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Energy Tax Directive Revision

Energy Tax Directive Revision. European Environment Bureau (EEB) Brussels, 17.05.2011. Kai Schlegelmilch Economist Vice President of Green Budget Europe/GBE. Structure of presentation. Introduction of Green Budget Germany/Europe (GBG/GBE) Need for an Environmental Fiscal Reform (EFR)

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Energy Tax Directive Revision

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  1. Energy Tax Directive Revision European Environment Bureau (EEB) Brussels, 17.05.2011 Kai Schlegelmilch Economist Vice President of Green Budget Europe/GBE

  2. Structure of presentation • Introduction of Green Budget Germany/Europe (GBG/GBE) • Need for an Environmental Fiscal Reform (EFR) • EFR Reform Elements in Germany • EFR Approaches in Europe • EFR Approaches Globally • Relevance for Energy Efficiency • Further Information • Conclusions

  3. 1. Green Budget Germany/Europe (GBG/GBE) –Forum Ökologisch-Soziale Marktwirtschaft (FÖS) • Non-Profit Non-Governmental Organization • founded in 1994, now 6 employees and 6+ interns • >90% of funding through studies, lobbying, conference organisations, trainings hence depending on 3rd party financing • Fields of expertise Commitment to Market-Based/-Improving Instruments in environmental policy such as: • Environmental Fiscal/Tax Reform: Taxes/Charges on energy and resources • Cutting of environmentally harmful subsidies • Main activities • Studies (on ETR/EFR and environmentally harmful subsidies) and Newsletters, Conferences and Trainings • Projects for the German Environment Protection Agency (UBA), European Climate Foundation, Greenpeace, WWF • GBG is internationally very active…

  4. Organisation of the Global Conference on Environmental Taxation in 2007Green Budget Europe (GBE) was set up as project of GBG in 2008 = European network for market-based/improving instrumentsNext GBE-Conference at EEA/Copenhagen on 15th/16th September 2011GBE has contributed to many international conferences. GBE has carried out further consultations of EU-Commission, OECD, European Environment Agency (EEA), World Bank, Governments, NGOs and other stakeholders in countries such as Morocco, China, Thailand and Vietnam.On behalf of GIZ, the German development aid agency (www.giz.de), Green Budget Germany has developed a Training Manual to train trainers on EFR in developing countries.It is also translated into French and Spanish.Further applications are most welcome. It can also be applied in industrialised countries. 1. GBE is internationally very active

  5. 2. Need for Environmental Fiscal Reform (EFR) • Climate Crunch • Need to tackle climate change and environmental pollution • Need to trigger innovations and jobs • Energy Crunch • Need to secure energy supply, energy efficiency and renewable energies • Need to reduce our energy imports and bill • Budget Crunch • Lived beyond one‘s needs for decades • Deepened due to the financial crunch In a market economy the polluter pays principle has to be applied all over: All have to pay for the full costs!

  6. 2. Need for Environmental Fiscal Reform (EFR) • „Perverse“ incentives dominate • Market prices are THE signal in an economy, hence they should work for and not against environmental protection • Penalties for “green behavior” (trains – airplanes / electricity generated by coal power – green electricity) • Subsidies for non-environmentally friendly behavior • Taxes and levies system heads to the wrong direction:“Goods” are taxed instead of “bads” • Policy results • Inefficient use of energy, unemployment,budget deficits/Waste of taxpayers money,climate and environmental protection is not profitable

  7. 3. EFR Reform Elements – Implemented in Germany 1999-2003 Social security contributions were reduced Transport/heating fuel taxes were increased An electricity tax was introduced between Impacts: -2-3% CO2-emissions, first time ever lasting reduction of fuel sales (-17% incl. oil price impact), 250,000 additional jobs created 2011 Ticket fees on air transport Charge on nuclear fuel Heavy goods vehicle toll extended Reduction of industrial exemptions from the energy tax Financial transaction tax (generally adopted, started as a banking charge) Shifting the tax base for company cars on CO2-emissions (not implemented, in the opposite: Attempt to enlarge tax benefits according to coalition treaty) GBG proposed all these elements + more in a study on behalf of the Heinrich-Böll-Foundation: Most were implemented (http://www.foes.de/pdf/2010-10-HBF_GreeningTheBudget.pdf):A great success story of the combination of providing timely information with lobbying activities.

