The Commission's proposal

1.  In July 2002, the Commission proposed a Directive to harmonise tax arrangements for diesel fuel used for commercial purposes and to align the excise duties on petrol and non-commercial diesel fuel.[1] To become law, the proposal will have to be agreed by all of the Member States, as it requires unanimity in the Council. The proposal's aims are two fold:

i) to introduce by January 2010 a single excise duty rate of €350/1000 litres on commercial diesel fuel for all EU Member States—the actual rates applied by Member States must be within an allowable band that will narrow each year from March 2004 until full convergence is reached in 2010; and

ii) to introduce by January 2006 a common minimum rate of €360/1000 litres on petrol and non-commercial diesel fuel.

2.  The Commission's proposal requires the decoupling of taxation of "commercial diesel fuel"—defined as fuel for trucks weighing 16 tonnes or above, and buses and coaches equipped to carry more than nine persons—from the taxation of "non-commercial diesel fuel"—defined as fuel for trucks weighing less than 16 tonnes, buses and coaches equipped to carry nine persons or less, and passenger cars.

3.  The current EU-wide minimum rate of excise duty for diesel fuel is €245/1000 litres and no distinction is made between commercial or non-commercial use. The current minimum rates for leaded and unleaded petrol are €337/1000 litres and €287/1000 litres, respectively. These minimum rates were established in 1992[ 2] and have not been adjusted since.

4.  As can be seen from the box below, the level of excise duty varies from one Member State to another. For diesel, the range is between a low of €245/1000 litres in Greece (and €253/1000 litres in Luxembourg) to a high of €742/1000 litres in the UK. For petrol, the range is from a low of €296/1000 litres in Greece (and €372/1000 litres in Luxembourg) to a high of €742/1000 litres in the UK.

Box 1

5.  The current weighted average rate of excise duty for the 15 Member States is €411/1000 litres for diesel fuel and €581/1000 litres for petrol (Eurosuper).[3]    

6.  Introducing a harmonised rate of €350/1000 litres on commercial diesel fuel would result in a reduction in the level of fuel duty relative to the current weighted average of €411/1000 litres, and an actual reduction in fuel duty in each of the four largest Member States.

7.  The outcome of establishing a common minimum rate of €360/1000 litres for petrol and non-commercial diesel fuel cannot be quantified in the same way, since this part of the Commission's proposal does not call for a single harmonised rate. Current rates of duty on diesel (which includes diesel used for non-commercial purposes) are below the new proposed minimum in 10 of the 15 Member States, the weighted average rate being €411/1000 litres (see Box 1). But current rates of duty on petrol are above the proposed minimum in 14 of the 15 Member States, the weighted average rate being €581/1000 litres. The proposed measure would thus require an increase in the taxation of diesel-engined passenger vehicles—which currently account for 22% of the market—as well as other "non-commercial" vehicles. But the final outcome would depend on the actual levels of excise duty that Member States adopt.

The Commission's case

8.  The Commission's proposal to establish a harmonised duty rate for commercial diesel fuel is based on three grounds. The Commission claims that the current discrepancy on fuel duty rates impacts negatively on (i) competition, (ii) government revenues, and (iii) the environment. Each of these three impacts is said to follow from the phenomenon of 'tank tourism', that is, international road hauliers filling up their tanks in the Member States with the lowest rates of fuel duty. The Commission asserts that tank tourism results in:

(i) a distortion to competition between different classes of road hauliers;

(ii) revenue losses for Member States with the highest rates; and

(iii) a higher level of traffic (measured in vehicle kilometres) than would the case in the absence of tank tourism (op. cit., pp 6-7).

9.  Commissioner Bolkestein provided a clear summary of these three grounds:

"the aspect which concerns us most is the distortion of competition in the internal market. […] The trucks that go across borders are able to pick up diesel in Member States where the excise duty is lowest. There is a very clear distortion. […] The second point is this tax routing, this tax planning, if you like, by trucks leads to a significant loss in budgetary resources for some Member States. […] The third element for the Commission is the environment. If trucks and buses make a detour to make use of cheaper fuel then, of course, more mileage is performed […]. Obviously the shorter the trips the less the deterioration to the environment." (Q1)

10.  The Commission's case for establishing a common minimum rate for both petrol and non-commercial diesel is based on environmental grounds. The Commission's Explanatory Memorandum notes that diesel engines emit "significantly higher" amounts of particulates than petrol engines, at the same as emitting "significantly less" CO₂ per kilometre. The Commission concludes that, "according to the criteria used to assess the impact on the environment […] there would be no reason for taxing differently diesel fuel and petrol consumed by passenger vehicles. A reasonable balance would mean both being taxed at broadly similar rates." (op. cit., p 9)

Subsequent legislative developments

11.  Independently of the Commission's proposal for a new Directive on fuel taxation, the Commission also developed a proposal for a Directive on Taxation of Energy Products.[4] This proposal aims:

(i) to establish minimum excise duty rates on a fuller range of energy products; and

(ii) to establish higher minimum rates of excise duty on diesel and leaded and unleaded petrol.

