The European Commission proposed in March 1997 a Directive for restructuring the Community framework for the taxation of energy products – COM(97) 30 – and various alternatives have been discussed by the Council of Ministers since then.
Eurofer is concerned that such energy tax proposals, if implemented, would seriously undermine the enormous efforts made by the European steel industry over many years to rationalize and improve its performance and they would make further improvements of energy efficiency more difficult. Points of contention between the steel industry and the EU taxation proposals are:
• The use of a fiscal measure to promote a reduction in energy consumption and CO2 emissions is misconceived. The imposition of additional taxation is not suitable for a reduction in energy consumption by industrial sectors whose production processes are necessarily energy-intensive; it will simply increase the unit cost of such production at the expense of the cash flow from which R&D and new energy efficient installations are financed. The progress already made by the steel industry in improving its energy efficiency should be recognized. Over the past 35 years, the EU steel industry has reduced both its energy consumption and CO2, emissions by about 50%per tone of rolled steel. Fiscal measures would be counter-productive in that they would reduce the ability of the industry to continue research for further improvement of energy efficiency. Instead, positive initiatives to actively promote such research would be supported by the industry.
• The coke and other fossil materials used in blast furnaces, representing a large proportion of all fossil materials used in the steel industry, are chemical reductions. not fuels. Therefore, they should not be taxed as a form of energy.
• There already exists a significant imbalance between the EU and its major international competitors in the energy costs they face. It has been estimated that energy prices for industry in the USA for instance are 30-40% lower than those faced by European industry without any marked difference in specific energy consumption. Additional taxes in Europe would simply aggravate this imbalance and seriously undermine the competitive position of EU industry. Previous proposals from the Commission for a generalized energy tax recognized this fact by making its application conditional on the introduction of measures with similar effect, notably in those regions of the world that are major economic competitors of the Community. Eurofer regrets that this conditionality is totally absent from the present draft Directive.
• In some Member Slates, there arc already negotiated agreements or voluntary commitments, existing or in preparation, concerning energy efficiency or CO. emissions in the steel industry. Introduction of an energy tax would make it impossible for the industry to continue honoring such commitments.
• The Commission uses the balance of the internal market as the principal justification for its proposal. However, there is nothing in the present proposal to prevent an application by certain Member States of the excise duties at different levels over and above the minimum rates set out in the Directive. Indeed, there are conditions in the draft Directive, which could aggravate present distortions in the internal market. For instance, while in the preamble Member States are urged in the application of this measure to recall the principle of tax neutrality, reducing proportionately the tax burden related to employment, there is no mandatory obligation on them to do so. Equally, the lax exemptions proposed for energy-intensive users are extremely limited and again their application is not completely mandatory but partly discretionary. The tax burden on energy intensive industries would therefore undoubtedly significantly increase, but to different degrees throughout the Community.
• The political implications of this initiative at a time when the level of unemployment is particularly sensitive must be taken into account. Such a measure can only accelerate moves to relocation by industry to regions where production costs are lower.