  8. 4. Energy taxation on EU-level On the one hand: • Legal requirement for unanimity voting makes progress very difficult. • Steps so far:- 1993: Minimum tax rates for all oil products were introduced when the internal market came into force - 2004: Broadening this principle of minimum tax rates to all other energy products whilst increasing the minimum rate for mineral oil taxes (EU-energy tax directive)The then forthcoming accession made the modest breakthrough possible as acceding countries would likely have to do more than the then EU-15. On the other hand: • The EU is the first and only region which requires an energy taxation from all Member States. Several Member States made positive experiences with ETR/EFR, hence this potential should be further exploited. • Since 13.04.2011, the European Commission published a proposal for a revision of the Energy Tax Directive.

  9. EFR-Elements: Taxes on light heating fuel in Europe (€-Cent/liter) Germany still has to catch up in this area

  10. All EU countries have some kind of green taxes • Witness of EU-Creativity! • Many roads to Brussels! • Autonomy from neighbours! • Similar situation in new MS Examples from EEA 2005

  11. Positive GDP-effects of ETR go up to 0.5 percent GDP-EFFECT OF ETR (DIFFERENCE TO BASE CASE IN %) COMETR: ETR produces a small ‘double dividend’ effect in every country, with GDP increasing by up to 0.5 % compared to the reference case. 0.4% in Germany There are no losers! Source: COMETR 2007

  12. EFFECT OF ETR ON GHG EMISSIONS (DIFFERENCE TO BASE CASE IN %) Ecotaxes reduced GHG emissions by 2-6 percent –3.3% in Germany

  13. Revision of the EU Energy Tax Directive The person in charge of it is: Rolf DIEMERHead of UnitUnit C2 – Environment and other Indirect Taxes European CommissionDG Taxation and Customs Union [SPA 3 05/110] B-1049 Brussels – BELGIUM Tel.: 0032-2-2961075 Rolf.Diemer@ec.europa.eu http://ec.europa.eu/taxation_customs/taxation/excise_duties/gen_overview/index_en.htm http://ec.europa.eu/taxation_customs/taxation/excise_duties/energy_products/index_en.htm

  14. Policy background • March 2007 European Council conclusions on energy and climate topics and targets with several legislations following. • EU climate and energy strategy (2013-2020): • 20% cut in emissions, • 20% improvement in energy efficiency against business-as-usual • 20% share of renewables by 2020 • Crisis exit strategy: Austerity packages and quality of revenue • Europe 2020 Strategy: sustainable growth for a more resource efficient, greener and more competitive economy, demand for an ETR/tax shift

  15. Two policy areas • 20% cut in emissions by 2020 (30% in case of international agreement reached) • division into two areas:

  16. Existing Directive on Energy Taxation: 2003/96/EC • Energy products are only taxed when they are used as motor or heating fuel • Energy tax applies to electricity, although there are several exemptions Member States can introduce • Some sectors excluded: Energy products used as raw materials, for the purposes of chemical reduction, in electrolytic and metallurgical and in mineralogical processes, and nuclear fuels are out of the scope of the Directive • The "levels of taxation" applied by the Member States may not be lower than the minimum rates set in the Directive (higher minima for transport than for heating fuels) • Possibility of tax exemption for biofuels • Taxable base • Mineral oil products: volume • Coal, gas, electricity: energy content

  17. Directive 2003/96/EC – Shortcomings of the current state of play • NO signal to reflect CO2 emissions of energy products • NO signal to reflect the energy content of the product used • Little incentive to develop markets for alternative energies • NO European framework for CO2 taxation • NO sufficient coverage of 50% of emissions outside ETS • NO clear distinction with ETS: double burden or loopholes to evade responsibility for emissions

