| Sourced From Euractiv.com |
The new European Commission will start work at the beginning of next year on a revision of EU energy taxation, designed to introduce CO2 as a fiscal element, a high-ranking EU official said today (4 November).
Proposing a revision of the 2003 Energy Taxation Directive will be on the agenda of the new Commission, “hopefully early in the New Year,” Thomas Carroll, head of unit at the Commission’s directorate-general for taxation and the customs union, told a roundtable organised by the Association of Chartered Certified Accountants (ACCA).
The outgoing Commission had hoped to see the proposal adopted already, but it became clear that member states had no appetite for controversial tax proposals when ratifying the Lisbon Treaty was the highest priority.
“We were told that anything that might jeopardise the right results should be kept back,” Carroll said.
The revised directive will seek to bring current energy taxation in line with the EU’s climate objectives by obliging member states to levy a CO2 tax on heating and motor fuels that do not feature in carbon trading, a draft shows (EurActiv 29/09/09). In addition, it seeks to iron out any overlaps with the EU’s emissions trading scheme (EU ETS; see EurActiv LinksDossier) to avoid double-charging industries.
But Carroll stressed that EU countries would be free to choose a higher level of taxation than the minimum set by the EU.
“We are simply trying to create a level playing field and provide the tools in a Community framework,” he said.
Carroll said that the Commission was currently working on the assumption that the carbon-related component would not increase the total level of energy taxation. Rather, the draft simply recasts the minimum tax rates for two components, one based on CO2 and the other on energy content.
“At the moment, this is just a working hypothesis,” Carroll said. “Whether that will be the position of the new Commission, I don’t know.”
The official pointed out that the EU executive had wanted to avoid creating headlines in member states accusing the EU of being about to impose yet another new tax on citizens.
But the European Environmental Bureau (EEB) criticised the low rates, saying that they would not have the desired effect of persuading consumers to switch to more energy-efficient fuels. The Commission estimates that a carbon price of €39 per tonne of CO2 will be necessary to reach the EU’s binding 2020 emission reduction target.
Catherine Pearce, a policy officer at the EEB, stressed that taxation is still a “dirty word” for both consumers and companies and appropriately informing them about any changes to the current framework will be crucial.
“How such a measure is communicated is key, and I think it’s where many member states have failed in the past,” she said.
The EU executive has a bad track record of getting tax proposals through as member states refuse to relinquish their exclusive competency in the area. Carroll noted that although a previous proposal to tax CO2 emissions from cars failed in 2005, many member states had put in place similar national schemes since then.
“The messeage got through. Unfortunately it’s been done in an uncoordinated manner,” the EU official said.
He added that even within the Commission, it is difficult to get a taxation proposal out as commissioners from the less prosperous new member states are always looking at the impact of taxes on their societies.
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Of course governments like taxes and of course we don’t. To make things worse, unless and until the tax rate was high, it would not justify major investment in low carbon power generation. Cap and trade arrangements also need to raise energy prices massively before they stimulate major investment.
I have a proposal that resolves these and other problems.
We could oblige fossil fuel producers and importers to contract for the capture and sequestration of a quantity of carbon dioxide equivalent to a proportion of that produced from the fuel they supply. The proportion could start at a few percent and build up over the years. This would gradually increase fuel price thus encouraging energy saving, nuclear, renewables, electric cars and the like while providing immediate full funding for carbon capture.
Why give special treatment to carbon capture and storage? Because energy saving, nuclear, renewables, electric cars and the like are merely ways of filling the energy gap that cutting carbon dioxide emissions will create and mankind has been very effectively filling energy gaps for centuries without the aid of agreed national or global strategies, taxes or caps. Carbon capture is different. It is a way of stopping pollution. If we stop the pollution the free market will fill the energy gap. You can legislate to stop pollution (which is economically inefficient) or you can use market forces by giving credits in a cap and trade system, credits against a carbon tax or by paying directly as in my proposal.
Some time flexibility could be allowed in capturing the carbon dioxide. For example the contract might permit capture to be delayed for a year if the quantity captured were increased by 10%, and for another year for another 10% etc. This would not only help with plant problems or construction delays in the early days when there might only be a few plants, but would also allow contracts to be placed today thus providing a huge incentive to get plants up and running as soon as possible. It would also stabilise the traded contract price by extending the options for fulfilment.
One way or another we must very soon stop carbon emissions from power generation, cement manufacture etc. and substitute electricity for fuel use in many domestic, industrial and transport applications. Taxing carbon, capping emissions or contracting for carbon capture when fuel is produced could all provide the economic incentive but unless applied globally will not be sufficient.
I prefer carbon capture. It is guaranteed to reduce carbon dioxide emissions from burning fossil fuel to whatever annual target is set and is the easiest option to apply globally because:
It will appeal to rapidly growing and mature countries alike. There are no national caps to restrict relative growth.
It will allow all industries in all countries to compete on a level playing field. There are no tax or carbon credit differentials and no allowances for governments to give out or auction.
Because there is only one number to agree, the global annual target, extensive international negotiations will be unnecessary. There will be no national targets to haggle over and perhaps never meet, and no issue about who gets the revenue from a carbon tax, consumer or producer nation, or what the tax rate should be for each country.
Enforcement is straightforward and does not rely on the co-operation or even the consent of every country. The contracts would be traded and recorded centrally, mostly placed and paid for by the international energy companies. If countries were uncooperative and used their own fuel internally without contracting for carbon capture, a central monitoring organisation could impose an increased capture proportion on imports or exports of fuel for that country to compensate.
I would hope that within as little as twenty years we could move to a system that defined the proportion of carbon to be captured, based on fossil fuel production at the time, such that global emissions were contained at the level that the oceans absorb annually, i.e. about 2.2 billion tonnes of carbon per year. Atmospheric carbon dioxide concentration would then stop rising.