Opinion of the Economic and Social Committee on the ' Amended proposal for a Council Directive introducing a tax on carbon dioxide emissions and energy'
Date: 1996-03-28
Institutions: European Economic and Social Committee
Subjects: air quality, energy policy, environmental policy, greenhouse gas, tax harmonisation













EUR-Lex - 51996AC0421 - EN






Avis juridique important




|



51996AC0421

Opinion of the Economic and Social Committee on the ' Amended proposal for a Council Directive introducing a tax on carbon dioxide emissions and energy'  


Official Journal C 174 , 17/06/1996 P. 0047 





Opinion of  the Economic and Social Committee on the 'Amended proposal for a Council Directive introducing a  tax on carbon dioxide emissions and energy`(96/C 174/15)On 4  July 1995, the Economic and  Social Committee, acting under Rule 23(2) of its Rules of Procedure, decided to draw up an  Additional Opinion 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 Additional Opinion on 6  March 1996. The Rapporteur  was Mr Schmitz. At its 334th Plenary Session (meeting of 28  March 1996), the Economic and Social Committee adopted  the following Additional Opinion by 94 votes to 32 with 21 abstentions. 1. Summary1.1. The Commission is opposed to the adoption of harmonized rules for a  CO2/energy tax at present. This would impede action by countries which are prepared for such  measures, since there is no prospect of unanimous Council approval of this tax in the foreseeable  future. The Commission should therefore withdraw the present proposal for a Directive. 1.2. The Committee calls on the Commission to present a proposal for a recommendation covering: - fiscal and financial support measures, - voluntary commitments by business, and- WTO regulationsin order to encourage the reduction of  CO2 emissions and energy consumption. 1.3. On the other hand, the Committee recommends a coordinated approach by those Member States  which are ready to introduce a CO2/energy tax on the basis of the draft Commission Directive. This  would require the adoption of a common policy by an appropriate group of Member States. 1.4. The Committee is, however, opposed to an intergovernmental agreement along the lines of the  Schengen Agreement. 1.5. The Committee favours a framework Directive which avoids proposals for the organization of the  CO2/energy tax. This Directive must ensure that any such tax introduced by a group of Member States  does not infringe EU competition and excise-duty legislation but remains compatible with the Single  Market. 1.6. The Committee unreservedly endorses the energy component, since it should automatically  contribute to CO2 stabilization. If a CO2 component were to be agreed in the context of a common  approach, its share should certainly be fixed at less than 50 % because of its possible adverse  effects on the medium- to long-term energy supply structure. Methane release from gas should also  be taken into account in the calculation of the CO2/energy tax. 1.7. The Committee regards 'tax neutrality` as an absolute precondition for the introduction of a  CO2/energy tax. The introduction of this tax must not be the occasion for an increase in the  overall tax burden. 1.8. The Committee suggests that, pursuant to the recommendation of the EU White Paper, an eco-tax  be introduced in the form of a CO2/energy tax and that 'non-wage` employment costs be reduced so as  to give a further boost to employment or reduce unemployment somewhat. 1.9. The extent and duration of any damage to the international competitiveness of the national  industries concerned will be all the slighter, the greater the number of Member States  participating in the CO2/energy tax scheme, the more competitive their industries and the greater  the harmonization of the CO2/energy tax arrangements. 1.10. The proposed tax exemptions and reductions should be designed, in particular, to reduce at  least some of the potential competitive disadvantages faced by energy-intensive undertakings at  international level. In addition, undertakings which invest in CO2 reduction or rational energy use  must be allowed to offset their investment fully against tax. 1.11. The Committee believes that the CO2/energy tax will be tailored to the CO2 emission levels  and energy content of the products concerned. Whilst recognizing the technical problems involved,  it welcomes the inception of an input-orientated tax. 2. Introduction2.1. In spite of repeated discussions and expressions of support by a majority of  Member States, the Commission's draft Directive failed to make significant progress in the Council,  the main obstacle to a decision being the unanimity requirement of Treaty Articles 99 and 130s(2). 2.2. The Commission's new proposal of 10  May 1995 is an attempt to break this deadlock. It  provides, in particular, for a transitional period to the year 2000, during which Member States can  introduce national taxes. After that date, however, harmonized tax rates are to apply throughout  the European Union. 2.3. The Committee commented on the original Commission proposal in its Opinion of 24  February  1993 (). The revised Commission proposal takes account of only a small proportion of its  reservations. 2.3.1. For example, the Committee questioned the advisability of introducing a CO2/energy tax aimed  at shifting the balance between the various energy sources towards less polluting sources in the  short term, since increasing world demand would eventually compel reliance on all sources;  accordingly, we should be working right now towards ensuring maximum environmental protection in  the use of all energy sources. 