A suggested tax of 20 euros per tonne of C02 contained in fuels had been made by Taxation and Customs Union Commissioner Algirdas Šemeta at a 23 June meeting of the 27 EU commissioners in Brussels.
But it has now been put back indefinitely after Šemeta was asked to investigate the economic impact of the tax.
The commissioners agreed that an updated impact assessment taking into account the economic downturn is required before going any further.
If proposed, the revision of the Energy Taxation Directive would be a means of shifting taxation from labour to carbon in order to raise state revenue during a time of low consumer demand, with several member states currently surpassing the budget deficit rules.
Without a specific deadline being set for the Commission's impact assessment on the tax, the issue has effectively been put on 'stand-by' until the effects of the financial crisis subside.
The previous commissioner, Laszlo Kovács, also drafted plans for such a carbon tax, but never made it into a formal proposal (EurActiv 29/09/09). Taxation is a sensitive issue as it requires unanimity amongst the 27 member states and the EU executive is nervous that it could turn into years of internal fighting.
The idea is supported by countries such as Finland and Sweden, who have been applying similar domestic taxes since the early 1990s. Of the big member states, France has turned to the EU in order to seek implementation of a carbon tax after a proposal for a domestic tax was struck down by the Constitutional Court in December last year (EurActiv 11/05/10).
Germany and Poland, which are home to much of Europe's heavy coal and steel industries, fear being disproportionately affected by such a tax, whilst the UK and Ireland resent any compulsory tax being introduced by Brussels.