You would therefore assume that governments eagerly marketing themselves as “the greenest government ever” and the like would welcome proposals that increase their possibilities to use fuel taxation as a climate policy tool, which is exactly the purpose of the revision of the Energy Tax directive, put forward by the Commission in April this year.
The key problem the Energy Tax Directive tries to address is that smaller member states can raise additional revenue by lowering their diesel taxes, because that makes it more attractive for lorries to fill up at their stations. This is politically almost irresistible but fatal for the environment and state budgets at the same time. It means that countries that try to use fuel taxes to cut CO2 emissions get stripped of tax revenues, that instead will fill the coffers of the low-tax countries. In Luxembourg, with western Europe´s lowest diesel tax (€0.32/litre), the extra diesel tax revenues represent €1,400 per person per year, or 4-5 per cent of the state budget. Slovenia is another example of a small country that has started to use this tactic.
The Commission proposal requires the member states to split their fuel taxes in one part related to CO2-emissions and one part to energy content, and by 2023 tax petrol and diesel alike (“technical neutrality”). This change requires countries with low diesel taxes to increase them, which benefits member states with higher diesel taxes, like the UK (diesel tax: €0.68/litre) and Germany (€0.47/litre).
As almost all Germany’s neighbours have lower diesel taxes Germany would be the biggest winner from such a reform. But instead of acting in its national interest, the German government has allowed itself to be fooled by misguided lobbying from its car industry, which argues that higher diesel taxes would ruin the market for German-produced diesel cars. But, as we have convincingly shown, the market share for diesel cars surprisingly does not really depend on the diesel fuel subsidy. In the UK, the tax per litre is equal for petrol and diesel, while in the Netherlands the petrol tax is 70 per cent higher. If German industry was right, the UK would be flooded with petrol cars and the Netherlands by diesel ones. Reality is the other way round: half of the UK’s car sales are diesel against only a quarter in the Netherlands, illustrating that this split is governed by other factors such as sales, registration and company car taxes.
The British resistance seems almost entirely ideological. With the EU’s highest diesel tax the UK is losing billions on lorries filling their tanks on the mainland before crossing the Channel. Instead of using this unique opportunity to strengthen both state budget and climate policy, and actually also its real fiscal sovereignty, the British coalition government is acting against its own interest by being against the Commission’s proposal.
The misguided thinking by the German and British governments has been a pretext for the Polish presidency to try and use this energy tax directive to undermine the EU’s entire climate policy. Fortunately, a Polish attempt at last month’s meeting of economics and finance ministers to kill the Commission’s proposal failed since there wasn’t enough agreement. There are hopes that the incoming Danish presidency will be able to put it back on track again, but for that to succeed it will need at least the German government to come to its senses.
Germany has every interest in enabling European governments to raise revenue in a smarter way than raising labour taxes or cutting pensions. Portugal for example would benefit enormously if low-tax Spain raised its diesel tax; it would enable Portugal to raise its tax without the fear that its lorries would all cross the border to fill-up, handing the revenues to Spain.
European action for efficient fuel taxation is in the interests of Germany, Europe and, last but not least, the planet.