EUROPEAN COMMISSION DIRECTORATE GENERAL TAXATION AND CUSTOMS UNION

1. EUROPEAN COMMISSION DIRECTORATE GENERAL TAXATION AND CUSTOMS UNION The perspectives of applying ecotaxes in the EU. Christos LIOLIOS BERLIN, 25.06.2004

2. Environnemental taxes – Background Information • The main purpose of taxation is to raise revenue for the national budget. • Article 93 of the EC Treaty provides that tax legislation requires unanimity at the Council. • Main driver forces in the area of taxation: • Good functioning of the Internal Market • Promote sustainability • Some harmonised Community rules on taxation of mineral oils were first introduced time by Directive 92/81/EEC. • Taxation and tax differentiation proved to be very efficient tools to promote fiscal and other Community policy objectives (internalise external costs).

3. Instruments used to promote Environmental Policy • Traditionally technical regulations • Recently (mainly after the 1992 –Rio Conference) the so called Market Based Instruments (MBI), which include: • Environmental Taxes (ET) • Green House Gas (GHG) Emission Trading allowances • Voluntary Agreements • Other (green certificates, subsidies, incentives,…) • Recent Community initiatives in the area of ET: • The 1992 Proposal for a Community CO2/energy tax • The 1997 Proposal on taxation of energy products (Directive 2003/96/EC) • The 1997 Communication on ET and Charges(COM(97)9)

4. Directive 2003/96/EC on taxation of energy products and electricity • Community framework for the restructuring of the taxation of energy products and electricity • All energy sources are covered (except for peat) • Increase in existing minimum rates (mineral oils) and new positive minimum rates for electricity, gas and coal • Few compulsory exemptions (international aviation but not intra-EC). • Facultative tax differentiation measures for household consumption, renewables, energy intensive companies • Possibility of further tax differentiation - similar to Art 8(4) derogations • Specific rules for electricity, natural gas and coal.

5. Competitiveness issues in Directive 2003/96/EC • Differentiated rates for Business and non business use. • Energy products used for Industrial Processes, are left outside the scope of the Directive • Definition of Energy intensive companies (EIC) (purchases of energy products and electricity amounts to at least 3.0% of the production value, or national energy tax payable amounts to at least 0.5% of the added value) • Voluntary agreements: EIC: 0 rate - non EIC: 50% min rates • Future initiative: consistency between emissions trading and taxation needs to be further examined, following adoption of Directive 2003/87/EC, establishing a scheme for Greenhouse Gas Emission (GHG) allowance trading • Preparatory work for a Communication is currently underway

6. Perspectives for further Community action • The 6th Environmental Action Programme, adopted in 2002, recommends the use of the most effective MBI to achieve Community's Environmental Objectives. • All possibilities provided for under Directive 2003/96/EC (for tax differentiation, use of renewable energy sources, etc), should be used in an optimal manner. • Propose new Community legislation in areas having a serious environmental impact and particularly that of passenger cars (new Proposal by end of 2004). • Increase legal certainty particularly concerning the consistency between tax measures, State aid rules and emission trading, by means of: • applying the 2001 Community rules on State aid for environmental protection. • (eventually) propose legislation aiming at enhancing the consistency between the emission trading Directive and the Energy Tax Directive.