12.  Agreement on this proposal was reached at an informal meeting of Finance ministers in the margins of the European Council on 20 March 2003. The Directive will be formally adopted by EcoFin once consultation with the European Parliament and the accession countries has been completed.[5] The Directive will mean that, beginning with a first adjustment in a majority of Member States in January 2004 and culminating in a final adjustment in all 15 Member States in January 2012, the new minimum rates of excise duty will be €330/1000 litres on diesel (as against a current minimum of €245/1000 litres), €421/1000 litres on leaded petrol (as against €337/1000 litres currently) and €359/1000 litres on unleaded petrol (as against €287/1000 litres).

13.  It follows that, as a result of the Energy Tax Directive, the rates that would be subject to adjustment in the proposed Fuel Tax Directive are no longer those quoted in the Commission's proposal document. In particular, the proposed harmonised rate of €350/1000 litres on commercial diesel fuel would be only slightly above the minimum rate of €330/1000 litres set out in the Energy Tax Directive. Consequently, the proposed harmonised rate would be significantly below the weighted average rate, since, by 2010 as a result of the Energy Tax Directive, this latter will rise well above the current average weighted rate of €411/1000 litres.

14.  Furthermore, the minimum rate of €360/1000 litres on petrol and non-commercial diesel proposed in the Fuel Tax Directive would be only slightly above the minimum rate of €330/1000 established in the Energy Tax Directive for diesel; it would be well below the minimum rate of €421/1000 litres for leaded petrol; and it would be virtually equal to €359/1000 for unleaded petrol.

15.  Also independently of the proposed Fuel Tax Directive, the Commission intends to bring forward a proposal to the Transport Council for a Framework Directive on Infrastructure Charging. This proposal was foreshadowed in the Commission's White Paper of 2001[6] and follows from the extensive work programme initiated by the Commission's White Paper of 1998.[7] The Framework Directive is intended to promote the alignment of the overall structure of transport taxes and charges (including fixed charges, fuel duty, user charges, and so on) to the real costs of transport use.

Key issues considered by the Committee

16.  We decided that any assessment of the Commission's proposal needed to weigh the available evidence in regard to the three grounds on which the Commission rests its case: competition, government revenues and the environment. In each case, we asked what was the nature of the problem being addressed, and how successfully the proposal would address it. In each case, too, subsequent legislative developments needed to be factored into that assessment.

17.  Given the subsequent legislative developments, we considered another issue: does it make sense now to deliberate on this specific proposal prior to and independently of the Framework Directive on Infrastructure Charging, which is supposed to address the overall structure of transport taxes and charges? Or would the Framework Directive be the more appropriate starting point for progressing the proposals foreshadowed in the Commission's White Paper on Transport?

1. Finally, the Committee assessed the position adopted by the UK Government and their rationale for it.

2   The minimum rates were introduced as part of a system for taxing mineral oils. This system involved two Directives, one on the harmonisation of the structures of excise duties on mineral oils (92/81/EEC), and the other on the approximation of the rates of excise duties on mineral oils (92/82/EEC). The first Directive can be found in OJ L 316, 31.10.1992, p 12, as last amended by Directive 94/74/EC (OJ L 365, 31.12.1994, p 46); the second is in OJ L 316, 31.10.1992, p 19, as last amended by Directive 94/74/EC (OJ L 365, 31.12.1994, p 46). Back

3   COM (2002) 410 Final, p 5. Taking account of discounts granted in 2002 by France, Italy and the Netherlands, the Commission estimates that the current weighted average rate paid by road hauliers in the 15 Member States is €397/1000 litres rather than €411/1000 litres. None of the assumptions or conclusions in this report is dependent on the choice of one figure rather than the other. The relevant point is that the current weighted average rate is circa €400/1000 litres as distinct from the proposed rate of €350/1000 litres.  Back

4   The proposal for a Council Directive Restructuring the Community Framework for the Taxation of Energy Products and Electricity was originally put forward by the Commission in 1997 (COM(1997) 30, Brussels 12.3.1997). The proposal would amend the two Directives mentioned above in footnote two. Initial negotiations on the proposals stalled completely, but the Spanish Presidency revived the document in the first half of 2002; the Danish and Greek Presidencies then continued negotiations on the proposal. Back

5   Council of the European Union, Presidency Note 7759/03, Brussels 25 March 2003. Letter from Mr. John Healey MP, Economic Secretary to the Treasury, p 16. Back

6   European Commission, European Transport Policy for 2010, White Paper, September 2001. Back

7   European Commission, Fair Payment for Infrastructure Use, White Paper, July 1998. Back