2.4. The Committee has repeatedly endorsed 'market-orientated instruments` such as environmental  taxes and levies, not least in its Opinion on the Commission Communication 'Economic growth and the  environment: consequences for economic policy` (). But even there, it stressed that fiscal measures  can only have their intended impact in conjunction with other market-orientated instruments and  regulatory measures. It would draw attention to a number of taxes (e.g. on mineral oils) which  already have an ecological impact. 2.5. The EU Member States have undertaken to stabilize Community CO2 emissions at their 1990 level  by the year 2000. 2.5.1. Notwithstanding certain progress to date, reliable forecasts suggest that this EU objective  cannot be attained with the anticipated economic growth and if market forces are left to their own  devices (). It seems more likely that the Union will fall well short of its target. 2.6. The Committee believes that the CO2 stabilization objective can be achieved only by  implementing a range of measures which focus, in particular, on the transport sector (action,  including fiscal measures, to reduce average fuel consumption; gradual replacement and improved  technical inspection of all road vehicles; measures to improve the flow of traffic based, inter  alia, on telematics applications) and thermal insulation techniques (domestic and space-heating  standards). The existing environmental machinery (including planning and liability law) needs to be  supplemented and backed up by a greater commitment to research and technology and by fiscal  instruments which can make a significant contribution to environmental education and management. In  addition to the introduction of new instruments, fiscal measures include analysis of the ecological  impact of existing tax provisions. Voluntary commitments, which can also be negotiated with public  authorities, should make a significant contribution, but seem unlikely to ensure attainment of the  CO2 stabilization objective on time. 2.7. The Committee would point out that, as a global problem, CO2 emissions can only be tackled by  involving the US, Japan and the Eastern European and CIS countries, as well as many of the newly  industrialized Asian countries where there is a marked rise in CO2 emissions. 3. General comments3.1. The Committee welcomes the Commission's efforts to achieve a solution  based on the proposed transitional arrangements. It is, however, concerned that the attempt to  introduce harmonized rules by the year 2000 could also deadlock this proposal as long as such  fiscal decisions continue to require Council unanimity. 3.1.1. In addition to the proposed Commission approach, two other procedures are conceivable: a) the Commission withdraws its proposal and leaves the Member States free to adopt tax measures; b) the Commission withdraws its proposal and a group of Member States attempts to implement a  common approach. 3.1.2. The Committee is opposed to the adoption of harmonized rules for a CO2/energy tax at  present. This would impede action by countries which are prepared for such measures, since there is  no prospect of unanimous Council approval of this tax in the foreseeable future. The Commission  should therefore withdraw the present proposal for a Directive. 3.1.3. The Committee calls on the Commission to present a proposal for a Recommendation covering: - fiscal and financial support measures, - voluntary commitments by business, - pressure by the EU for WTO guidelines so as to ensure internationally effective measures, - efforts aimed at energy conservation and rational use of energy, - promotion of renewable energy sources, - provision of incentives for the reduction of energy loss during energy conversion. These would encourage the reduction of CO2 emissions and energy consumption. 3.1.4. On the other hand, the Committee recommends a coordinated approach by those Member States  which are ready to introduce a CO2/energy tax on the basis of the draft Commission Directive. This  would require the adoption of a common policy by an appropriate group of Member States. 3.1.5. The Committee is aware of the legal problems posed by such a procedure. Two approaches are  conceivable: a) the group concludes an intergovernmental agreement which excludes the EU Institutions (along the  lines of the Schengen Agreement); b) The Committee favours a framework Directive which avoids proposals for the organization of the  CO2/energy tax. This Directive must ensure that any such tax introduced by a group of Member States  does not infringe EU competition and excise-duty legislation but remains compatible with the Single  Market. 3.1.6. The Committee favours the latter option, since the legal basis for which it provides offers  the only possibility of involving the EU Institutions and makes it more likely that countries which  so wish can subsequently introduce a CO2/energy tax within the framework of a coordinated EU  procedure. Such a procedure would greatly benefit industry, which is particularly affected by the  CO2/energy tax, since competitive disadvantages could be avoided. It would also facilitate  international negotiations (OECD, WTO). 