The revision of the Energy Taxation Directive – the introduction of a carbon dioxide tax?

New plans for the introduction of a carbon tax and the restructuring of the current system of excise taxation of fuels have been unveiled by the European Commission. These new proposals will entail the revision of the current Energy Taxation Directive which had entered into force in 2004.

The Energy Taxation law is a Council Directive adopted to create an EU-wide system for the taxation of all energy products. It defines the taxable energy products, the uses that make them subject to tax and the minimum levels of taxation applicable to each product depending on whether it is used as a propellant, for certain industrial and commercial purposes.

The main changes proposed by the European Commission are two-fold: the introduction of a carbon dioxide tax and the fixing of energy consumption taxation based on the energy-content of the concerned fuels. With regard to CO2 taxation, the Commission is proposing a minimum carbon tax rate of €20 per tonne for fuel used for transport and heating purposes once the revised directive enters into force, possibly as early as 2013. The carbon tax would be applicable to all economic sectors not covered by the EU’s emissions trading scheme. Renewable energy sources and agriculture would however be exempt from the CO2 tax.

The excise tax rates for energy consumption would be based on the energy content of a fuel calculated in terms of Euros per gigajoules rather than the volume as is presently the case. Fuel taxation would thus change to a system based on the calorific content of the fuel, thereby ensuring that products with lower energy content, namely renewable, would carry a lower tax burden compared to conventional fuels.

Maltese business welcomes in principle, the alignment of fuel taxation to the EU’s objectives of climate change and the shift to environmentally-friendly modes of energy-generation. The ambitious fiscal reforms of energy-related excise taxation has however to be reviewed cautiously to curb any competitiveness implications particularly for industrial sectors exposed to international competition.

The introduction of a CO2 tax regime would be welcome only if it is accompanied by a strong reduction of the tax burden on labour. This would be very much in line with the EU’s 2020 Strategy for Growth and Employment. Increasing taxation levels for all traded energy products such as petrol, diesel and kerosene would inevitably lead to a disproportionate and unsustainable increase in transport costs for the import and export of goods, so vital for the livelihood of the local economy. An offsetting reduction in the tax burden for business would therefore be of paramount necessity.

Adoption of the Single Market Act’ – time for action

The European Commission adopted the first working programme on the Single Market Act with a communication entitled Working Together To Create New Growth. This communication provides a shortlist of 12 policy and legislative projects to be carried out as priority measures by end 2012, therefore coinciding with the 20th anniversary of the inception of the European Single Market.

The Commission claims that the shortlist has been carried out on the basis of the feedback received to the public consultation carried out by DG Internal Market and Services, to which the MBB also contributed a detailed response.

The 12 “levers for growth” to be pursued by the Commission are all of interest to Maltese business and include initiatives affecting labour legislation, tax matters such as investment funds and the CCCTB proposal, business governance, access to finance and fast-track investments in transport and energy infrastructure.

Maltese business is well acqu­ainted with most of these proposals since very few are novel initiatives with the exceptions of new legislative proposals aimed to facilitate access to venture capital markets across the EU, a new system of standardisation for services and the simplification of public procurement.

Local business is supportive of most of the proposed priority measures, especially the key actions related to small businesses’ access to credit, common patent protection and the development of the digital single market. Conversely, concern is expressed with the chapter on “social entrepreneurship” where the proposal for a directive mandating reporting obligations on social and environmental information would only create additional red tape without any concrete benefits for both society at large and the environment.

From a Maltese business perspective, it is vital that correct and rigorous implementation of EU single market legislation is carried out and properly monitored by the Commission. In this regard, Maltese business strongly advocates the introduction of correlation tables on the implementation of EU directives as a pre-requisite to avoid gold-plating in the transposition of EU legislation into national rules by public administrations. This is critical in order to ensure the improved delivery on a fully-functioning internal market regulated in a fair, transparent and equitable manner to the benefit of EU business competitiveness.