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  • Linking minimum tax rates with energy and CO2 still proving difficult

    The idea of making fuel tax in Europe relate to a fuel’s energy and carbon dioxide content is still struggling to get into the EU Energy Tax Directive. Last month EU finance ministers moved closer to approving a new structure for minimum tax rates for fuels, but most member states opposed any system that would force them to make diesel more expensive than petrol.


    The idea of linking minimum tax rates to energy and CO2 content has been largely accepted. Poland is strongly against any mention of CO2 emissions, and fiscal matters can only be decided at EU level on a unanimous vote, but the other 26 member states seem to agree on the principle.

    The sticking point is that if all member states would have to use the same tax rate for CO2-emissions and energy content for all fuels (known as ‘proportionality’ or ‘technical neutrality’), diesel would have to be taxed more heavily than petrol. Diesel has traditionally been cheaper than petrol in most EU member states, and a number of national budgets depend heavily on revenue that might decrease if diesel taxes went up.

    Ministers therefore approved the principle of basing minimum tax rates on CO2 and energy, but these rates will still be set per litre of fuel or per tonne transported, and not, as proposed by the Commission, per unit of CO2 emitted or energy used. Consequently, the minimum tax for diesel will probably be set at a higher level than for petrol, but member states which apply taxes above the minimum levels may continue to tax diesel less strictly than petrol if they wish.

    T&E policy officer Magnus Nilsson said: ‘What’s crucial now is to get the diesel minimum as high as possible to counteract fuel tourism and thereby make it easier for “willing” member states to raise taxes on both diesel and petrol. That’s the quickest and smartest way to reduce both CO2 emissions and budget deficits. It also shouldn’t lead to a drop in sales of diesel vehicles, as experience from Great Britain has shown.’