3.2. The Committee reiterates its view that, if suitably organized, a CO2/energy tax can contribute  significantly to CO2 stabilization by restricting the increased consumption of CO2-emitting energy  sources and, possibly, reducing overall energy consumption, while at the same time living standards  are maintained at their present level or even rise. 3.2.1. In view of the practical difficulties of applying this tax, however, the Committee is  concerned that if it is inadequately organized: - the environmental goal of CO2 stabilization will not be promoted, or only to a limited extent; - personal taxation will rise, notwithstanding assurances to the contrary by most governments; - an increased company tax burden will lead to lay-offs and a possible rise in Community  unemployment; - inflationary pressures will be fuelled; - the increasing tax burden resulting from the CO2/energy tax will reduce purchasing power, with  obvious consequences for living standards and employment; - the global competitiveness of European industry will decline; - the industries and economies of weaker Member States could be disproportionately affected; - regions in which energy-intensive industries are established could be adversely affected; -  voluntary commitments by industry will be nullified. 3.2.2. These concerns can be met if the CO2/energy tax is introduced in an ecologically, as well as  economically, efficient manner and special arrangements are made to avoid undesirable consequences,  particularly for employment and competitiveness. 3.2.3. A CO2/energy tax should increase the innovatory efforts and, consequently, the  competitiveness of European industry in developing the technology required worldwide to reduce the  use of natural resources, especially in the context of rational energy consumption and the  eco-friendly exploitation of all energy sources. 3.2.4. The CO2/energy tax must make the taxation and levy system more responsive to the employment  recommendations of the EU White Paper [Growth, Competitiveness, Employment ()] by shifting the tax  burden from labour to energy resources, without increasing the burden on capital. The current trend  towards an increasing tax burden on labour must be reversed. Such a change in the tax burden could  increase total employment whilst reducing both the consumption of resources and the overall  environmental impact (). 3.2.5. Appropriate restructuring of the taxation system should not affect employees' purchasing  power, whilst facilitating a switch to more eco-friendly production procedures. 4. Specific comments(These relate to fiscal measures taken by the group of Member States which  are prepared to use the Commission proposal as the basis for common approach.)4.1. Whilst the ESC  essentially endorses the energy tax component, it would reiterate its doubts with regard to the CO2  component. 4.1.1. It is obvious that the energy-tax component will contribute to a simultaneous reduction in  both energy consumption and CO2 emissions. Increased energy costs should lower the profitability  threshold of renewable energy sources, stimulate competitive global innovation in the energy and  environment sectors and produce a correspondingly favourable impact on employment. 4.1.2. The CO2 component, on the other hand, is essentially aimed at the reorganization of the  energy supply structure on the basis, in the short term, of 'eco-friendly` sources, particularly  gas. Although natural gas is lower in CO2 than, say, lignite or coal, it is responsible for  comparatively high methane emissions with a potential greenhouse effect which should not be  underestimated. Restructuring in favour of natural gas seems unlikely to produce the desired  environmental impact, at least not on the hoped-for scale. 4.1.3. It can also be asked whether the additional tax on and displacement of European coal  entailed by the CO2 component will actually be of long-term environmental benefit. Increasing  global energy demand will ultimately mean that all energy sources, including world coal reserves,  will have to be exploited in accordance with the principle of optimum environmental protection.  This objective will require the permanent development of environmentally safe production methods,  together with environmentally-compatible utilization technology, for example in electricity  generation. 4.1.4. Whilst some levelling off in the growth of overall energy consumption is desirable, the CO2  component should not force a unilateral decline in coal production and use. Account must also be  taken of the need for EU coal production so as to safeguard the long-term security of supply for  the Member States. 4.1.5. The Committee unreservedly endorses the energy component, since it should automatically  contribute to CO2 stabilization. If a CO2 component were to be agreed in the context of a common  approach, its share should certainly be fixed at less than 50 % because of its possible adverse  effects on the medium- to long-term energy supply structure. Methane release from gas should also  be taken into account in the calculation of the CO2/energy tax. 4.1.6. The CO2/energy tax must also form part of the overall EU plan for the stabilization or  reduction of CO2 levels and the promotion of rational energy use. At EU level, this would  essentially involve the Thermie, Joule, Altener and Save programmes, which must be organized in  such a way as to contribute significantly to CO2 stabilization in conjunction with specific  national measures. 4.1.7. The CO2/energy tax should not have a structural impact on the use of nuclear energy. 4.2. The Committee regards 'tax neutrality` as an absolute precondition for the introduction of a  CO2/energy tax. The introduction of this tax must not be the occasion for an increase in the  overall tax burden. 4.2.1. The Committee assumes that the additional revenue generated by the CO2/energy tax will be  fully utilized to reduce other taxes and levies. 