Author: M. Rosenstock 29/06/04 Slide: 1 European Commission - DG ENV.G.1 The work at the European Commission on environmentally-related taxes International Conference on Environmentally harmful subsidies and ways to eliminate them 2 September 2004, Budapest Manfred Rosenstock DG Environment, European Commission The views expressed in this presentation are those of the author and may not in any circumstances be regarded as stating an official position of the European Commission

Author: M. Rosenstock 29/06/04 Slide: 2 European Commission - DG ENV.G.1 Environmental policy in the EU l Traditional instrument of Community environmental policy: technical regulation, in particular the setting of standards. l Commission approach: Expand the use of economic instruments such as environmental taxes, emissions trading and incentives. Cf. 6th EAP. Focus of activity so far energy- related. l Economic instruments most efficient means to promote energy efficiency and to curb pollution: static and dynamic efficiency. l Ecotaxes provide revenues to cut other, more distorting taxes => “double dividend”.

Author: M. Rosenstock 29/06/04 Slide: 3 European Commission - DG ENV.G.1 Overview l Use of environmental taxes in the EU l New directive on Energy products taxation l Provisions of EU law on environmentally-related taxes in other areas l State aid control and environmental policy in the energy area l Ongoing and forthcoming projects l Forthcoming communication on the use of MBI in environmental policy

Author: M. Rosenstock 29/06/04 Slide: 4 European Commission - DG ENV.G.1 Revenue from environmental taxes in 2001 (in % of total gov´t revenue)

Author: M. Rosenstock 29/06/04 Slide: 5 European Commission - DG ENV.G.1 Share of environmental taxes in total taxes and SSC, 1980 vs. 1999, by type Source: Eurostat

Author: M. Rosenstock 29/06/04 Slide: 6 European Commission - DG ENV.G.1 Types of environmental taxes in Member States

Author: M. Rosenstock 29/06/04 Slide: 7 European Commission - DG ENV.G.1 New directive on energy products taxation – general approach Not a new tax but framework of rules to restructure and harmonise national tax systems. l Include new products: coal, lignite and natural gas, electricity; each with minimum rates. l Increase in minimum tax rates on mineral oils beyond the rates agreed in l Adoption by the Council in October 2003 (Directive 2003/96/EC). Rules apply since 1 January 2004, for new Member States since accession. Mineral oil tax directive of 1992 repealed.

Author: M. Rosenstock 29/06/04 Slide: 8 European Commission - DG ENV.G.1 Provisions of new directive l Minimum rates by product and use. Increase for oil products roughly reflects inflation since 1992.

Author: M. Rosenstock 29/06/04 Slide: 9 European Commission - DG ENV.G.1 Tax rates on diesel fuel in Member States (in January 2004)

Author: M. Rosenstock 29/06/04 Slide: 10 European Commission - DG ENV.G.1 Provisions of new directive (contd.) l Second step increase only for Diesel in 2010 l Transitional periods for some MS on some products. l Taxation of electricity: output tax l Tax reductions for renewable energy, combined heat and power plants (CHP), biofuels l Possibility of reduced rates for energy-intensive firms. Option to go below minimum rates if link to voluntary agreement or tradable permit schemes with equivalent effect l Aviation fuel for commercial aircraft: Directive keeps principle of exemption, but Member States can tax national flights and intra-EU flights on the basis of bilateral agreements.

Author: M. Rosenstock 29/06/04 Slide: 11 European Commission - DG ENV.G.1 Provisions of EU law on environmentally- related taxes in other areas l Packaging Directive: Council can adopt economic instruments to implement objectives of directive. Until then, MS can take national measures to implement polluter-pays principle. Need to respect other Treaty obligations l Water Framework Directive: By 2010, MS shall have introduced pricing policies that distribute costs according to PPP. Differentiation by user groups is allowed. Reporting obligations.

Author: M. Rosenstock 29/06/04 Slide: 12 European Commission - DG ENV.G.1 State aid control and environmental taxes l Tax exemptions/reductions for energy-intensive companies usually constitute State aid. Examination by the Commission on the basis of EU Treaty (Art. 87). l Assessment on the basis of Guidelines on State aid for environmental protection. Acceptable when no disproportionate effect on competition. l For tax exemptions/reductions for competitiveness reasons, this means that usually approved if m limited in time and m balanced by environmental benefits, e.g. through voluntary agreements.

Author: M. Rosenstock 29/06/04 Slide: 13 European Commission - DG ENV.G.1 State aid control and environmental policy l Community policy to support renewable energy sources. Thus guidelines allow for investment aid in these areas with higher allowed aid intensities (up to 40% of eligible costs). l Guidelines also allow operating aid for renewable energy. Options for compatible national support for up to 10 years.

Author: M. Rosenstock 29/06/04 Slide: 14 European Commission - DG ENV.G.1 Ongoing and forthcoming projects l Separate Commission proposal on taxation of fuel used by road hauliers (“professional diesel”). m Move towards unified rate for heavy trucks by m Indexation of tax rate and m Link to rates for “normal” diesel and petrol. l Commission to consider proposal on treatment of tax measures accompanying implementation of emissions trading regime. l Review of the State aid guidelines by 2007 in the light of experience since 2001 l Report by the EEA on experiences with economic instruments.

Author: M. Rosenstock 29/06/04 Slide: 15 European Commission - DG ENV.G.1 Communication on the use of MBI in environmental policy l Recently types of MBI used by MS have become more varied and are increasingly used in combination (policy packages) which are then affected by different sets of Community rules: Taxation, State aid, emission trading, internal market. l 1997 Commission Communication on environmental taxes and charges. Scope of new communication to be widened to include CO 2 emission trading scheme and guidelines on State aid for environmental protection. l Analysis of existing rules in the above areas, their consistency and mutual influence. Thus clarify their impact on scope for MS actions to use economic instruments in environmental policy. Principally an information and guidance document.

Author: M. Rosenstock 29/06/04 Slide: 16 European Commission - DG ENV.G.1 Further information Studies on Environmental Taxation issues: l 2.htm#taxation 2.htm#taxation OECD/EEA database on economic instruments and voluntary approaches used in environmental policy : l Electronic version of the State aid guidelines: l ment/#state_aid