1. A brief introduction.
This contribution is dedicated to investigating the role of taxation in achieving the environmental objectives of the European Union and what structural changes in the European system can derive from the implementation of new environmental taxation mechanisms.
In this sense, the analysis is divided into four sections which will cover: (i) the objectives and actions of the European Union in terms of environmental protection and the configuration of the tax instrument in this context, (ii) the current state of the relationship between European taxation and environmental tax instruments, (iii) perspectives of European environmental tax legislation, (iv) finally, some conclusions will be drawn from the previous arguments.
2. The environmental objectives of the EU
The environmental objectives of the EU can be divided into two categories.
First of all, we can mention the objectives of an external matrix (External Targets), defined by the Paris and Glasgow agreements
The Paris Agreement is the first legally binding global climate change agreement adopted at the Paris Climate Conference (COP21) in December 2015.
The EU and its member States are among the nearly 190 parties to the Paris Agreement. The European Union, as an autonomous subject of international law, formally ratified the agreement on 5 October 2016, allowing it to enter into force on 4 November 2016.
The Paris Agreement establishes a global framework for avoiding dangerous climate change by limiting global warming to below 2 ° C over the next few decades and pursuing efforts to limit it to 1.5 ° C. It also aims to strengthen the capacity of countries to cope with the impacts of climate change and to support them in their efforts.
The Glasgow Agreement is the follow-up to COP 21: it established a 45% reduction in carbon dioxide emissions compared to 2010, to be implemented by 2030, and the achievement of net zero emissions “around the middle of the century”.
The aforementioned international agreements have, in particular, been implemented in the EU through the European Green Deal (GND) political agenda, which is expected to achieve EU climate neutrality by 2050.
Regulatory enforcement of the GND is ultimately represented by the "Fit for 55" package which aims to translate the ambitions of the EU environmental plan into legislation.
The package consists of several proposals to review climate, energy and transport legislation and put in place new legislative initiatives to align EU legislation with its climate goals.
As for the internal objectives (Internal Targets), the NextgenerationEU plan must be considered.
It is a 750-billion-euro temporary instrument designed to stimulate a “sustainable, uniform, inclusive and equitable recovery” from the pandemic emergency.
The recovery plan will help the European Union lay the foundations for a more sustainable and resilient economy, ready to seize the opportunities of the ecological and digital transition.
The Plan is divided into 6 Missions, which represent the “thematic” structural areas of intervention, including, for our purposes, the section relating to the “Green Revolution and ecological transition”.
2.1. and the related operational actions.
The objectives described above require the implementation of specific actions.
Actions, in principle, can be of two types:
The first type refers to actions of a deterrent nature and, among these, the technique of command and control is highlighted [see on this topic, G.E. Helfand - P. Beck (eds), The Theory and Practice of Command and Control in Environmental Policy, Oxon-New York, 2018; P. Singhal, Environmental Regulations: Lessons from the Command and Control Approach, in DIW Roundup: Politik im Fokus n. 124/2018; K. Mathis - B.R. Huber (eds), Environmental Law and Economics, Berlin, 2017; D.H. Cole - P.Z. Grossman, When Is Command-and-Control Efficient? Institutions, Technology, and the Comparative Efficiency of Alternative Regulatory Regimes for Environmental Protection, in Wisconsin Law Review, 1999, 887].
In this regard, it must be considered that public bodies are not always able to access the most varied amount of data and information necessary for the provision of command-and-control mechanisms in environmental matters. Added to this limit are the complications due to regulatory overproduction, which negatively affects the efficiency of controls and sanction mechanisms, which are also an integral part of the command-and-control system.
Furthermore, a policy that provides only homogeneous standards, such as those typical of command-and-control mechanisms, makes it difficult to take local conditions into account; on the other hand, where very diversified standards could be envisaged, this could reduce the ability of administrations to manage the consequent enormous amount of data.
Compared to the technique of command and control, the use of taxation makes it possible to allocate the costs of pollution and the negative externalities of human and industrial activity more efficiently, building legislation on tax bases and precise and individualized manifestations of the ability to pay (on the structure of environmental taxation, see V. Ficari, Nuovi elementi di capacità contributiva ed ambiente: l'alba di un nuovo giorno ... fiscalmente più verde?, in Riv. trim. dir. trib., 4/2016, 827; F. Gallo, Profili critici della tassazione ambientale, in Rass. trib., n. 2/2010, 303).
The second type of intervention coincides with the incentives, such as those provided by the GND and the NextgenerationEu plan (an overview can be found on europa.eu/next-generation-eu).
These are actions that require funding to enable the implementation of incentive policies for energy saving and the development and adoption of environmentally friendly technologies. Among these, it is also possible to include the provision of specific tax concessions.
However, the EU financial sources do not seem sufficient to cover the scope of the incentives. The Community financial resources currently consist of the issue of common debt securities and own resources, the definition of which is adopted under art. 311 TFEU with a specific procedure that provides for the unanimity of the Council. Own resources also have the role of guaranteeing the issuance of European securities and represent the fundamental financial source of the European Union.