  18. INTERPLAY OF ECOTAX AND EMISSIONS TRADING IS QUITE COMPLEX OVERLAPS OF ECOTAX AND EMISSIONS TRADING IN D (x %) = Prozent der Regelsteuersätze im jeweiligen Verbrauchsbereich Öffentlicher Verkehr (56%) Privater Verkehr Weniger energieintensives Produzierendes Gewerbe (60%) Z.B. Alu - und Private und Chemieindustrie öffentliche EH, aber kein SAG* Haushalte *SAG = Spitzenausgleich; Industrie - Kein verbleibende Grenz- Energiewirtschaft anlagen EH, Gewerbe/ steuerbelastung nur 3 % im EH, mit SAG* im EH, nur Dienstleistungen mit SAG* SAG Bereich unterliegt EH (100%) Ohne Ökosteuer, aber EH Randbereiche im Emissionshandel (EH) 0% ÖSR: Prozessemissionen (z.B. Kalk), Dual Use (Kokskohle in Stahlindustrie), Herstellerprivileg (Eigenverbrauch Mineralölindustrie) 100% ÖSR: 60% ÖSR: Weniger energieintensive Anlagen des Produzierenden Gewerbes (z.B. Maschinenbau/Elektronik) mit EH-pflichtigen Emissionen z.B. Stromerzeugung >20 MW in Krankenhäusern Quelle: FÖS-Analyse 30

  19. Why revision of the EU Energy Tax Directive now? • MS are designing now their strategies to meet agreed targets in the most cost-effective wayand exit the crisis • MS and stakeholders need nowlegal certainty of possible uses of taxes in this context • Revision ideally applicable as from 01.01.2013 (third phase Emission Trading System (ETS)) • Opportunity for a green tax shift: shift taxation from labour to pollution and energy use to help create jobs and boost growth • Start building a green economy only possible with the right incentive structures

  20. New structure of energy taxation • Tax reconstructed according to CO2 emissions and energy content: • A part based on CO2 emission of the energy product. CO2 taxation would be zero for all sources of energy that currently are, or will in the future, be recognised as CO2-free. • A part based on energy content per GJ, regardless of the energy product, thus providing an incentive to save energy. • Because: • logical and technology neutral approach • automatic incentive for less polluting energy products and generalised CO2 price signal vital for the shift towards low carbon economy • remove unjustified subsidies for certain fossil fuels (diesel, coal) • consistent treatment of all energy sources

  21. Link to Emission Trading System Framework for CO2 taxation as complement to the EU emission trading scheme - no double burden or regulation for business; - Level playing field for the sectors exposed to carbonleakage - no overlap CO2 tax with ETS: CO2 tax complements ETS with alternative market-based instrument for small installations excluded from the EU ETS

  22. Motor fuels • New minimum rates introduced in stages until 2018 • Tax based on CO2 emissions: 20€/t CO2 as of 2013 • Tax based on energy content: gradual increase to 9.6€/GJ by 2018 • This results in the following overall rates expressed in current units:

  23. Motor fuels • As of 2023 MS also need to respect relationship between the different products in their national rates • Example: diesel / petrol: • Currently:minima for petrol higher than for diesel (359 over 330 €/1000l) in spite of higher energy content of diesel • Revision: • Alignment of tax treatment on the basis of energy content and CO2 will lead to higher per-volume rate for diesel (412 against 359 €/1000l) by 1/1/2018 (as 1 litre diesel emits around 16% more CO2 than 1 litre of petrol/ has higher energy content) • MS will have to reflect the relation in national rates, but will be given time for adjustment until 2023. • Possibility for MS to apply reduced rate to commercial diesel deleted (only used by 5 MS) • Consequences: • stabilisation of current petrol/diesel demand split • Under-capacity of Europe: security of supply will improve

  24. Alternative motor fuels: LPG/CNG • Currently: • Minimum rates for LPG and CNG considerably lower than for other motor fuels • Possibility for MS to apply full exemption • Revision: • Alignment of tax treatment of LPG and CNG to other motor fuels according to energy content in principle by 1/1/2021. • Transitional period until 1/1/2023 during which MS may continue to apply lower tax rate down to zero

  25. Heating fuels • New minimum rates introduced as of 2013 • As of 2013 MS need to respect relationship between the different products in their national rates and fix equal level for respective use • 9 MS may postpone introduction for the CO2 part of the tax until 2020 • MS will be able to set their own rates above the minima

