Euro Commission proposes uniform diesel tax rate, boost in personal-car diesel taxes

Diesel Fuel News, August 5, 2002 by Jack Peckham

Citing a need to avoid commercial "market distortions" caused by huge differences in diesel fuel tax rates among European nations, the European Commission just proposed to establish a uniform rate.

If finally approved, the mandatory tax rate would become about 41 Euro-cents per liter of diesel fuel by 2010, assuming an expected inflation factor. That's higher than today's diesel tax rates in most Euro nations, but it's substantially below the United Kingdom's staggering 74.2 Euro-cents rate, and Germany's 44 Euro-cents rate.

By contrast, diesel excise tax rates in the U.S. equate to about one-sixth the proposed uniform rate for Europe (assuming the Euro trades at about $1 U.S.), or about one-third when including U.S. state/local taxes. Eurocrats figure that the relatively high diesel tax rates will push more freight from highways to rail and waterways, supposedly reducing highway traffic congestion while promoting energy efficiency and lowering emissions on a ton-kilometer freight basis.

But British politicians are already howling about giant tax revenue losses from the proposed scheme, a point disputed by some EU politicians who point to the extreme reluctance of British truckers to buy high-taxed British fuels. If they can, truckers go to France to buy fuel instead.

For commercial diesel, minimum excise tax rate would be set at 35 Euro-cents per liter starting next January 1. But the proposal allows individual states to set a "band" rate initially as low as 25 or as high as 45 Euro-cents, with the "band" dissipating each year until all states must fix the mandatory, uniform diesel tax rate in 2010.

Current European Nation Diesel Excise Tax Rates (Euros per 1,000 liters)

                   Belgium  Denmark  Germany  Greece  Spain  Fr.  Ire.

Unleaded gasoline    507      548      624     296     396   574  401
Diesel fuel *        290      370      440     245     294   376  302

                   Italy  Lux  Neth  Austria  Portugal  Finland  Sweden

Unleaded gasoline   542   372  627     414      479       560     510
Diesel fuel *       403   253  345     282      272       305     337

                   UK

Unleaded gasoline  742
Diesel fuel *      742

* = Includes ultra-low sulfur diesel (ULSD)

Tax rates on "non-commercial" diesel (used in personal cars) also would have to match (or possibly exceed) commercial diesel tax rates, starting in 2006.

Europe currently sets a minimum 24.5 Euro-cent tax rate on diesel, slightly below the 28.7 Euro-cent tax minimum on unleaded gasoline. The rates would rise to 35 Euro-cents in 2006, then move up to at least match the commercial diesel tax rate in 2010.

"There is no environmental justification to tax non-commercial diesel at a lower rate than unleaded petrol," the Commission claims. Reason: Diesel vehicles can produce higher nitrogen oxides (NOx) and particulate matter (PM) emissions (although today's PSA cars with diesel particle filters are just as good or better on PM than gasoline cars).

Oddly, the Commission proposal seemingly ignores diesel's major "environmental justification" for tax incentive: Diesel has much better fuel economy and hence lower [CO.sub.2] (global warming) emissions. That's a big deal in Europe, but it's virtually irrelevant to Americans outside of politically correct California.

Still, equalizing diesel and gasoline tax rates probably will help Europe's auto industry and oil industry slow down the current diesel-car stampede. Some industry forecasters have predicted that unless fuel tax rates are equalized, Euro gasoline cars could face near-extinction in the coming decade (not a favorable prospect for world car marketers based in Europe), plus make Europe's already severe diesel fuel shortage spin totally out of control.

Under the Commission proposal, both non-commercial diesel and unleaded gasoline tax rates "would never be lower than that on commercial diesel," the Commission says. All the fuels would have tax rates moving together with inflation.