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EU plans energy tax to combat climate change

September 14, 2019

Climate protection is high on the public agenda and EU finance ministers want to get in on the discussion. They have many ideas on carbon dioxide emissions pricing, but are yet to find an answer, reports Bernd Riegert.

EU finance ministers plan energy tax to combat climate change
Image: picture-alliance/dpa

Finance ministers of the 28 European Union countries met in Helsinki on Friday to discuss measures to finance and encourage environmentally sustainable growth.     

The meeting took place on the same day the governing coalition parties in Germany met to decide on climate measures targeting the transportation sector to ensure the country meets its 2030 goals to combat the climate crisis. Spending toward that end could approach a reported €75 billion ($83.6 billion).  

Read more: Are German businesses ready to swallow a CO2 tax?

"We have neutralized our carbon dioxide emissions," proclaimed Finland, which currently holds the EU Council's rotating presidency, as the image was beamed onto large blue screens around the Finlandia Hall in Helsinki where finance ministers gathered.

The country is paying compensation for all the flights required during its six-month presidency. The money is earmarked for fostering environmental projects and planting trees.

It's not entirely clear if all the finance ministers are impressed by the message. After all, nothing concrete will be decided at this informal meeting in Helsinki; the intention is to start a fundamental discussion.

The EU, says German Finance Minister Olaf Scholz, must find a way to put a sensible price on carbon dioxide emissions, optimally on an international level. "I believe we are currently in a situation where many say 'we'd like to do something on a national level, but no one else is.'"

Scholz thinks it's the right moment to act together and find out if consensus can't eventually be found, saying, "That would be a big step forward."

Finnland Eurogruppen Finanzministertreffen in Helsinki | Olaf Scholz
German Finance Minister Olaf Scholz says the EU must find a way to put a sensible price on carbon dioxide emissionsImage: AFP/M. Kainulainen

New tariffs or taxes to protect the environment?

The European Commission, the EU's executive arm, submitted a broad palette of possible methods for determining the price for climate damaging emissions in order to collect money to invest in climate protection. The EU estimates that trillions, not billions, will be needed in the coming fight against climate change.

Ursula von der Leyen, the Commission's new president, wants to invest €1 trillion in green technologies during the coming budgetary period, which ends in 2027. A quarter of EU budget expenditures during that time will be linked to climate protection.

Read more: Is Sweden's no-fly movement just media hype?

The new Commission, which will begin work in November, hopes to introduce a kind of tariff on carbon dioxide. The plan envisions assessing the sustainability of imports from third countries. Those with poor ratings will then be taxed accordingly.

France is in favor of the plan, viewing it as a means of bolstering European competitiveness vis-a-vis China and the US. But German Finance Minister Scholz doesn't seem to be a fan of the proposal. He finds the scheme complicated and is worried that it could lead to new trade conflicts with the US and China.

Yet, the European lobby association BusinessEurope is of the view that the concept of a duty or import tariff for environmentally damaging products is workable.

Helsinki | Treffen der Euro-Finanzminister - Valdis Dombrovskis aus Lettland
'We can't pretend that green debt isn't debt,' says European Commissioner DombrovskisImage: picture-alliance/dpa/Lehtikuva/M. Kainulainen

Expand emissions trading?

Austrian Finance Minister Eduard Müller is also not opposed to such a plan, but he warns that getting there won't be easy. "We have a World Customs Organization, we have binding contracts," he said, adding: "Nevertheless, we have to start the conversation."

Scholz is intent on expanding the current emissions trading system to include smaller companies and even consumers. "We have a very successful European emissions trading system that applies to large industrial corporations. We are currently trying to figure out how we can limit carbon use in connection with mobility, agriculture, waste management, heating and small businesses."

The finance minister also suggested the idea of EU-wide taxes on airline tickets, like those charged in Germany. Moreover, EU finance ministers are pondering how to bolster rail transport, for instance by lower value added taxes (VAT) for tickets.

Environmental groups have long criticized Germany for exempting international airline tickets from VAT, as well as the fact that airline fuel is taxed less than gasoline and diesel.

Emissions trading systems around the world

Excluding investments from debts and deficits?

Several southern EU countries have called for excluding debt incurred through investments in climate protection measures from the governments' balance sheets. Valdis Dombrovskis, the European Commissioner in charge of ensuring the stability of the euro, is opposed to the idea. "We can't pretend that green debt isn't debt," says Dombrovskis.

He said that "a certain amount of flexibility" could be shown with the repayment of such debt. "We have done that in the past, especially in the case of Italy."

The finance ministers of France and Luxembourg urged more German support when it comes to financing investments in climate-friendly projects. Olaf Scholz is clearly under pressure to invest some of Germany's huge budget surplus.

The European Central Bank also let those gathered in Helsinki know that Germany's fiscal situation remains strong, and that it should invest its surplus in such projects. The German finance minister, however, declined to comment publicly.

This week, during budget debates, he told Germany's parliament he had billions to invest in public infrastructure projects in the event that the country went into recession.

Bernd Riegert
Bernd Riegert Senior European correspondent in Brussels with a focus on people and politics in the European Union