EESC warns of possible negative socio-economic impact of EC energy product taxation proposal

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Clear EU taxation rules for energy products and electricity are needed to make sure they continue to contribute to the smooth functioning of the internal market, while at the same time tackling climate- and environment-related challenges. In an opinion "Revision of the Energy Taxation Directive", adopted during its plenary on 20 January 2022, the European Economic and Social Committee (EESC) welcomed the objective of the European Commission (EC) to clarify and update the existing Union framework and to structure European taxation in a way that favours sustainable non-fossil energy. However, the EESC is also concerned at the possible negative socio-economic impact of some of the measures found in the EC Proposal for a Directive.

A more flexible attitude on admissible biofuels is needed. Mobility poverty should be given more attention, and the notion of "energy precarity" should replace the one of "vulnerable households". Strict thresholds for support under social schemes leave people in need behind, environmental taxation must clearly pursue social objectives and a dedicated impact analysis of the measures has to be carried out. Tax reductions to preserve European industry competitiveness are too selective, and a general tax exemption for the transport of goods and passengers would be ideal. Aviation and waterborne transport taxation need to be refined. This is, in a nutshell, what the EESC asks for in its opinion.

Biofuels

The EESC regrets that the taxation of biofuels under the proposal is too rigidly linked to the categorisation made in the Renewable Energy Directive (RED) says rapporteur Stefan Back. Alternative fuels are scarce and expensive, and their taxation level should be much lower than that applicable to fossil fuels. The Committee welcomes the ambition to clarify the energy taxation framework, but calls for a more flexible attitude on admissible biofuels and their taxation he adds.

Risks of energy and mobility poverty

The rise of energy costs induces financial difficulties for the most vulnerable families and for business. The EESC believes that this could be countered by substantially increasing investment in renewable energies and adjusting the European pricing system. Increasing the minimum tax level on energy and electricity may have negative social effects, deepening energy and mobility poverty. Clearly, the energy issue was considered by the EC in its proposal. Co-rapporteur Philippe Charry comments: The EESC is pleased to note the possibility to go below minimum tax levels for heating fuels and electricity used by vulnerable households, but would have preferred a total tax exemption. And what about mobility? The EESC regrets that similar measures are not included in the proposal to avoid mobility poverty.

The Committee also holds that the Commission should replace the term "vulnerable households" with the notion of "energy precarity" in its text. The latter is both a qualitative and quantitative phenomenon, and so goes beyond the strictly quantitative nature of "vulnerable households". Finally, social schemes to support people with low incomes must not be based on the principle of strict thresholds, such as the 60% of the national median equivalised disposable income provided for by the EC. This leads to unjustified differences in the treatment of people whose income may only be a few euro cents above or below the set thresholds.

A just and efficient compensation mechanism

The Commission takes the view that the social aspect of its proposal is taken into account in the Social Climate Fund<<. However, the EESC points out that no dedicated impact analysis of the measures has been carried out. This would show that environmental taxation does not impact all households in the same manner, and often puts more pressure on the most precarious households and the middle class. Wherever the question arises of the redistribution of tax revenue, the Committee recommends that the proceeds of such taxes be returned, for example, to the people most heavily affected. According to the EESC, designing a just and efficient compensation mechanism that takes various inequalities into account is a complex objective to which the Social Climate Fund does not really respond.

Industry competitiveness and transport

The European Commission suggests tax reductions on the consumption of energy products by certain types of equipment, energy-intensive businesses or where agreements are concluded to improve energy efficiency in the EU industry. The EESC points out that these reductions are extremely selective and could cause the same kind of tax competition that the proposal seeks to eliminate.

Regarding the transport of goods and passengers, the Committee would like to see a general tax exemption or reduction, including for road transport, and also for enterprises with significant business to third countries. The harmonisation of taxation levels between diesel and petrol means a cost increase for goods transport, which could be compensated through a general reduction in taxes on fuels used in goods transport. Such a measure would also apply to the disappearance of the distinction between commercial and non-commercial diesel.

With respect to the extension of taxation to aviation and waterborne transport inside the EU, the Committee questions whether taxation is the best way to promote improved sustainability in these modes. New and sustainable means of propulsion are being developed, and it might have been more useful to propose dedicated solutions to promote those.

Finally, the EESC regrets that extra EU navigation taxation levels are left to the appreciation of the Member States. Primarily worldwide solutions should be promoted, as unilateral action may cause serious complication.

The EESC wonders how effective green taxation will be. Many of its instruments have been developed with the EU framework, but their application differs from country to country. The different forms of redistributing tax revenues are not enough and can work against taxpayers' acceptance of green taxation. Compensation to take into account of the revenues of households and their energy precarity, in its structural dimension, cannot be neglected either. To be socially acceptable, environmental taxation must be completed by corrective measures, but no such measures appear in the EC proposals.

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