Brown urges EU to slash VAT on green goods

With criticism surrounding the failure of his chancellor's budget to deliver major green reforms still ringing in his ears, prime minister Gordon Brown will today step up his efforts to get the EU to agree to a reduction in VAT on green products.

Speaking in his final budget as chancellor last year, Brown said he would write to his European counterparts urging them to cut VAT rates on the most energy efficient electrical goods to just five per cent.

Now he has pledged to raise the topic again at today's EU summit in Brussels. Speaking to journalists in Downing Street ahead of the summit, Brown said that he would submit proposals for reducing VAT on "products and processes" with a low carbon impact.

He said that by reducing taxes on green products such as energy efficient light bulbs and refrigerators governments could "make a big difference to whether people buy environmentally friendly goods".

If adopted the proposals, which could also be extended to cover environmentally friendly cleaning products, would have a major impact on Europe's electronics and white goods sectors. Currently, many energy efficient products have a price premium attached, but if VAT was slashed on such products they would be able to undercut more energy profligate alternatives, effectively forcing such technologies from the market.

Brown added that he would also push for adoption of labelling standards for green goods. "We are about to consider labelling, so we are able to show consumers difference products are environmentally efficient," he said. "We can then distinguish between products. It's clear that in areas like fridges, dishwashers and other electrical goods we can do a lot."

Energy and the environment is expected to dominate much of the agenda at the two day summit, where topics for discussion include plans to open up national energy markets to competition and proposals for a series of carbon capture and storage plants.

European leaders are also expected to issue a thinly veiled threat to the US and China that the EU will erect trade barriers if they fail to sign up to a post Kyoto deal.

Speaking to The Times, European Commission President José Manuel Barroso said that the EU could take protective measures to safeguard against energy intensive industries such as cement and steel relocating to countries with more relaxed regulations governing carbon emissions.

"We do not want to put our energy-intensive industries in a situation of disadvantage in competition terms, so that is why we will have measures [effectively trade tariffs] that we are ready to take if there is not a global [climate] agreement," Barroso said. "It would be completely foolish for the Europe Union to export the pollution and the jobs because globally the effects on climate change will be just the same, only we lose the jobs and our industry. "

In comments that will anger many environmentalists, the Commission President also reiterated support for the EU's proposed biofuel targets and dismissed research suggesting increased demand for biofuels was driving up food prices and in some cases causing more environmental harm than fossil fuels.

"Some of the arguments that have been advanced about the rise of food prices coming from biofuels are really exaggerated - the rise is mainly due to a structural increase in demand and it will continue with or without biofuels," he told The Times. "The only alternative we have for biofuels today is oil. And there is no question, the impact on the environment of oil is much greater than for biofuels."