15/04/2011

The anticipated scrapping of tax exemptions for red diesel users could be reversed if the agricultural industry meets targets on carbon emissions according to a new European Commission proposal.

The Commission said in a draft proposal of the Energy Taxation Directive published on Wednesday (13^th April) that member states may still be allowed to apply a zero rate to red diesel, provided agriculture as a whole made energy efficiency improvements.

The Commission instead proposed energy consumption and carbon emissions taxes in place of taxing fuel used by producers. The new taxes would be based on the amount of energy used per gigajoule and carbon dioxide emissions; the emissions tax is forecast to cost €20 per tonne of CO2 emitted.

The proposals aim to encourage the industry to cut energy use and carbon emissions. The Commission said it will set out an agreement to guarantee red diesel remains if targets are met. While this might mean cutting energy use or emissions by a set date, member states would define the targets. The Commission would retain the power to ensure a certain level was met across the EU.

Commissioner for taxation and customs, Algirdas Šemeta, said of the proposed directive, "We need a more resource-efficient, greener and more competitive EU economy, and [this framework is] an opportunity to shift the tax burden from labour to consumption, in order to favour growth-enhancing taxation."

The directive is expected to come into force on 1 January 2013 after revisions have been made and a report on “Carbon leakage” has been undertaken.

“Food production first” says NFUS

Earlier in the week, a leaked draft of the proposals suggested an end to tax exemptions, which enraged several agricultural bodies. NFU Scotland was quick to react to the news of changes in fuel duty, condemning increased taxation of the fuel that farming uses.

The union also condemned the suggestion that farmers could face new energy consumption taxes to encourage agriculture to be more energy-efficient. Under the new proposals renewable energies, such as biofuels that meet sustainability criteria, would be accorded preferential treatment.

NFUS Policy Director Scott Walker said, “With regards to fuel efficiency, those driving this green energy agenda need to bear in mind that there are very few savings left that a farmer can make... They would increase production costs on farm, at a time when food prices to consumers are already rising, and there would be little or no gain for the environment.

“Many farmers are doing what they can to be as fuel-efficient as possible.  Modern machinery is increasingly geared towards low fuel usage and many farming techniques are now designed around reducing fuel consumption.”

Walker continued, “Although yet to be officially released, this is a very contentious draft dossier and one which many European governments will feel strongly about. Other EU Departments, such as DG Agri, must also recognise that these proposals would make food production in the EU less competitive and we will be encouraging them to reject them at this early stage.”    

The Union claimed that as many as 17 Member States currently give tax allowances on agricultural fuel, and added that any new legislation on taxation would require unanimity from all EU members. The union said such agreement would be unlikely on this issue, given the strength of reaction to the leaked document.

Despite the relaxation shown between the leaked and publish documents, UK officials have already joined the German government in expressing concerns over the proposals.