Proposal for a Council Decision authorising the United Kingdom to apply an exemption from climate change levy for low value solid fuel in accordance with Article 19 of Directive 2003/96/EC
Date: 2004-11-09
Institutions: European Commission
Subjects: United Kingdom, derogation from EU law, environmental tax, fuel tax, tax exemption, waste recycling

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 09.11.2004 
COM(2004) 742 final 

Proposal for a 

COUNCIL DECISION 

authorising the United Kingdom to apply an exemption from climate change levy for 
low value solid fuel in accordance with Article 19 of Directive 2003/96/EC 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1. 

SUBMISSION OF REQUEST 

By letter of 18 June 2004, the British authorities applied to the Commission for a derogation 
allowing  them  to  continue  to  apply  an  exemption  from  climate  change  levy  (CCL)  for  low 
value solid fuel in accordance with Article 19 of Directive 2003/96/EC1. In order to obtain the 
information it required to evaluate the request, the Commission sent additional questions by 
letter dated 13 July to which the British authorities replied on 10 August 2004. 

The  UK  introduced  CCL  on  1  April  2001.  According  to  the  UK  authorities,  the  levy  is 
designed  to  encourage  energy  efficiency  and  low  carbon  technologies  in  the  non-domestic 
sector.  It  applies  to  gas,  coal,  electricity  and  liquefied  petroleum  gas  (for  heating)  used  by 
business and the public sector. There are a number of exemptions from the levy to encourage 
good environmental practice. Solid fuels2 with a value of less than 15 GBP per tonne, such as 
the mixed sweepings and debris left from coal and coke mining, have been exempted from the 
levy. This is a very small-scale relief, introduced at the time of the levy’s introduction in April 
2001 for environmental reasons, namely to encourage the use of low-grade solid fuel which 
might otherwise be sent to landfill. 

With  the  entry  into  force  of  Directive  2003/96/EC,  Member  States  which  do  not  tax  these 
fuels are required to introduce such taxes. 

The UK authorities consider that removing the exemption would result in tax being imposed 
at the rate of CCL levied on coal and coke (11.70 GBP per tonne). Low value coal sells at an 
average of 2.10 GBP per tonne, compared with an average of 28 GBP per tonne for normal 
quality coal. Levying CCL at the full rate would therefore increase the price by more than six 
times,  pricing  low  value  coal  out  of  the  market  and  resulting  in  it  being  sent  to  landfill  as 
waste.  Even  introducing  a  reduced  rate  and  levying  CCL  at  the  minimum  EPD  rate  would 
more than double the price of waste solid fuels, which would still price them out of the market 
and result in their being sent to landfill as waste. This material has been exempted from the 
UK landfill tax since its introduction. 

Any producer in another Member State is entitled to import these products and benefit from 
the exemption. 

This policy is based on objective principles and implemented through a structured framework. 
As such, this exemption is part of the general system. Specifically, it is in the nature and logic 
of the levy (which is an energy tax) to exempt products of such low calorific value. The rates 
of CCL are based on the energy content of the fuels, and waste solid fuels have a much lower 
energy content than normal solid fuels. It is also within the nature of the levy’s environmental 
aims to encourage the use of this material rather than encourage it to be sent to landfill. 

1 

2 

OJ  L  283,  31.10.2003,  p.  51.  Directive  as  last  amended  by  Directive  2004/75/EC  (OJ  L  157, 
30.04.2004, p. 100).  
"Solid fuel" refers only to coal and lignite; coke, and semi coke, of coal or lignite; petroleum coke. 

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The exemption is limited to those selling such low value solid fuel, and has the potential to 
have a small impact on competition and trade. The UK authorities believe that there are only a 
handful  of  companies  (fewer  than  10)  selling  this  material,  all  of  which  benefit  from  the 
exemption. The annual cost to the UK Exchequer of the current relief across the whole sector 
is in the region of 100,000 GBP. In addition, any selectivity attached to this exemption would 
be consistent with the nature of the UK system. The UK authorities conclude that the measure 
is therefore not a state aid. 

2. 

EVALUATION BY THE COMMISSION 

Under Article 19(1) of Directive 2003/96/EC, the Council, acting unanimously on a proposal 
from  the  Commission,  may  authorise  any  Member  State  to  introduce  further  exemptions  or 
reductions of excise duties for specific policy considerations. 

Exemptions requested under Article 19 of Directive 2003/96/EC must be examined in terms 
of their compliance with Community policies. 

The tax exemption supports the use of low-value solid fuel for energy production instead of 
land-fill.  While  energy  use  is  indeed  preferable  to  landfilling  from  an  environmental  policy 
point  of  view,  a  correct  approach,  in  line  with  the  polluter-pays  principle  would  consist  in 
applying  a  lower  rate  of  tax  to  such  low-value  solid  fuel  in  line  with  its  energy  content.  A 
total  exemption  is  therefore  not  in  the  nature  and  the  logic  of  the  system.  Given  the  varied 
quality and energy content of the material and the consequent difficulties to establish an exact 
tax rate as well as the small amounts concerned, a complete exemption can be acceptable as a 
temporary measure. 

