EU plots debt-busting green tax plan

The EU is reportedly working on plans for a pan-European energy tax that would bolster the competitiveness of renewable and low carbon energy sources while helping the bloc to tackle its worsening debt crisis.

According to draft documents seen by news agency Reuters, the European Commission is proposing an historic overhaul of energy taxation policy that would see huge variations in different member states' approaches to energy taxation replaced by a single pan-European energy tax system.

Under the proposals the EU would impose a minimum level of taxation for energy sources, ranging from coal to biofuels and renewables.

The tax would be set based on the energy content and the carbon footprint of the fuels in an attempt to better incentivise investment in low carbon energy sources.

The draft documents also include plans to protect carbon intensive industries, such as steel, chemicals and potentially agriculture, from the impact of the tax, and provide support to ensure poorer households are not penalised by rising fuel bills.

A number of EU member states, led by Germany and the UK, have traditionally been fiercely opposed to any attempt to harmonise EU tax policy citing fears that pan-European taxes would impinge upon individual countries' sovereignty.

However, the documents argue that the debt crisis that is afflicting Greece, Spain and Portugal and is threatening to engulf the entire EU represents a rare opportunity for the bloc to deliver the green taxes that many countries have long supported in principle.

"The global financial and economic crisis has left deep strains on the public finances of most countries," stated the draft document. "This ... should play an important role in offering member states a basis ... to shift the tax burden away from labour or capital."

Commission tax spokeswoman Emer Traynor told Reuters that there was a strong case for imposing taxes on polluting activities. "The objective is not to raise taxes - it is to restructure them in a way that consumers can understand and manage," she said. "Consumers would be able to reduce the amount of tax they pay by changing their behaviour and being more energy efficient."

Currently, the EU's main mechanism for tackling carbon emissions, the emissions trading scheme (ETS), only covers around half of the bloc's total emissions while energy taxes in many states tend to favour carbon intensive fuels such as coal.

However, any effort to impose an EU-wide energy tax would be hugely controversial and would inevitably attract opposition from some industry groups who fear such a move would jeopardize their international competitiveness.

A number of countries including Denmark, Sweden and Ireland have successfully pioneered a carbon tax, but France's recent attempt to impose a carbon tax was ditched in the face of public opposition.

The UK is likely to retain its opposition to any form of pan-European taxation, although the Conservatives did state in their manifesto that they would like to see the proportion of revenue from green taxes increase and the Lib Dems are also broadly in favour of new green taxes.