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  • Fuel taxes down 10 cents in 10 years

    350 000 jobs ‘lost’ and chance to cut imports and emissions missedAverage fuel tax in Europe has fallen in real terms by €0.10 per litre since 1999, which has cost 350 000 jobs. These are the findings of a new study by T&E, which coincides with publication of the Commission’s proposals to revise the EU Energy Tax Directive. The proposed revision seeks to narrow the gap between Europe’s differing rates of diesel tax but leaves untouched the current ban on taxing aviation and shipping fuels.

    [mailchimp_signup][/mailchimp_signup]T&E’s report ‘Fuelling Oil Demand: What happened to fuel taxation in Europe?’, which was published earlier this month, sets out the prices of, and taxes on, petrol and diesel over the past 30 years. It says if taxes had been corrected for inflation and the revenues used to lower labour taxes, 350 000 jobs would have been saved, oil imports would have been cut by €11 billion, and road transport CO2 emissions would have been 6% lower.

    Average fuel tax in the EU in 1999, adjusted into 2010 prices, was €0.59 per litre. By 2010 it was €0.49, a 17% reduction, and as consumption remained stable, the result was a 16% loss of tax revenues from €180 billion to €152bn (2010 money). Of the 10-cent fall in fuel taxes, 3c was caused by the shift from petrol to diesel, and 6c is explained by the failure to correct for inflation.

    The study also highlights the importance of minimum levels of fuel tax in the fight against ‘fuel tourism’ and the creation of ‘fuel tax havens’. Strategically placed countries, of which Luxembourg is the best example, can set lower rates of fuel tax and thereby attract lorries which fill up there. That reduces the freedom of neighbouring countries to set their own desired rate of fuel tax.

    Revision of directive

    A day after the publication of T&E’s study, the Commission’s announced its proposals to revise the current Energy Tax Directive that has been in effect since 2004. With the EU committed to a minimum 20% reduction in greenhouse gases between 1990 and 2020 and talking about broader targets for 2050, the existing directive has become outdated, with many of the more polluting forms of economic activity taxed lowest. The revision of the directive also seeks to help member states redesign their tax policies in a way that encourages job creation.

    It therefore proposes to split the minimum tax rate into two parts: a carbon dioxide element based on a fixed price of €20 per tonne of CO2, and an energy content element based on a fixed price of €9.60 per gigajoule for motor fuels. This has several implications, of which the most notable is that minimum diesel rates in Europe will rise.

    T&E director Jos Dings welcomed the proposed rise in minimum diesel tax from €0.33 now to €0.41 in 2018. He said: ‘In times of austerity, it is absolutely right to tax pollution and oil imports, much better than to tax people’s income. We know drivers and hauliers don’t like to see pump prices go up, but in tough economic times this is much fairer than increasing labour taxes for all, as that pushes people out of work.’

    There have been a number of media stories suggesting the revised directive would force countries like Germany and Great Britain to raise their diesel taxes, but the directive does not do this. It sets minimum levels of €0.36 for petrol and €0.41 for diesel by 2018, with an obligation to tax diesel 15% higher than a litre of petrol by 2023. Dings added: ‘Most member states, including Germany and the UK, already tax diesel above the minimum rates – in those cases it will be up to them to decide if they want to raise diesel taxes, but the EU is not forcing them.’

    The proposed revision of the Energy Tax Directive contains an article 29, saying the EU’s ban on taxing aviation and marine fuels will be reviewed, but for the moment it remains in operation.