The plan to change the EU’s tax rules – first pushed for by UK Prime Minister Gordon Brown and French President Nicolas Sarkozy in July 2007 – initially looked doomed to failure, due to a lack of support from other nations.
Yet, the final conclusions from the Spring Summit meeting, released on 14 March, invite the Commission to "examine areas where economic instruments, including VAT rates, can have a role to play to increase the use of energy-efficient goods and energy-saving materials" - a feat appararently achieved thanks to Brown's intense lobbying of other EU leaders.
According to him, products that could benefit from a reduced VAT rate of 5%, rather than the current minimum of 15%, include cars with reduced CO2 emission, insulation materials, efficient light bulbs and energy-efficient domestic appliances.
The move came as leaders restated their commitment to cutting greenhouse emissions and combating global warming (EurActiv 17/03/08).
However, the real test will come once the Commission – generally in favour of a greater harmonisation of VAT rates and the use of taxes as a tool for "greening" the EU economy – presents its new VAT plans in the summer.
They will require the unanimous backing of all 27 EU member states. Yet, any change in VAT rates across the EU remains a very sensitive issue, with many countries fearing the move could make them lose out on vast revenues generated by their VAT.
Another issue will be that of selecting which products are to be included in the list, with some saying a static list will not work, as technology evolves so fast that what is energy-efficient today won't be tomorrow.