Split over tax rates for diesel

Split over tax rates for diesel

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Split over tax rates for diesel

Commission wants to remove diesel tax breaks.

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5/11/12, 11:30 PM CET

Updated 4/12/14, 11:11 PM CET

A row is brewing between EU member states and the European Commission over the cost of diesel, with energy ministers likely to reject a proposal to scrap tax breaks for the fuel.

Taxing diesel less than petrol was a move undertaken by many countries for environmental reasons – because diesel is more efficient than petrol, and therefore drivers need to fill up their fuel-tanks less often. But new evidence shows that the carbon dioxide emissions from diesel are far higher than from petrol.

In April 2011, the Commission put forward a proposal to change energy taxation in the EU, with member states having to tax transport fuels based on their energy content and carbon emissions, starting in 2023.

The provisions would have to be applied in a ‘technologically neutral’ way, meaning that diesel and petrol could not be taxed at different rates. Because of its high energy content and emissions rate, diesel would therefore have to be taxed 8%-9% higher than petrol. That would have a big impact across the EU as all member states except the United Kingdom give tax breaks to diesel.

Parliament vote

In February, the European Parliament’s economic and monetary affairs committee narrowly backed the technology-neutral approach. But in a plenary vote in Strasbourg last month (19 April), the full Parliament rejected the idea, voting 374 to 217 (with 73 abstentions) in favour of allowing member states to differentiate between diesel and petrol.

However, the Parliament’s vote is non-binding and it is the member states that will have the final say – and they are likely to come under pressure from the makers and drivers of diesel cars to reject the proposal.

The Socialists and Democrats group in the Parliament originally supported the technology neutral approach but, according to a Parliament official, changed its position after Socialist MEPs from Germany expressed fears that it would alienate voters in North Rhine-Westphalia, which holds elections on Sunday (13 May).

The German car manufacturers’ association (VdA) has warned that a change to the tax rate would cause a massive fall in the sale of diesel cars, threatening efforts to promote fuel efficiency.

But Transport and Environment, a green campaign group, says the evidence does not support this. In the UK, where the tax on diesel and petrol is the same, every second car sold runs on diesel. By contrast, in the Netherlands, where tax per litre on diesel is 40% lower than for petrol, every fourth new car sold runs on diesel.

“The design of other taxes – sales taxes, annual vehicle taxation, company car taxation – is much more important for the petrol/diesel car split,” T&E said.

Competing on merit

Speaking after the vote in the Parliament, Algridas Šemeta, the European commissioner for taxation, told MEPs: “The Commission’s proposal does not seek to penalise diesel, but to tax fuels in a neutral way. All fuels would compete on the basis of their merits, instead of tax advantages.”

“The alignment of taxation rates will give greener, innovative and more energy-efficient fuels a fair chance on the market. The impact on diesel prices has been overstated,” he said.

The Parliament did vote in favour of using the technology-neutral approach for minimum rates of fuel taxation. This would not have a significant impact because these rates are already well below what is charged by most member states. However it would force Luxembourg – often accused of being a fuel-tax haven – to raise its very low rates for diesel.

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Denmark, which holds the rotating presidency of the Council of Ministers, wants the issue on the agenda of a meeting of finance ministers scheduled for June.

Authors:
Dave Keating 

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