  26. Biofuels • Currently: • fully taxed (like equivalent fossil fuel) + option to fully exempt (subject to State Aid control) • Revision: • alignment of tax treatment to other motor fuels according to energy content (therefore removal of current disadvantage stemming from generally lower energy content of biofuels) • no CO2 tax applies to sustainable biofuels as emission factor is zero • unsustainable biofuels will be treated as conventional fuels • until 31/12/2023 MS may continue to apply lower specific energy tax rate

  27. Electricity/nuclear energy • Currently: • Electricity taxed when used ("at output"). • To avoid double taxation, energy products used for the generation of electricity exempted from taxation, although MS retain the right to tax those products for reasons of environmental policy. • Nuclear fuels are no energy products for the purposes of Directive 2003/96/EC (out of the scope of the directive). • Revision: • No systematic change: taxation at output (energy tax only as no emissions at point of use) • Fuels used for generation mostly exempt from CO2 tax as subject to ETS; CO2 tax to apply to small installations exempted from ETS • Nuclear taxed as all other electricity; by definition there is no CO2 element. • Note: MS can adapt level of electricity tax independently of other fuels

  28. Possibility to apply reduced rates for business • Currently: • Possibility for reduction of tax rates down to minima if businesses are energy intensive or if equivalent arrangements are in place • Possibility for reduction of tax rates down to zero for energy-intensive businesses or to 50% of Community minima for other businesses if alternative measures deliver broadly equivalent environmental effect to Community minima • Revision: • MS would retain flexibility to apply reduced tax rates for certain businesses above the Community minima • No possibility for MS to reduce energy-content based tax rates below minima • CO2-based taxation: a special compensation mechanism will apply to installations from sectors under a risk of carbon leakage, which will result in taxation below Community minima in some cases. MS will be obliged to provide a tax credit to those installations based on their past energy consumption, and calculated on the basis of a reference fuel (benchmark).

  29. Particular sector: agriculture • Currently: • fully taxed + option to fully exempt all energy products and electricity used in agriculture • MS can apply reduced tax rates to motor fuels used in agriculture (e.g. 21 €/1000l for diesel) • Revision: • CO2 tax has to be applied in full, but COM will analyse whether agriculture should also benefit from the tax credit for carbon leakage sectors • energy content part of the tax: possibility to fully exempt if the sector provides a "counterpart" (equivalent measures in terms of energy efficiency)- notion left to MS • Diesel used in off road machineries (tractors): will be still taxed as heating not as motor fuel (= lower rate)

  30. Particular sector: households • Currently: • MS may apply rates to zero to natural gas, coal and electricity if used for domestic heating • Revision: • MS will retain option to fully exempt households (both CO2 and energy content parts) • exemption extended to all heating materials

  31. Particular sectors: coal • Currently: • The most CO2 emitting and today the least taxed energy product • Important for Europe's energy security but needs to be used in a sustainable way • Revision: • The revision will lead to an increase in the minimum tax for coal • postponement of CO2 part of taxation to after 2020 in those MS where less effort is required for emission reductions • possibility to fully exempt households

  32. Regionalisation of taxes • Currently: • No possibility for regional variation in tax rates in current directive • regions may be allowed to reduce rates on the basis of individual derogations according to art. 19 • Revision: • Possibility for individual MS to allow regions to increase their tax rates over the national tax rate on the basis of explicit country-specific authorisation (ES and FR)

  33. Timing After about 2 years internal discussions the Commission proposal was adopted and published on 13th April 2011 EU-Presidencies’ attitude: Hungary, Poland and Denmark will pick it up (25th May, 7th June, 2 meetings under Polish Presidency planned so far) Denmark wants to reach political agreement in I/2012 Cyprus could then reach formal agreement in II/2012 Target of COM: Entry into force on 1.1.2013 Or will it take again 5-6 years? We should push the Council for an agreement by December 2012 at the latest when the EU Budget will be decided. Then the adoption of the ETD could be a crucial bargaining chip.

