• 
• France 
• 
• Ger­
many 
• 
• Greece Ice­
land 
• 
• Ire­
land 
* Italy Liech­
ten­
stein 
• 
• 
• Lu­
xem­
bourg NL 
• 
• Nor­
way 
• 
• 
• 
• 
• Portu­
gal 
• 
• 
• . Spain 
• Swe­
den 
• 
• 
• U.K. 
t 
• 
r^ 
v^ 
Overview of environmentally-related taxes and charges in EU and EEA countries (continued) 
As of October 1996 
Environmental Tax Measures 
Water Charges and Taxes 
Water charges 
Sewage charges 
Water effluent charges 
Tax on groundwater extraction 
Manure charges 
Waste Disposal and Mânagm. Charges 
Municipal waste charges 
Waste disposal charge 
Hazardous waste charge 
Land fill tax or charge Aus­
tria 
• 
• Bel­
gium 
• 
• Den­
mark 
• 
• 
• 
• 
• Fin­
land 
• 
• 
• 
• France 
• 
• 
• 
• 
• Ger­
many 
• 
• 
• 
• 
• 
• Greece Ice­
land 
• 
• 
• Ire­
land 
• Italy 
• 
• Liech­
ten­
stein 
• 
• 
- • 
• 
• Lu­
xem­
bourg NL 
* 
• 
• 
• 
• 
• 
• 
•-Nor­
way 
• 
• 
• 
• 
• Portu­
gal 
• 
• 
• 
• 
• Spain 
• 
• Sweden 
• 
• 
• U.K. 
• 
• 
• 
• 
Source: OECD (Implementation Strategies for Environmental Taxes) , 1996, updated 
1) The objective of this table is to give an schematic overview of the use of environmental taxes and charges in different countries. The design, the structure, the rates etc. are 
different from country to country. 
O 



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