Taxing fuels according to their energy content makes sense

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

The European Commission is considering taxing fuel according to energy content rather than volume – a move that is long overdue, writes Eberhard Rhein in an April blogpost.

Eberhard Rhein is a former official in the European Commission's external relations department, responsible for the Mediterranean and Arab world.

He gives a course on economic policy at the Mediterranean Academy for Diplomatic Studies in Malta.

This commentary was first posted on blogactiv.eu.

"For decades European countries have taxed gasoline, diesel and heating fuels on the simple basis of volume; and tax rates varied substantially among EU member countries beyond commonly agreed minimal rates.

The European Commission finally wants to replace this system with a more coherent one based on energy content. On the same occasion, it aims to raise the minimum rates that go back to 1992, when the energy environment was quite different from today. The Commission is fully aware that any tax proposals require unanimity, unless the more progressive countries decide to resort to enhanced cooperation. Therefore it envisages a long transition period until 2020.

The approach is to be welcomed. Higher taxation of fuels constitutes an incentive to save energy, as the comparison between Europe and the USA demonstrates.

If US gasoline prices were as high as European ones, the fuel efficiency of American cars would be comparable to European or Japanese cars.

Still, energy taxation can only be one element in any efforts to raise energy efficiency and has to be seen together with strict fuel efficiency standards for vehicles and buildings.

The adoption of the Commission proposals will lead to higher taxation of diesel, which has traditionally been kept lower than that of gasoline in order to aid the haulage business, especially in Germany. It is therefore not surprising that the mere announcement of the measures has led to an outcry of protest by German lobbies, from the German Automobile Club to the Association of Automotive Manufacturers.

Thanks to high fuel efficiency and lower diesel taxation, half of the German passenger car sales are fitted with diesel engines, but in Belgium with slightly higher taxes on diesel it is even 80%!

Considering the long transition period foreseen, the adoption of a revised directive in the course of 2012 will have hardly any impact on car purchases in the coming five years. But it will send a welcome signal to the trucking business to shift more freight from road to rail.

Heating fuel might also become a hot issue in the forthcoming deliberations, for social reasons. It will become more expensive compared to gas, which is more environmentally-friendly. The shift from oil to gas for heating is inevitable. Giving a long-term signal to consumers that it is time to shift and improve the energy efficiency of their houses should therefore be welcome.

The Commission proposals have to be seen in the light of the EU long-term mobility and energy strategy to make more efficient use of increasingly scarce mineral fuels.

They are therefore likely to be adopted, after the usual process of horse trading among member states and political groups in the EP.

They should be highlighted as a model to major energy consuming countries in the world, even if the USA as the biggest fuel consumer will not even think of excise taxes on fuels before elections in 2012.

EU delegations [abroad] should in due time explain the rationale behind the EU measures and suggest to their host countries to take a closer look at them."

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