The  requested  measure  must  therefore  be  of  limited  duration.  Article  19(2)  of  Directive 
2003/96/EC sets that such measure can only be granted for a maximum period of 6 years. The 
exemption  in  favour  of  low-value  solid  fuel  could  therefore  have  effect  until  2010.  This 
timeframe  also  provides  an  opportunity  for  the  UK  authorities  to  reassess  the  utility  of  the 
exemption from landfill tax in the light of the policy objective to encourage the energy use of 
low-value solid fuels. 

As regards the State aid rules, it must be recalled that they apply irrespective of any approval 
of  an  exemption  from  excise  duty.  In  view  of  the  fact  that  the  estimated  total  value  of  the 
exemption for all beneficiaries taken together is 100 000 GBP, it is in any event unlikely that 
the  value  of  the  exemption  for  any  single  beneficiary  exceeds  the  ceiling  identified  in 
Commission Regulation (EC) No 69/2001 of 12 January 2001 on the application of Articles 
87 and 88 of the EC Treaty to de minimis aid.3. 

3 

Commission Regulation (EC) No 69/2001 of 12 January 2001 on the application of Articles 87 and 88 
of the EC Treaty to de minimis aid (OJ L 10, 13.01.2001, p. 30). 

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3. 

DECISION 

The  Commission  proposes  that,  under  Article  19  of  Directive  2003/96/EC,  the  Council 
authorises the United Kingdom to apply until 1st January 2010 a tax exemption in favour of 
low value solid fuel. 

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Proposal for a 

COUNCIL DECISION 

authorising the United Kingdom to apply an exemption from climate change levy for 
low value solid fuel in accordance with Article 19 of Directive 2003/96/EC 

(Only the English text is authentic) 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, 

Having  regard  to  Council  Directive  2003/96/EC  of  27  October  2003  restructuring  the 
Community framework for the taxation of energy products and electricity,4 and in particular 
Article 19(1) thereof, 

Having regard to the proposal from the Commission,5 

Whereas: 

(1) 

(2) 

(3) 

By  letter  of  18  June  2004,  the  authorities  of  the  United  Kingdom  applied  to  the 
Commission for a derogation allowing them to continue to apply an exemption from 
climate change levy (CCL) for low value solid fuel in accordance with Article 19 of 
Directive 2003/96/EC. 

The United Kingdom CCL is designed to encourage energy efficiency and low carbon 
technologies  in  the  non-domestic  sector.  It  applies  to  gas,  coal,  electricity  and 
liquefied petroleum gas used for heating by business and the public sector. 

Exemptions  from  the  CCL  have  been  introduced  since  2001  to  encourage  good 
environmental practice. Solid fuels with a value of less than 15 GBP per tonne, such as 
the mixed sweepings and debris left from coal and coke mining, have been exempted 
from the levy. 

(4)  With the entry into force of Directive 2003/96/EC, Member States which did not tax 

these fuels have to introduce such taxes. 
A tax exemption would support the use of low-value solid fuel for energy production 
instead  of  land  filling  it.  While  energy  use  is  preferable  to  landfilling  from  an 
environmental policy point of view, the polluter-pays principle would lead to apply a 
lower rate of tax to such low-value solid fuel, in connection with its energy content. 
Given  the  varied  quality  and  energy  content  of  the  material  and  the  consequent 

4 

5 

OJ L 283, 31.10.2003, p. 51 Directive as last amended by Directive 2004/75/EC (OJL 157, 30.04.2004, 
p. 100). 
OJ C […] […], p. […] 

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difficulties  to  establish  an  exact  tax  rate  as  well  as  the  small  amounts  concerned,  a 
complete  exemption  could  be  acceptable  as  a  temporary  measure.  The  exemption 
should therefore be time-limited. 

(5) 

The  annual  cost  to  the  UK  Exchequer  of  the  current  relief  across  the  whole  sector 
amounts  to  approximately  100,000  GBP.  In  so  far  as  the  tax  exemption  constitutes 
State  aid,  the  normal  rules  apply.  It  appears  that  the  relief  is  covered  by  the 
Commission  Regulation  (EC)  No  69/2001  of  12  January  2001  on  the  application  of 
Articles 87 and 88 of the EC Treaty to de minimis aid6. Nevertheless, if the benefit to 
any  single  undertaking  exceeds  the  ceiling  laid  down  in  that  regulation,  it  should  be 
notified to the Commission in accordance with Regulation (EC) 659/1999 of 22 March 
1999 laying down detailed rules for the application of Article 93 of the EC7. 

(6) 

The  Commission  regularly  reviews  reductions  and  exemptions  to  check  that  they  do 
not  distort  competition  or  hinder  the  operation  of  the  internal  market  and  are  not 
incompatible  with  Community  policy  on  protection  of  the  environment,  energy  and 
transport, 

HAS ADOPTED THIS DECISION: 

The  United  Kingdom  is  authorised to  apply  an  exemption  of  excise  duties  in  favour  of  low 
value solid fuel of less than 15 GBP per tonne. 

Article 1 

This Decision shall expire on 31 December 2009. 

Article 2 

Article 3 

This Decision is addressed to the United Kingdom of Great Britain and Northern Ireland. 

Done at Brussels, 

For the Council 
The President 

6 
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OJ L 10, 13.01.2001, p. 30. 
OJ L 83 , 27.03.1999 p. 1 - 9 

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