Own resources are currently represented by: customs duties, agricultural taxes, a share of VAT collected in the Member States, and a tax on recycled plastic, corresponding to “a uniform rate on the weight of non-recycled plastic packaging waste produced in each Member State”, to be paid for by individual EU countries. Added to this is a contribution from the Member States as regards their gross domestic product (see A.M. Tournepiche, Le budget de l’Union européenne, in O. Costa - F. Mérand, Études européennes, Bruxelles, 2017, 205).
In this context, fiscal instruments can increase funding resources for incentive policies and make positive Union policies effective.
The need to use regulatory instruments other than Command and Control and to implement EU environmental policies through the introduction of new resources, therefore, makes it possible to identify in the fiscal instrument the most suitable way to pursue the objectives of EU environmental protection.
3. Structural limits in the EU legal framework for the promotion of environmental taxation.
As a second line of investigation, it is highlighted that the current EU legal framework defines a series of limitations for the development of environmental tax legislation.
A first limitation is represented by the "unanimity constraint"
Indeed, it should be noted that the European Union lacks its own fiscal competence.
On the other hand, a procedure exists in the Treaties for the harmonization of indirect (Article 113 FEU) and direct (Article 115 TFEU) taxation, insofar as this is necessary to eliminate distortions of the single market. This procedure requires the unanimity of the Council: unanimity of the Member States is, therefore, necessary to harmonize or repeal the harmonization rules in tax matters (see. C. Heber, Enhanced Cooperation and European Tax Law, Oxford, 2021, 30; P. Boria, Taxation in European Union, Berlin, 2017).
On the other hand, it is true that the treaties provide for a shared environmental competence between the EU and the member states: this means that the regulation of environmental taxes, when implemented by the EU, is precluded to member states.
However, also for the adoption of decisions concerning the achievement of environmental objectives, art. 192, par. 2, TFEU requires the unanimity of the Member States when it comes to using a fiscal instrument or resorting to fiscal harmonization.
From another point of view, it should be noted that also in terms of own resources, art. 311 TFEU requires the unanimity of the Council.
A second limitation concerns the implementation of forms of environmental taxation by the Member States and is represented by the conflict between the action of the States and the principles of the EU.
In fact, in adopting new forms of taxation, States are subject to comply with some “negative principles” of the legal framework of the Union (see on this point M. Tofan, Tax Avoidance and European Law. Redesigning Sovereignty Through Multilateral Regulation, Oxon-New York, 2022; P. Pistone, Diritto tributario europeo, Torino, 2018; L. Cerioni, The European Union and Direct Taxation. A solution for a difficult relationship, Oxon-New York, 2015), such as: (i) the Prohibition of state aid: according to which actions to protect the environment can, if proportionate to the purpose, be considered admissible pursuant to art. 107, par. 3, lett. c) (see C.H. Panayi, Corporate Tax Law, Cambridge, 2021, 331); (ii) the principle of non-discrimination based on nationality/residence (Article 18 TFEU): which prescribes that the tax must be collected for homogeneous categories; (iii) the Prohibition of customs duties and taxes having equivalent effect (Article 28 TFEU): the prohibition also applies to duties within the Member States; (iv) the Prohibition of discriminatory taxation (Article 110 TFEU).
An example of the contrast between the principles of the Union and internal taxes is represented by the luxury tax of the Sardinia Region.
This tax, introduced with the regional law of Sardinia n. 4/2006, taxed: (a) the stopover in airports and airports of the regional territory by general aviation aircraft, used for the private transport of people, (b) the stop in ports, moorings and berths located in the territory of the region and at the equipped moorings in the territorial waters along the coasts of Sardinia of pleasure boats and boats, belonging to a natural or legal person having fiscal domicile outside the territory of the region and operating the aircraft or pleasure boat.
For the Court of Justice of the European Union (judgment C-169/08 of 17 November 2009), which intervened following a preliminary ruling by the Italian Constitutional Court, the application of this tax legislation makes the services in question more onerous for the subjects obliged to pay this tax, who have their tax domicile outside the territory of the region and who are established in the other Member States, and for operators established in that territory.
That tax legislation, therefore, and according to the ECJ, constitutes a constraint on the freedom to provide services as it taxes only the operators of aircraft used for the private transport of persons, or pleasure boats, which have their fiscal domicile outside the territory of the region, without imposing the same tax on operators established in that territory.
This tax cannot be justified for environmental reasons, since, while admitting that the stopovers of private aircraft and pleasure boats in Sardinia are a source of pollution, this pollution is caused regardless of the origin of these aircraft and boats and, in particular, it is not linked to the tax domicile of the operators.
