Raising money a by-product, not an objective, of Green Energy Taxation

Green taxes should not be seen as a source of new revenue but as a means to bring emissions down, MEPs told
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By Andreas Rogal

Andreas Rogal is a Brussels-based journalist and copy editor

13 Jul 2021

Ahead of the eagerly awaited ‘Fit for 55’ climate and energy package from the European Commission later this week, MEPs from the European Parliament’s Subcommittee on Tax Matters (FISC) held a public hearing in Brussels on reform of the EU’s Energy Taxation Directive.

In his opening remarks, FISC vice-chair Markus Ferber, pointed to the timeliness of the debate: "To achieve climate neutrality by 2050, as well as the other environmental objectives of the European Green Deal, taxation has become more and more important as a policy instrument. Our aim should be to find a good fiscal and policy mix while maintaining European competitiveness."

The first of two panel discussions focussed on energy taxation could be brought in line with the goals of the Green Deal.

The subcommittee heard from tax expert and research fellow at the University of Münster, Dr Tatiana Falcão and from Kurt van Dender, Head of Tax and Environment at the OECD, who both welcomed the reform of the 18-year-old Energy Taxation Directive as “long overdue” and “necessary”.

Van Dender told MEPs that when it comes to environmental taxes, there has always been a “large gap between what could be done and what is being done.”

"To achieve climate neutrality by 2050, as well as the other environmental objectives of the European Green Deal, taxation has become more and more important as a policy instrument. Our aim should be to find a good fiscal and policy mix while maintaining European competitiveness" Markus Ferber MEP

Taxes and pricing were popular, he argued, because they represented a cheap way to “strengthen and catalyse an overall policy mix”. However, he appealed to EU legislators to exercise pragmatism.

“Transfers to help those citizens most affected by new taxes are not a silver bullet but they are important, as is an effective combination of revenue use and communication: always announce and explain taxes and pricing well in advance to give people time to adapt.”

Dr Falcão meanwhile reminded MEPs that the Commission had, unsuccessfully, proposed a European carbon-based tax as early as 1992 and invited FISC members to revisit the proposals in the context of the current debate.

As a top priority for reform, she identified the removal of subsidies for fossil fuels - a notion that all four experts taking part in the hearing would echo.

Falcão paid particular attention to the planned new Carbon Border Adjustment Mechanism (CBAM), putting a carbon price on imports of certain goods from outside the EU - announced by Commission President Ursula von der Leyen last September - and argued for a clear linkage to the EU’s Emissions Trading System for carbon to make it WTO compatible.

"Transfers to help the citizens most affected by new taxes are not a silver bullet but they are important, as is an effective combination of revenue use and communication: always announce and explain taxes and pricing well in advance to give people time to adapt" Kurt van Dender, Head of Tax and Environment, OECD

The Parliament's own-initiative report “Towards a WTO-compatible EU carbon border adjustment mechanism”, adopted in March, calls for the introduction of a CBAM as part of a broader EU industrial strategy, with a view to reducing the risk of carbon leakage, and as a possible new source of financing for the EU budget.

On the latter aspect, however, the experts were sceptical. In particular Alice Pirlot, research fellow at Oxford University, who argued that “Revenue from a CBAM can only be a by-product, not its main objective, as it will not be constant. Circumstances dictating revenue can and will change, as countries’ carbon prices might go up and on a level with European ones, leading to loss of said revenue.”

In the context of her panel’s discussion on the use of Green Taxation as a means of funding and supporting Europe’s economy, she declared CBAM as equally problematic.

Carlo Stagnaro, Director of the Digital Economy Observatory at the Bruno Leoni Institute in Milan, called for a gradual phasing in of CBAM, and of any other new green taxation, keeping in mind the possible impact on citizens and economic sectors.

Responding to a question by Danish Socialist MEP Niels Fuglsang on how a tax on kerosene - widely expected to be included in the Commission’s proposals - could be introduced fairly, Stagnaro replied, “Apart from phasing it in gradually, use every new revenue to mitigate the impacts. You will have to look at Member States particularly dependent on tourism, for example. Green taxes should in general not be seen as a source of new revenue but rather as a means to bring emissions down.”

"Revenue from a CBAM can only be a by-product, not its main objective, as it will not be constant. Circumstances dictating revenue can and will change, as countries’ carbon prices might go up and on a level with European ones, leading to loss of said revenue" Alice Pirlot, Oxford University

Replying to Austrian EPP deputy Othmar Karas’ request to name his top concrete steps in terms of energy taxation, Stagnaro suggested the inclusion of the price of carbon into every tax, the higher taxation of coal, the rationalisation of green subsidies and the phasing out of fossil fuel subsidies at the earliest opportunity.

On Wednesday (14 July), Parliament’s environment committee will hold an exchange of views with Commission Executive Vice-President Frans Timmermans following the adoption of the new Fit for 55 legislative package, aimed at helping achieve the EU's goals of reducing greenhouse gas emissions by at least 55 percent by 2030.

On Thursday (15 July), EU Energy commissioner Kadri Simson will present the Fit for 55 proposals to MEPs in the Parliament’s Industry, Research and Energy committee.

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