  34. Evaluation of the new energy tax proposal

  35. Raising ACTUAL diesel tax levels 10% over petrol: great idea

  36. Inflation correction: great idea

  37. The big mistake:keep bans on fuel tax for aviation, shipping, fisheries

  38. Our ambition: get agreement on an EU energy tax law that • Gets rid of tax bans in aviation / maritime • Taxes fuels on energy/carbon content • Is a guarantee for steady increase in fuel taxes • Forces low-tax MS to move and hence • Makes it easier for high tax MS to move

  39. What we and you can do

  40. Show that • Fuel taxes have gone down, in EU and in member states • Still, situation would be much worse without EU minimum tax (job effects?) • Cheap diesel and lack of inflation correction are key problems as fuel taxes — like other environmental taxes — are quantity-based which means: Their revenue is automatically devalued by inflation: In Germany since 2003 alone, by 0.07 Euro/ liter. This equals more than two steps of the 5x3Ct-increase of the ecotax)

  41. Elements of arguments and a strategy • Show that • higher fuel taxes can save jobs • ’95 g/km’ can be met without 50% diesel cars • High-tax countries: create support for EU reform • Low-tax countries: ‘shame’ strategy (Southern/Eastern countries and Luxembourg!) • Negotiate the ETD as far as possible to come to an adoption in December 2012 when the EU budget will have to be adopted and use it as bargaining chip of the netpayer members.

  42. Anything else we can still do?

  43. Background Material on environmentally harmful subsidies in D GBG proposed the following elements for the austerity package And the German Government kindly implemented 80% of our proposals http://www.foes.de/themen/sparpaket/ Some studies on phasing out environmentally harmful subsidies (though most in German): Nuclear power: http://www.foes.de/pdf/2010_FOES_Foerderungen_Atomenergie_1950-2010.pdf Hard Coal: http://www.foes.de/pdf/Kohlesubventionen_1950_2008.pdf Comparison Nuclear and Coal: http://www.foes.de/pdf/2010.10_FOES_Foerderungen_Strom_Atom_Kohle_Vergleich.pdf In 2011 this comparison was complemented by the support given to renewable energies: Hard coal 4.1 Ct/kWh Nuclear 3.2 Ct/kWh Renewables 2.2 Ct/kWh Brown coal: 1.2 Ct/kWh Overview of environmentally harmful subsidies in Germany: http://www.greenpeace.de/fileadmin/gpd/user_upload/themen/energie/Greenpeace_Subventionsstudie_final.pdf Study on Company Car Taxation (including a joint EU-COM/GBE/EEB-event on 28.02.2011 launching this and an EU-wide comparative study): http://files.foes.de/de/downloads/studien/FiwaDiwaRef-Fassung2.0.pdf ... And the study from the German Environment Protection Agency (UBA) on environmentally harmful subsidies which – surprise, surprise – comprises a lot of figures fromoiur above mentioned study: http://www.umweltbundesamt.de/uba-info-medien/4048.html

  44. Thank you for your attention! Kai Schlegelmilch Vice President of Green Budget Germany/Europe Schwedenstraße 15a 13357 Berlin Germany Tel: +49-30-7623991-30 www.foes.de Kai.Schlegelmilch@foes.de

  45. 6. Conclusions Environmental fiscal reforms (EFR) are a crucial policy to • make the market work for environmental protection • get a society on a low-carbon trajectory; • help develop new industries in the area of renewables and energy efficiency that will provide sustainable jobs • provide competitive advantages for these industry; • contribute to restoring fiscal stability after the recession. However: • It needs a long-term effort to change the tax and fiscal structure • Germany has not yet fully done its tasks, but at least it started and has taken major steps and a cross-party consensus for such measures in general seems to be achieved. • But fiscal changes pay off as environment and fiscal policy benefit This is well understood by countries in transition which are increasingly competitors: • Vietnam will introduce it in 2012, China is also introducing it between 2012-2015 In addition: Australia announced a carbon tax as well for 2012 Concluding: Europe needs to keep up a high level of ambition by providing strong incentives, i.a. through energy and carbon taxation

  46. Vielen Dank für Ihre Aufmerksamkeit! Thank you for your attention! Kai Schlegelmilch Vice President of Green Budget Germany/Europe Schwedenstraße 15a 13357 Berlin Germany Tel: +49-30-7623991-30 www.foes.de, www.green-budget.eu Kai.Schlegelmilch@foes.de

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