Rhein on Energy and Climate

An EU C02 Tax?

The EU Commission is rediscovering a very old acquaintance: an EU C02 tax. 20 years ago it has been the starting point for European climate policy. But the Commission proposal in the early 1990s failed to rally the necessary unanimity of the 12 member states that made up the Union at that time. This led to the progressive elaboration of today’s EU climate policy essentially based on C02 caps and trading.

It is therefore surprising to see the Commission exploring once again the feasibility of a project with which it had burnt its fingers two decades ago.

The concept that the Commission is presently working on would be a C02 tax levied on those sectors and fossil fuels not covered by the European emission trading system (ETS), essentially gasoline, heating fuels and gas consumed by households, small and medium size companies, the transport sector and agriculture.

Preliminary thinking focuses around a minimum tax of € 20/ton. That exceeds the present C02 market price of € 15 per ton; but is almost negligible compared to excise taxes on gasoline and diesel in the order of € 500-700 per 1000 litre levied in most member states.

An EU-wide C02 tax imposed by all member states would therefore only be effective as a complement to existing excise taxes, provided the initial tax level were progressively raised. Otherwise it will have no impact on consumption.

It should at any rate leave the excise tax structure in member states intact and not attempt to tax the various fuels according to their C02 emissions, which would imply raising tax rates for diesel and lowering them for gasoline and gas. Such an effort, however laudable from a strict climate perspective, would lead to endless quarrels with industry and member stats for little positive climate impact.

Ideally, an EU C02 tax should become a truly European tax the proceeds of which would constitute EU budget revenues. Such a tax would have an immense symbolic value by granting the EP, jointly with the Council, the power of taxation, which is a basic prerogative of any parliament.

With the necessary advance of EU climate policy, an EU C02 tax might progressively become the major source of EU budget revenues.

But in the present state of the Union such an idea looks more like a pipe-dream than a proposal with serious chances to rally 27 member states behind it.

Brussels 05. 07. 10 Eberhard Rhein

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