The thorny issue of environmental taxation returned, on Saturday 22 May, to the table of the European Union’s Finance Ministers, who had been meeting informally in Lisbon since the previous day (see EUROPE 12724/8).
“All ministers believe that green taxation should be used” to achieve the EU’s goal of becoming climate neutral by 2050, said the Portuguese Minister João Leão, who hosted the meeting.
To achieve this, the recently agreed ‘Climate Law’ requires a reduction of at least 55% of greenhouse gas emissions in the EU by 2030 (see EUROPE 12703/1). The European Commission will present on 14 July a ‘Fit for 55’ legislative package which will include fiscal measures such as the revision of the Energy Taxation Directive, unchanged since 2003 (see other news).
According to the Commission’s Executive Vice-President, Valdis Dombrovskis, Member States agree on the following key elements: green taxation can encourage the sustainable use of resources, bring economic, social and health benefits, broaden the tax base and encourage the shift away from labour taxes.
The European Commissioner reported “broad support” from finance ministers for revising the Energy Taxation Directive to include sectors such as “air and maritime transport”. For Mr Leão, the revision will serve to “promote the use of renewable energy”.
To complicate matters, unanimity of the Member States in the EU Council will be required to change the existing rules.
At the end of 2019, a few months before the outbreak of the Covid-19 pandemic in Europe, which grounded the aviation sector, nine Member States (the Netherlands, Germany, Belgium, Bulgaria, Denmark, France, Italy, Luxembourg and Sweden) called for specific taxation on the aviation sector, noting the low contribution (excise duty exemption, VAT exemption for international flights) of this industry in relation to its environmental impact (see EUROPE 12365/5).
Towards a targeted proposal for a Carbon Border Adjustment Mechanism at the EU’s borders
In mid-July, the Commission will unveil another legislative proposal to introduce a Carbon Border Adjustment Mechanism at the EU’s borders. The idea is to avoid the relocation of industries outside the EU by increasing the cost of importing products manufactured by these industries in third countries with less stringent environmental legislation than in Europe.
“It will not be simple“, Mr Dombrovskis admitted, assuring that the mechanism will be introduced “gradually” and will be “targeted” by covering only certain sectors such as “cement, electricity, fertilisers”. For the mechanism to be WTO-compatible, it will involve a “phasing out of CO2 emission allowances” for the targeted sectors, the Executive Vice-President stressed.
“Polluting industries will have to adapt, but we don't want to drive them out of Europe”, the Portuguese minister said.
Some hope that the future Carbon Border Adjustment Mechanism will above all inject a virtuous dynamic into the climate policies of third countries instead of penalising imports of polluting products, at the risk of the EU being accused of protectionism.
German Finance Minister Olaf Scholz noted, in Lisbon, that future EU measures will have an impact on the competitiveness of German and European companies, particularly in energy-intensive sectors. In order to avoid problems of competition in international markets in the future, he suggested that there should be “a kind of club” of countries, for example the Western countries, China and Japan, willing to fight for a healthier climate on the planet.
During a visit to Brussels, Ukrainian Deputy Prime Minister Olga Stefanishyna warned against a WTO-incompatible Carbon Border Adjustment Mechanism at the EU’s borders (see EUROPE 12723/10). According to her, Ukraine would be one of the countries most affected by this mechanism, along with Russia and Turkey. (Original version in French by Mathieu Bion)