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EU ministers to mull tax options to cut fossil fuel use Saturday

Brussels — EU finance ministers are to discuss how to use energy taxes to cut fossil fuel demand at an informal meeting on Saturday in Helsinki, the Finnish EU presidency said Thursday.

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The ministers are to look at how the EU's 2003 energy taxation directive could be changed to encourage switching from fossil fuels to lower-carbon alternatives, as part of the EU's efforts to cut its greenhouse gas emissions.

Any tax changes, if eventually imposed, could have a major impact on demand for diesel, petrol, biofuels, natural gas and electricity in transport, for example, by changing the relative cost of various fuels.

Reducing EU transport emissions is a key focus of the European Commission's policy agenda for the next five years.

The minimum tax rates set in the 2003 directive "do not reflect any specific logic and are too low, which means they do not encourage energy-efficient technology and emission-free activities," the Finnish EU presidency said.

It called for the directive to be revised to differentiate between renewable and non-renewable fuels, and differences in greenhouse gas emissions.

The current directive taxes fuels according to volume, not energy content, which discriminates against renewable fuels in favor of conventional fuels, particularly diesel, the European Commission said in policy paper in April.

The directive also does not cover new fuels, or energy storage, and exempts international aviation and maritime transport from fuel taxes, the Finnish presidency said.

Finland is leading policy discussions in the EU Council of ministers as it holds the rotating EU presidency until the end of 2019.

Diverging and low minimum tax rates are also a problem for the EU's internal market, the presidency said.

"These differences may distort competition and erode the tax base in high-taxing countries," it said.

This can happen when road vehicle drivers choose to fill up in neighboring EU countries with lower fuel taxes, for example.

CURRENT RULES OUTDATED: EC

The current energy taxation directive is outdated and not aligned with the EU's climate goals, the EC said in a report Thursday.

This is because there is no link between the minimum fuel tax rates and their energy content and CO2 emissions, it said.

National governments also make widespread use of optional tax exemptions, which can fragment the EU's internal market.

This is not a new position for the EC. In 2011 it proposed new minimum EU energy tax rates to start in 2013 based on CO2 emissions and energy content rather than volumes.

But the proposal failed to achieve the unanimous approval needed from the EU Council to become law, and the EC eventually withdrew it.

EC president-elect Ursula von der Leyen has promised to review the EU's energy taxation directive during her first 100 days in office, starting in November, as part of her European Green Deal.

The EC has also been trying to convince EU governments to switch to qualified majority voting for agreeing changes to the energy taxation directive insteadof the current unanimity required.

Unanimity makes it notoriously difficult to agree changes, as any EU country can veto them.

Any specific changes proposed by the EC would be discussed by the EU Council in 2020, with Croatia taking over the EU presidency on January 1, the Finnish presidency said.

-- Siobhan Hall, siobhan.hall@spglobal.com

-- Edited by Jonathan Dart, jonathan.dart@spglobal.com