Energy taxation – too complex to do good?

Adding green value and local incentives

The Commission is mulling reductions on value-added tax (VAT) rates for green products such as low-energy fridges. The idea was pushed at the March European Council by Gordon Brown, the UK prime minister, with strong backing from France. But Brown's business-friendly proposals face opposition, partly because of timing. László Kovács will anger some member states with a proposal this summer to abolish preferential VAT regimes across the EU, alienating many finance ministers whose goodwill is required to obtain agreement on what is widely perceived as an Anglo-French pet project.  A Commission official said last week that Kovács had yet to decide on the matter.

Local incentives

 Sonja Starnberger, a policy adviser at Eurochambres, says that fiscal incentives tend to work best at national or regional level. In certain regions of Austria, for example, firms get tax breaks for installing thermal insulation in buildings. The measures can create a virtuous circle, boosting employment while attaining environmental goals. But policymakers should act with caution, she says. “Measures always have to be looked at in the context of specific tax systems. You have to be cautious and look at the economic impact [on other policy areas],” she says.