Old Europe: DeTaxing its way to a better future?

The Value Added Tax (VAT), think embedded sales tax, is a key element of financial policy in Europe. And, well, these taxes can be high (20 percent range).  Later this month, according to news reporting, the United Kingdom and France will propose to lower VAT on “environmentally friendly” products to help “solidy  Europe’s position as a leader in the fight against global warming”.

France, under Nicolas Sarkozy, will hold the European Union Presidency for six months starting in July 2008.  This move is, evidently, a first shot across the bow for an aggressive French presidency when it comes to Global Warming.

“We want people to say that after the French presidency, Europe was transformed into a greener economy with a different kind of growth and consumption pattern, and that Europe has taken all the necessary steps to bring its partners on board,” Jean-Pierre Jouyet, the minister for European Affairs

Just the shot across the bow?

Sarkozy’s noise about going green might not just be noise, that he might be quite serious about seeking to Energize France and Energize Europe toward a Prosperous, Climate Friendly Society.

The tax reduction proposals seem to be just the first of a number of innovative and potentially important proposals.  A few percent price advantage on ‘greener’ products will boost them but won’t exactly turn global warming on a dime by itself. These proposals, however, look only to be an opening shot.

Tax imports from polluters?

One key challenge to any national (or regional) effort to cap GHG emissions is the (very real) potential that commerce will export pollution. This has happened, to a large extent, with the offshoring of heavy manufacturing.  Thus, one reason America’s energy intensity (the amount of energy input per economic output) has fallen is that many high-energy (high polluting) enterprises have left American shores.

What might occur in Europe?

Jouyet said the government was already preparing additional proposals, including potential penalties on imports from countries with excessive levels of pollution, with the aim of pressuring those trading partners to clean up or risk losing their foothold in the EU, the world’s largest market.

“There are fiscal incentives and fiscal disincentives,”

This is a massive World Trade Organization (WTO) complaint in the wings … which could come from the PRC, India, or the United States.

One path to avoid the WTO complaint would be to require all imports to either come from countries with either equivalent standards to the EU’s or buy polluting permits from within the EU’s cap and trade levels.

Will this happen?
There are real problems here. The EU is not necessarily the easiest organization to make things happen. And, “debates about any harmonization of EU taxes are notoriously difficult.” Plus, definitions aren’t always easy when working across multiple languages and multiple economies.

“What do they mean when they talk about ‘energy-efficient’ products?” asked Maria Assimakopoulou, an EU spokeswoman on tax policy. “I hope they will be rather concrete.”

What are the sort of things that might benefit from lower VAT, if this moves forward? “Jouyet mentioned cleaner cars and home insulation materials as candidates.” But, there is still a lack of certainty about what this means.

Leadership …

In the United States, we often speak to our leadership position, of our role leading the globe.  Well, that conversation doesn’t occur only in Washington any more, certianly not in the domain of Global Warming.

Despite the many questions that remain, the idea of using the EU’s economic weight to effectively set global environmental standards is increasingly popular – and not only in France.

“We all agree that the EU must have a pioneering role in the world on this issue and influence others through its weight as an important market – that is policy,” said Johannes Laitenberger, chief spokesman for the European Commission.

Economic leverage through tax policy to Energize Europe and Energize the World toward a better future.

We can all
help make
Energy Smart.
Ask yourself:  

Are you doing
your part to


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