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Carbon and energy taxes in Europe

01 July 2010, 22:03 CET
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The demand to ‘make the polluter pay’ by putting a price on the amount of carbon dioxide and other greenhouse gases produced has been a major point of discussion and debate across Europe since the mid-1980s.

Jacques Delors spent much of his eight-year period as president of the European Commission arguing for an EU carbon/energy tax. However, he failed to get the member states to agree to introduce one. Taxation measures require unanimity in the Council of Ministers and many member states, including the UK, opposed the Delors proposal on ‘subsidiarity’ grounds – the argument that taxes are for national governments, not the EU. Other member states less politically opposed to EU integration, such as Germany, opposed the Delors proposals because they would have damaged their coal industries. (The two largest German energy utilities, Eon and RWE, both have very large coal operations and are very well-connected with German politicians.) The only EU measure on energy taxation is a required minimum level of taxation, but this is too low to promote energy efficiently significantly. There is no EU carbon taxation. The present commission is talking about trying to introduce one, but some national governments, including the UK’s, have said that they will veto this.

Having failed on a carbon tax, the European Commission tried instead a cap-and-trade approach, the Emissions Trading Scheme (ETS). This was introduced in 2005. It was a start, but has so far delivered few results, mainly because national governments have allocated far too many permits, so the price per tonne of carbon has been far too low to make any real difference. In the future, permits will be auctioned, rather than handed out without payment as they have been in the past, so this should strengthen the ETS.

There has been some progress on carbon and energy taxation in European countries, notably Scandinavia, the Netherlands and Germany. Before the current recession, revenue was used to reduce taxes on income or employment. This was often referred to as an Environmental Tax Reform (ETR) and was done to deliver a ‘double dividend’ – lower levels of pollution and higher employment. However, the total amount raised from all green taxes reached a peak (2.9%) in 1999. By 2008, it had fallen back to 2.4%. Energy taxation, including taxes on transport fuels, makes up about two-thirds of overall environmental taxation.

National carbon and energy taxes - Climate Answers

By Stephen Tindale

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Climate change is the most serious issue ever to have faced humanity. Rightly, it is now high on the public, political, media and business agendas. However, too much of the discussion is still about what we should not be doing or what we should be against. There is not enough discussion or information on solutions - what we can and should do to minimise dangerous climate change, and what should be done to make us not only safer and more secure, but also richer and happier.


Stephen Tindale photoStephen Tindale (writer and co-founder) is a climate and energy consultant, who has worked on climate change for the last 20 years. His current portfolio includes work for npower renewables and for the Centre for European Reform. He is also a Visiting Fellow at the Policy Studies Institute. Stephen lives in London.