CER has welcomed in principle the Commission’s proposal to revise the current Energy Taxation Directive to make it more relevant to the EU’s energy and climate change priorities, particularly with road diesel.

Taxing fuel according to its energy content instead of its volume makes clear sense, and will have the effect of raising the cost of diesel in those countries that currently tax at the minimum level. Research has shown that the external costs that the road freight sector generates are far greater than the taxation income it generates (CE Delft 2009, Are trucks taking their toll? pp.43-44) and this move will go some way to reducing this imbalance.

However, CER is warning that the Commission’s proposals for a minimum CO2 charge in transport fuel, outlined in the revision of the Energy Taxation Directive published yesterday, may not lead to any reduction in CO2 use in transport and could also frustrate any attempts to introduce other CO2-reduction measures. This would make the proposed 60% reduction in greenhouse gases from transport by 2050, as outlined in the recent Transport White Paper, much harder to achieve.

Under the proposals, the minimum tax rate currently existing under the current Energy Taxation Directive will be revised and split into two components: a minimum tax rate for CO2 and minimum rates for energy based on the energy content of the fuel. The minimum tax for CO2 is currently expected to be EUR 20 per tonne of CO2, and would be applied to transport fuel from 2013.

Yet there is no requirement to ensure that the new CO2 charge is an additional charge to existing taxation. For most member states, who will not want to pursue the politically unpopular approach of raising fuel taxes more than they have to, the easiest approach will be to earmark the CO2 charge from within existing fuel tax. This will send out no new price signal, but will lead to pressure not to take other actions that could have an impact on reducing CO2 in transport.

The rail sector, however, is already paying an additional CO2 charge for most of its energy use: with 80% of rail traffic being powered by electricity, the rail sector pays an additional CO2 charge as a result of electricity generation being included within the EU Emissions Trading System (ETS). The costs of this are passed on by the electricity generators to customers, and is estimated that this will cost the rail sector an additional 500m euros a year when Phase III of the ETS begins in 2013.

CER Executive Director Johannes Ludewig said: “The need to seriously reduce CO2 emissions from transport is very clear if the EU is to meet its climate targets for 2030 and 2050. However, the attempt to give price signals through a modest CO2 tax will be meaningless if the tax is incorporated within the existing taxation structure.”

“CER supports the full internalisation of external costs in transport. However, this has to be done in a way that gives out proper price signals and ensures that reductions in emissions of CO2 actually take place within the rail sector. There is no guarantee at all that this approach will deliver this.”

CER has advocated instead the establishment of a trading system similar to the ETS, but for the transport sector only. By having a cap on the total emissions that could be emitted from transport which would be progressively reduced each year, this would guarantee reductions in transport emissions while also financially benefitting those fuels and modes that are more energy efficient.