Environmental taxes gaining importance in EU

Environmental taxes gaining importance in EU member countries

The larger EU Member States are now joining the ranks of countries exploiting the potential of ‘green' taxes, according to a new report from the European Environment Agency. Germany and Italy have introduced CO₂ taxes in the framework of ecological tax reform, and France and the UK are implementing CO₂ taxes in 2001. Also, an extension of environmental tax bases is taking place in most Member States. As a result, the majority of EU Member States will apply CO₂ taxes and have introduced some form of ecological tax reform by 2001.

In the report, Environmental taxes — Recent developments in tools for integration and sustainable development, the Agency says that EU countries are making increasing use of ‘green' taxes, a practice that even began to accelerate at the end of the 1990s. However, it also notes that very little progress has been made at EU level in adopting environmental taxes over the past decade, mainly due to the obstacle of unanimity voting on fiscal matters. It expects the unanimity requirement to become an even greater obstacle to fiscal harmonisation after EU enlargement. Therefore, the idea of an "Eco-Schengen”, where some of the EU member countries decide to move ahead together, is gaining attention.

Evidence of the effectiveness of environmental taxes is set out in the report, which cites evaluations made by Denmark, Finland, the Netherlands, Sweden and the UK as to the positive results achieved. Well-known success stories — the water pollution taxes (e.g. in France, German, the Netherlands), the Swedish NO_x charge and the tax differentiation between leaded and unleaded petrol — are supplemented by more recent positive evaluations carried out on the Danish waste tax, the Danish, Finnish and Swedish CO₂ taxes, the UK fuel duty ‘escalator', and the Danish tax on sulphur in fuels.

Although 75% of environmental tax revenue comes from energy products, the short-term impact of energy taxes on energy use is usually limited, the Agency says. On transport, while environmental taxes may influence car ownership, car use does not appear to be affected.

Plotting the increase in the number of environmental taxes, it says the broadening of the tax base reflects a widening of the ‘polluter pays' principle to the more comprehensive ‘user pays' principle. It also points to the Accession Countries' experiences and plans as a valuable source of information and ideas for the present EU, and vice versa.

Using data from Eurostat, the Statistical Office of the European Community, the report finds that the environmental tax share of total tax revenue in the EU is rising slowly but surely through time, from 5.84% in 1980 to 6.17% in 1990 and 6.71% in 1997. A very high proportion (95%) of this revenue comes from just two sectors — energy and transport — with less than 5% coming from taxes on emissions, chemical substances, products, waste and natural resources. But although the pollution/resources tax share is modest, it is showing the fastest growth, increasing by 50% in the 1990-97 period.

The widespread reluctance to expand the application of environmental taxes is often due to concern about the possible negative effects on competitiveness, employment, inflation or income distribution, says the report, suggesting that the careful design, introduction and implementation of these taxes can overcome such barriers. In particular, modification of the EU rules on state aid could help — for example, by facilitating tax exemptions for firms that take action beyond what is required by environmental law.

Further information: Project manager Hans Vos, phone: +45 33 36 71 41, hans.vos@eea.europa.eu