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Introduction Of New Climate Taxes Currently Problematic, Study Reveals

by Ulrika Lomas, Tax-News.com, Brussels

01 December 2009

Heralded by many as a panacea to both the problem of climate control and spiralling deficits throughout Europe, the introduction of new climate taxes may not, in practice, be able to achieve both goals as successfully as first thought, according to a new study conducted by Deutsche Bank.

The introduction of climate taxes is problematic, the report argues. The aim is to both increase fiscal revenue, to counteract the effects of the global economic crisis and the introduction of government stimulus packages, and to simultaneously lower emissions of harmful greenhouse gases.

However, according to the study, as soon as carbon dioxide and other harmful emissions decrease, so too does tax revenue for the state. In order to avoid this phenomenon, the study points out that the tax rate must be fixed at such a low rate as to have very little impact on emissions.

The study looks at a current proposal put forward by the European Commission. The EU has proposed that a levy of EUR30 (USD45) per tonne of CO2 emitted be imposed on fuel, while also suggesting that a reduced levy of EUR10 per tonne is levied on heating fuel, gas oil, kerosene and natural gas.

While efforts towards standardization within the EU are to be welcomed, the study highlights the fact that there remains considerable opposition from several EU countries. Consequently, the survey is anticipating a reduction in the minimum levels imposed in order to obtain agreement from all 27 members. This in turn will limit the overall effect of the climate tax, the study notes.

In addition, the report reveals that the introduction of new taxes is “problematic” given the current economic climate, as they invariably increase the burden on both individuals and businesses.

Extending the current Emission Trading Scheme operating within the EU may prove to be a more effective means of reducing emissions than climate taxes, the study concludes.

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