4.2.2. Simultaneously, tax systems and structures should be modified so as to provide greater  incentives for environmental protection and employment. Part of the CO2/energy tax yield should be  earmarked for tax reductions and exemptions aimed at energy conservation and rational use. 4.2.3. In addition, exceptional hardship to private households and small consumers should be  alleviated. 4.2.4. The Committee suggests that, pursuant to the recommendation of the EU White Paper ('Growth,  Competitiveness, Employment`) (), (i) an eco-tax be introduced in the form of a CO2/energy tax and  (ii) 'non-wage` employment costs be reduced so as to give a further boost to employment or reduce  unemployment somewhat. 4.3. The extent and duration of any damage to the international competitiveness of the national  industries concerned will be all the slighter, the greater the number of Member States  participating in the CO2/energy tax scheme, the more competitive their industries and the greater  the harmonization of the CO2/energy tax arrangements. 4.3.1. At the same time, market globalization means that the potential dangers for industrial  competitiveness if the CO2/energy tax is not properly organized should not be underestimated. 4.3.2. The efforts of the Community or individual Member States to bring down CO2 levels by  introducing CO2/energy taxes should induce the EU to press for internationally effective measures  for the reduction of CO2 emissions and energy consumption. The WTO should penalize eco-dumping,  which includes the environmentally harmful use of energy, as an infringement of the rules of global  competition. At the same time, assistance should be provided for the promotion of CO2 reduction and  energy-saving. 4.3.3. The EU should support all national employment measures designed to cushion the effects of  any short-term lay-offs decided by companies in response to the introduction of a CO2/energy tax.  Particularly adverse consequences in Objective 1 and 2 regions could be counteracted by recourse to  the Structural Funds, including the Cohesion Fund. 4.3.4. The adaptability of national economies, individual sectors, regions, undertakings and  consumers as regards the desirable, ecological and economic impact of the CO2/energy tax should be  promoted by specific investment programmes covering rational energy use and the accelerated  development and exploitation of renewable energy sources. 4.3.5. The proposed tax exemptions and reductions should be designed, in particular, to reduce some  of the potential competitive disadvantages faced by energy-intensive undertakings at international  level. In addition, undertakings which invest in CO2 reduction or rational energy use must be  allowed to offset their investment fully against tax. 4.3.6. These measures should ensure the international competitiveness of sectors that are  disproportionately affected. At the same time, these energy-intensive undertakings must continue to  feel the incentive effect of the CO2/energy tax on rational energy use and CO2 reduction. 4.3.7. This applies all the more in the case of undertakings which, without facing direct  international disadvantages, should be eligible for partial or even complete reimbursement of  investment costs. In addition to avoiding the tax burden, these undertakings would receive a bonus  which would increase in value the more the investment in question led not only to energy savings  and CO2 reductions, but also (because of its integrated character) to a direct improvement in  company profitability. 4.3.8. It therefore seems advisable to replace entitlement to the reimbursement of investment costs  by a percentage investment allowance which should, however, remain significantly below the value of  the total sum invested. 4.3.9. The Committee does not agree that fuels of agricultural origin should be excluded. Their  influence on CO2 emissions is known. Moreover, such a step could encourage the import of these  products from third countries. 4.4. The Committee believes that the CO2/energy tax will be tailored to the CO2 emission levels and  energy content of the products concerned. Whilst recognizing the technical problems involved, it  welcomes the inception of an input-orientated tax. 4.4.1. Electricity taxation is particularly problematical. 4.4.1.1. The Committee recommends the development of a tax-rate structure for electricity which: - promotes the use of renewable energy sources; - provides incentives for the reduction of energy loss during energy conversion; - has no favourable structural impact on nuclear energy. 4.4.2. The Committee endorses the proposed gradual increase in the CO2/energy tax. The advance  notice provided in this way will allow industry and private individuals to make technical  adjustments and change behaviour patterns and enable structural discontinuities to be avoided. Done at Brussels, 28 March 1996. The Presidentof the Economic and Social CommitteeCarlos FERRER() OJ C 108,  19. 4. 1993.  () Commission working document SEC(95) 288 final, 1. 3. 1995.  () COM(93) 700 final.  () European Commission 1994, European Economy, No  56.  () COM(93) 700 final. APPENDIX to the Opinion of the Economic and Social CommitteeRejected amendmentThe  following amendment was rejected but received more than 25 % of the votes cast: Replace the entire text by the following: '1.1. At the Rio conference, the Commission gave an undertaking to support moves against global  warming by taking steps to limit carbon dioxide emissions. In 1992, it produced a Draft Directive  which, if adopted, would have obliged Member States to tax these emissions and it laid down minimum  rates. In 1995, a substantially revised version was published, which leaves it to each Member State  to decide for itself whether to introduce such a tax and, if so, at what rates. 