Redistributive policy

EU energy tax policy contradicts climate targets, say auditors – EURACTIV.com

Energy taxation, carbon pricing policies and fossil fuel subsidies need to be more closely aligned if the European Union is to meet its 2030 climate targets, say EU auditors in a new report released Monday January 31.

According to the European Court of Auditors (ECA) report, under the current EU Energy Tax Directive, polluting energy sources such as coal may have a tax advantage over more energy efficient sources. carbon.

“For example, coal is taxed less than natural gas, and some fossil fuels are taxed significantly less than electricity,” the ECA said in a statement.

On average, coal is taxed at €2.9 per megawatt hour while natural gas is taxed at €7/MWh. Electricity, in comparison, is taxed at €32.1/MWh, according to the report (see table below).

Fossil fuel subsidies

Moreover, fossil fuel subsidies – such as low petrol and diesel taxes – have remained constant over the past decade, despite commitments by the European Commission and some EU member states to phase out.

Overall, fossil fuel subsidies amount to more than €55 billion a year and 15 EU member states spend more on fossil fuel subsidies than on renewable energy subsidies, noted the listeners – a figure that does not take into account the financial support given to poor households during the current gas crisis.

As the European Union aims to halve its greenhouse gas emissions by the end of the decade, this type of gap cannot continue, they warn.

The European Commission recognizes this. In July last year he tabled a revision of the EU’s energy taxation directive, which sets minimum tax rates for energy, including transport fuels and electricity.

The directive was last updated almost 20 years ago and is now “completely out of step with our climate ambition”, admitted EU Economics Commissioner Paolo Gentiloni when presenting the proposal in last July.

According to the Commission, the revised directive aims to promote “the uptake of electricity and alternative fuels” such as renewable hydrogen, synthetic fuels and advanced biofuels.

The central part of the reform is a proposal to move the EU-wide taxation system based on volume – or euros per liter – towards a taxation system based on energy content or gigajoules.

“We are trying to encourage the use of biofuels, so by moving to a tax base based on energy content, we are fixing this hidden advantage to fossil fuels,” an EU official explained. Indeed, a liter of biofuel generally has a lower energy content than gasoline or diesel, even if the same tax rate applies.

Repel

Revision of the energy taxation directive will be politically difficult, however, as it requires unanimity among EU member states, which means that only one EU country can veto the reform.

And some have already expressed reservations. The Czech Republic, for example, warned of the social consequences of a sudden shift to greener taxation.

“The Czech Republic refuses any proposal that could lead to higher prices for energy products and electricity,” a Czech finance ministry spokesperson told EURACTIV.cz in December.

“There is the threat of massive resistance if we present these proposals too vigorously and try to implement them quickly into economic reality,” added Ondřej Kovařík, a Czech MEP from the centrist Renew Europe group in the European Parliament. .

The Czech concerns are explained by the sums that households spend on heating and transport fuels. For the poorest in Czechia and Slovakia, energy expenditure can represent more than 20% of their income, noted the EU auditors.

The report also highlighted the 2018 “yellow vest” protests in France as a cautionary tale, noting that the movement was sparked by a carbon tax, which drove up the price of petrol and diesel by 0. €10 at the pump.

To mitigate the risk of rejection of the tax reforms, the auditors pointed to a range of solutions, such as “lowering other taxes” or “applying redistribution measures” such as compensation for the most affected households.

“The main challenge, in our view, is how to strengthen the links between regulatory and financial measures and find the right balance between the two,” said Viorel Ştefan, the European Court of Auditors member responsible for the review.

Another obstacle to reform is Poland, which has threatened to “veto all issues that require unanimity in the EU” until the Commission releases payments to Warsaw that are withheld due to an ongoing dispute over Polish independence. judges.

Poland also warned against proposed EU green reforms more generally, saying they risk having a disproportionate impact on the EU’s poorest households in the current context of high fuel prices. energy.

[Edited by Zoran Radosavljevic]