EU tax shake-up could make diesel pricey | Business| Economy and finance news from a German perspective | DW | 11.04.2011
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EU tax shake-up could make diesel pricey

The European Union is planning a new tax structure that would make diesel more expensive than gasoline. The move could damage Europe's highly-developed market for diesel cars.

A person tanks a car with diesel fuel

Nearly half of Germany's cars are fueled by diesel

The European Union is set this week to propose new regulations under which mandated minimum fuel taxes would be based on energy content rather than volume.

The proposed tax structure would seek to level the playing field for biofuels, which contain less energy than conventional fuels, according to the Frankfurter Allgemeine Zeitung. It would also make diesel more expensive in many EU states.

Under the plan, EU Tax Commissioner Algirdas Semeta will call for separate taxes on carbon dioxide and fuel consumption.

An exhaust pipe

Diesel advocates say diesel technology is much cleaner than it used to be

Ferdinand Dudenhöffer from the Center for Automotive Research at the University of Duisburg-Essen welcomes the proposal.

"What the EU Commission is planning will finally bring a Europe-wide system into existence," he told Deutsche Welle.

Because of generous diesel subsidies, nearly 48 percent of German cars and more than 60 percent of Austrian cars are powered by diesel. In Switzerland, where no such subsidy is in place, only about 20 percent of the cars run on diesel, according to Dudenhöffer.

"The reasons for these subsidies are - if one is completely open about it - not verifiable," he said. "The way we tax fuel is arbitrary, and there is very little that is systematic about it."

Investment at risk

By contrast, Sigrid de Vries, of the European Automobile Manufacturers' Association in Brussels, argues that diesel is a low-emissions fuel and, as such, helps meet European emissions reduction targets. European auto manufacturers, she maintains, have invested significantly to gain a technological lead in the design of fuel-efficient diesel engines.

A symbolic biofuel container

The proposed new tax structure could give biofuels a boost

"If there are developments in the future which will make it less attractive to buy diesel cars, there could be implications," de Vries told Deutsche Welle.

"These are investments. You have to pay them up front, and at some time you want to profit from them and be able to invest further."

Matthias Wissmann, president of the German Association of the Automotive Industry, is also critical of the proposed new tax structure. Every other new car purchased in Germany today is a diesel, he argues. Endangering that market would hurt both the economy and the environment.

"Under this new tax structure (sales of diesel cars) will likely drop significantly - to the detriment of environmental protection. A diesel automobile is more efficient and emits less CO2 than its gasoline counterpart," he said in a statement.

"In addition, all transportation via trucks would become significantly more expensive. 99 percent of all trucks have a diesel motor. Higher transportation costs mean higher prices for consumers."

Commerce quandary

Trucks lined up

Nearly all trucks run on diesel, so commerce could become more expensive

While acknowledging that trucks today benefit from Germany's generous diesel subsidy, Dudenhöffer points to long-term advantages of having a consistent and transparent tax system.

"The way things are today, technological progress is being slowed by this subsidy," he said. "Innovation on gasoline motors like new hybrids is being slowed artificially."

If the EU proposal becomes law, it would end Germany's diesel subsidy. The minimum tax for diesel would be 17 percent higher than that for gasoline. Diesel is currently taxed at 47 cents per liter in Germany, while gasoline is taxed at 64 cents. Under the proposal taxes on diesel would jump to 75 cents per liter.

Author: Gerhard Schneibel
Editor: John Blau

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