1.2. The ESC does not favour the introduction of a tax for the purpose of restricting carbon  dioxide emissions. Whilst recognizing that this is an important environmental objective, it  considers that it would be better fulfilled by other means. 1.2.1. The purpose of taxation is to raise revenue and to act as a regulator of the economy; the  use of fiscal measures to serve other purposes, such as environmental protection, is bound to lead  to distortions in the macro-economic framework and inhibit economic growth. The restriction of  carbon dioxide emissions, which is a very desirable aim in its own right, is best achieved by  setting European standards for permissible levels, which would become mandatory after a reasonable  period for the introduction of the necessary control measures by the firms concerned, and levying  fines at a deterrent level for any infringements of these regulations. Moreover, it would be all  too easy for the rates of tax to be influenced by the revenue-raising requirements of the State  rather than the actual danger or incidence of emissions, which would be self-defeating. 1.2.2. The ESC regards the issue of controlling carbon dioxide emissions and preventing other forms  of environmental pollution as being too important to be placed at risk by being confused with  fiscal issues and the revenue-raising requirements of Member States. It calls for separate and  distinct measures to achieve a significant reduction in atmospheric and other forms of pollution by  the setting of mandatory emission limits for all countries in the European Union. Such measures  would be far more effective than an energy tax and would not incur the same risk of creating  economic distortions. 1.2.3. Taxation is an unfocused measure which would have a detrimental effect on many activities  which do not contribute to pollution while, at the same time, allowing many persistent polluters to  escape without penalty. It would be totally ineffective in reducing the incidence of environmental  pollution. 1.2.3.1. There is clear evidence for this assertion. Petrol is a form of energy which has been  subjected to taxation at swingeing rates in all Member States; some 80 % of the price at the pump  is due to taxation. This punitive rate of tax has done nothing to stem the burgeoning increase in  the number of motor vehicles on the road or the level of consumption of petroleum products. It was  only when emission controls were introduced that anything effective was done to reduce the  atmospheric pollution emanating from this source. 1.2.4. There is a clear danger that industrial organizations subjected to an energy tax would, like  the petroleum producers, simply pass on the tax to consumers in the form of higher prices. This  would fuel inflation and be inimical to the prospects for reducing the current levels of  unemployment. 1.3. The ESC is also concerned by many detailed proposals in the Draft Directive: 1.3.1. Under the proposals, Member States could reduce or refund the tax for capital expenditure  incurred by companies in improving energy conservation or limiting carbon dioxide emissions. This  is open to abuse and could lead to hidden subsidies. 1.3.2. The Draft Directive would permit a firm that is "seriously disadvantaged" by the tax in  competition with other countries (inside or outside the EU) to obtain relief from its government.  This could be either a reduction in the tax rate or full temporary exemption; the latter would be  conditional on the firm having made "substantial efforts" to save energy or reduce carbon dioxide  emissions. This could provide scope for a ridiculous "knock-on" effect. For example, a Dutch firm  gets relief because of unfair competition from the USA, whereupon a Portuguese firm claims relief  because it is now suffering unfair competition from Holland. 1.3.3. As it is currently being proposed, the operation of the tax would impose unacceptable  compliance costs on industry. 1.4. The proposed tax does nothing to curb other forms of environmental pollution, some of which  are of equal or greater menace to the world. 1.5. The ESC believes that, if such a tax were introduced on the lines envisaged by the Draft  Directive, the original intention and purpose would soon be lost sight of by governments and  businesses alike, with the result that it would come to be regarded as simply another method of  raising revenue for the State and the achievement of its ostensible objective would not be  furthered. 1.6. The ESC endorses the principle of "the polluter pays" but believes that this payment should be  extracted in the form of fines for exceeding permitted emission levels rather than through the  medium of the tax system. 1.7. The ESC believes that the environmental issue is one of paramount importance. An effective  solution to these problems can only come from the adoption of a coherent, targeted and  comprehensive strategy for identifying and controlling the pollutant elements. It is crucial to the  preservation of our planet that this strategy should be put in place as a matter of urgency;  proposals for an energy tax (which would not be effective) serve only to distract attention from  the need for such measures and delay the introduction of a systematic and effective approach to the  problem.`ReasonsThe introduction of a tax for the purpose of controlling environmental pollution  is not the most effective way of dealing with this issue. VotingFor: 47, against: 93, abstentions: 14.