Energy taxation: a litmus test for Europe’s ability to recover from crisis
By Jos Dings, T&E Director Anyone who reads newspapers every now and then knows that this has been an unprecedented month for the European project of which the final outcome is still far from clear. The internal strains in the Union’s core, the eurozone, have become almost unbearable, with leaders recently committing over €500 billion in cash to save the euro.
Desperate times, desperate measures, for sure. But virtually all commentators agree there is only one recipe for the euro to survive in the medium term: a much stronger coordination of member states’ budgets and fiscal policies.
Now this may be difficult to swallow, but maybe €600bn is enough to finally persuade people that monetary union without real monetary coordination is bound to fail.
Now what on earth has this to do with transport and environment? Quite a bit.
The Commission has been pondering a directive on EU-wide energy taxation for quite a while now. If member states should agree on one type of fiscal coordination, this is it. Energy taxation is growth-friendly; it makes neither labour nor investment more expensive, and it does not discourage entrepreneurship. And to top it all, it cuts CO2 emissions and energy imports. No other tax can boast so much. No one likes a tax, but some really are much smarter and less painful than others.
With average budget deficits across the EU standing at 7% and environmental taxes mostly contributing less than 10% of tax revenue, there is a lot of room for action. Increasing minimum taxes on diesel is, environmentally and fiscally, the highest priority. Aviation’s tax-exempt status should be ended immediately.
Although France recently shelved plans to introduce carbon taxes on energy, the opposite has quietly been taking place across the rest of the continent. Over the past six months, ten EU member states have raised their fuel taxes by more than 2 cents per litre, and in seven, tax rises even exceeded five cents a litre. So the idea that higher energy taxes are politically impossible is proven wrong by the data.
Another issue with energy taxation is that for the EU to act in this area, every member state has to agree. But if EU leaders are willing to commit over €500bn because the economic situation is desperate, agreeing on something far less controversial and demonstrably helpful should also be possible. After all it was possible, under far less pressing circumstances, when the previous energy tax directive was agreed in 2003.
The energy tax directive is not just about mandatory minimum tax levels. It is also about more technical mechanisms to allow member states to move ahead and pushing laggards such as Spain and Luxembourg (with comparably very low fuel taxes) to act.
Right now the Commission has a unique opportunity to demonstrate its leadership in this time of crisis. Talk of ‘economic coordination’ and ‘growth-friendly taxation’ is all very nice. But now it is time for some action.