EU Opens Probe into Danish CO2 Tax Exemption Plans
Date: 29-Sep-06
Country: BELGIUM
Author: Jeff Mason
Denmark had proposed to grant exemptions from its national carbon dioxide (CO2) tax on fuel consumption to companies involved in the ETS, a scheme that sets limits on CO2 output for high-polluting companies in industries such as the power sector.
"The (Danish) government wishes to grant a full exemption to energy-intensive businesses covered by the EU ETS, and a reduction down to 50 percent of the EU minimum tax levels to businesses covered by the EU ETS who are not energy-intensive," the EU's executive arm said in a statement.
"The government allegedly intends to eliminate double regulation of CO2 emissions, by taxes and emission quotas, arguing that double regulation will not lead to any further CO2 reduction but only increase the firm's costs."
The Commission, without prejudging the outcome of the probe, said it was concerned the Danish plans would distort competition in the 25-nation EU by altering tax levels in an area where the bloc has uniform standards.
If Denmark did not levy the CO2 tax on companies, the energy taxes paid by such businesses would be below required minimum rates, it said.
"Furthermore the Danish measure might run against the 'polluter pays' principle, a leading principle of the EU's environmental policy, as companies participating in the EU ETS have received most of the emissions allowances for free."
NOT HELPING ENVIRONMENT
An official from Denmark's taxation ministry accused the Commission of not respecting agreements to avoid "double regulation and double taxation" and said the case was more about politics than the law.
"As part of the negotiation of the energy taxation directive in 2002, there were very keen discussions on how the interpretation of the state aid rules should be," said Hans Larsen, head of the ministry's excise division.
"There is no need for two instruments to regulate the same area. Now it seems that the Commission will not respect political agreements made four years ago."
He said the energy tax rules allowed for the minimum rate to drop in cases where an industry enters a voluntary agreement or is covered by an emissions trading scheme.
He said maintaining the tax would not benefit the environment.
The EU ETS started in 2005 as the bloc's key instrument to fight climate change and meet commitments to cut emissions under the Kyoto Protocol.
Under the scheme, governments set limits on the amount of CO2 -- widely seen as a big contributor to global warming -- that companies may emit.
Participating firms may trade the CO2 allowances on a market, buying credits if they overshoot their limits or selling them if they pollute less than they were allowed.
In the first phase of the scheme from 2005-07, most firms received the CO2 allowances from their governments at no cost.
The Commission is studying plans allocating pollution rights for the next phase of the scheme from 2008-12.
It is under pressure from environmentalists to be strict after 2005 data showed most companies had more CO2 credits than they needed -- leading to a crash in carbon prices.
(Additional reporting by Gelu Sulugiuc in Copenhagen)