Much heat generated over energy tax proposal

The proposed energy tax has run into heavy weather in Europe, despite strong backing from Denmark, Germany and the Netherlands.

 
Published: Friday 30 April 1993

Controlling auto-pollution: A< (Credit: German Embassy)DENMARK is determined to use its position as president of the European Commission to push through the proposed energy tax because, as Danish energy minister Jann Sjurgen put it, "EC must shoulder its responsibility in trying to combat global warming."

The proposed tax will be levied on fuels with a high carbon dioxide emission level and also on energy use. The aim is to reduce burning of hydrocarbons and to encourage energy efficiency. The tax is to be levied in addition to any tax already imposed by the member-countries on the products concerned.

A uniform levy is to be applied to all energy sources, except those that are renewable. The amount of the carbon dioxide tax will be decided according to the fuel's carbon content, but the initial net effect would be a tax equivalent of US $3 per barrel of oil, which will increase by US $1 every year and reach a ceiling of US $10 by 2000.

The tax, however, lacks consensus within the EC, with Denmark, Germany and the Netherlands in support of it, but others, including UK, opposed to it.

Denmark's stand on the energy tax is strengthened by the US seeking to impose a similar tax and by the growing realisation that EC cannot bring down emission levels through only conventional methods. It will initiate talks with the US on joint initiatives within the framework of the UN Climate Convention and other relevant fora like OECD to prevent further adverse changes in the climate.

Unlike the US proposals, however, the European initiative has been taken largely because of pressure from environment protection groups.

Germany supports Denmark on the tax proposal and Bonn's three-party ruling coalition has agreed to raise taxes on petrol and diesel from 1994 and to tax cars on the basis of pollution caused and not engine capacity.

On the other hand, southern European member-states such as Portugal and Spain, which are heavily dependent on coal, oppose the energy tax because they fear it would hurt their economic development. These countries want the tax to be directed only at the industrialised countries because they ostensibly have higher carbon dioxide emission levels and the resources to spend on clean-up technology.

In Britain, however, treasury officials say they are not convinced that an all-Europe tax is either "necessary or appropriate" to curb global warming. UK's select committee on the environment notes that if coal is to be subsidised, merely imposing a carbon tax would not ensure generators switch to cleaner fuels.

Recently, chancellor of the exchequer Norman Lamont rejected a carbon tax and opted instead for a value-added tax (VAT) on domestic fuel bills over a two-year period. VAT will be levied at 8 per cent from April 1994 and 17.5 per cent from April 1995. Coal, nuclear and wind power will all be taxed equally in Lamont's proposal, which also imposes a 3 per cent tax increase on fuels, in real terms. British greens, however, contend the tax is an excuse to find additional revenue quickly, to make up the budget deficit.

Last year, nationwide protest forced the government to revoke its order to close 31 pits owned by British Coal and retrench about 30,000 workers (See Down To Earth, November 30, 1992). The protests showed the government preaching is easier than practice, coming as they did on the heels of the Rio meet, where the British representative had emphasised the need for developing countries to take the initiative in preventing further damage to the environment.

EC member-countries are also moving towards "subsidiarity", which implies a national, rather than an EC-oriented approach, in the implementation of their policies. The EC has been persuaded by member-states supporting the subsidiarity principle, to withdraw or amend proposals that do not comply with this principle. But, this has created a problem, because adopting subsidiarity automatically rules out an all-Europe tax.

National approach
Member-states are also of the opinion that a gestation period of at least 10 years is mandatory for the impact of such fiscal measures to be felt, which means the proposal would not be effective enough to achieve the carbon dioxide stabilisation target by 2000.

Another point of concern for EC members is that although renewables benefit from tax exemption under the proposal, nuclear power generation is favoured over hydrocarbons.

Meanwhile, Kuwaiti oil minister Ali Al Baghli warned the proposed energy tax would have a negative effect on oil demand and pricing and this would jeopardise the revenues of oil-exporting countries. Baghli accused industrialised nations of seeking to curtail world demand for oil so as to reduce their dependence on crude.

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