Furthermore, the Court of Justice has held that the luxury tax of Sardinia constitutes a State-aid measure in favor of companies established in that territory (see on this point R. Alfano, Tributi ambientali. Profili interni ed europei, Torino, 2012, 184).
3.1. Characteristics of current developments in tax harmonization.
On the other hand, some current developments can be identified in the harmonization of EU law to put in place a common minimum legal framework for environmental taxes.
The following harmonization efforts are highlighted in terms of excise duties, VAT, taxes on plastics, ETS, of which the essential characteristics are summarized below.
(a) As regards excise duties on energy products, the proposed amendment to Directive 2003/96 / EU of 2021 provides for a new structure of minimum rates based on the actual energy content and environmental performance of fuels and electricity, rather than on the volume as it is currently the case.
The minimum tariffs will therefore be expressed in EUR / GJ (euros per gigajoule) for each product, also to allow a direct comparison between fuels, as well as between emerging uses of electricity.
The rates will then be differentiated based on environmental performance: in this way, the new system will guarantee higher taxation of polluting fuels.
The tax base will be broadened to include energy products or uses that previously escaped the EU energy tax framework, such as mineralogical processes. In addition, some exemptions and reductions in national rates will be eliminated, with much less scope for the Member States to set rates below the minimum standard for specific sectors.
(b) In terms of VAT, a 2018 proposal to amend Directive 2006/112 / EC provides for a reform of the VAT rates, facilitating the final consumer for certain categories of products, including consumption related to services capable of reducing emissions of carbon (solar panels, district heating) (in general, on the prospects for reform of VAT rates, see R. De La Feria, Blueprint for Reform of VAT Rates in Europe, in Intertax, 2/43 2015, 155).
(c) With reference to the tax on plastics, this is a new own resource established in the Council decision EU2020/2053 of 14 December 2020): this resource, which is not really a tax but a contribution from the EU states, involves the application of a uniform rate on the weight of non-recyclable plastic packaging waste in each Member State.
(d) Finally, it should be noted that the Emission Trading System is also under review (on this topic, see A.S. Theuring-S. Hüfner, The EU-Emission Trading System. Goals, Success and Challenges, Grin, 2016). The ETS system is a cap-and-trade mechanism envisaged by Directive 2003/87/EC, which provides that large emission plants in the European Union cannot operate without authorization for greenhouse gas emissions.
Operators subject to this legislation (industries) can buy pollution quotas in European public auctions or receive a free ticket. Alternatively, they can find them on the market.
According to the jurisprudence, ETS, more than a tax, represents a right to pollute. In this regard, it is noted that the transfer of ETS certificates between private individuals is subject to VAT.
The reform of the ETS is currently under discussion in the European Parliament.
4. Prospects and reforms expected in the EU.
The third line of study concerns the future of environmental taxation in the European Union.
In this context, the Carbon Border Adjustment Mechanism (CBAM), which will introduce a carbon price on some products imported into the EU, becomes relevant (see A. Pirlot, Carbon Border Adjustment Measures: A Straightforward Multi-Purpose Climate Change Instrument?, in Journal of Environmental Law, 2022, 34; C. Brandi, Priorities for a Development-friendly EU Carbon Border Adjustment (CBAM), in Deutsches Institut für Entwicklungspolitik, Briefing Paper n. 20/2021).
Under the CBAM, EU importers will purchase carbon certificates corresponding to the carbon price that would have been paid if the goods had been produced under EU carbon pricing rules. CBAM will thus help reduce the risk of carbon leakage by encouraging producers from non-EU countries to green their production processes.
CBAM is expected to replace the free ETS allowances currently granted to EU producers deemed to be at high risk of carbon leakage.
This mechanism should therefore be coordinated with a European carbon tax, which could be developed as a new EU own resource, to equalize the tax burden of internal carbon emissions with that of imported products.
The CBAM is currently under discussion by the European Parliament, as it is linked to the reform of the ETS.
Furthermore, a reform of the legislative procedures in tax matters and of new own resources seems necessary.
To this end, an amendment to the EU Treaties which gives the European Union the power of direct taxation is also desirable. Until now, the tax rules coming from the EU have been addressed to States and not to private individuals and therefore are not based on the principles of contributory capacity and progressive taxation, which must instead be shared at the European level.
A further aspect concerns the reformulation of the EU principles, to mitigate the constraints deriving from the EU legal framework with respect to effective environmental taxation at the level of individual Member States.
Reform in this area could be grounded in the fact that the competition principle now appears recessive with respect to the EU's environmental objectives.
In this sense, new guidelines on State-aid for environmental protection have been approved and are now more permissive.
These new guidelines, applicable from January 2022, create a flexible framework to help the Member States provide the support they need to achieve, including through tax incentives, the Green Deal objectives in a targeted and cost-effective way.
5. Some conclusions.
In conclusion, we can highlight that European environmental policies represent an opportunity not only to combat climate change, but also to establish greater integration between EU states.
Environmental taxation can lead to the establishment of a fiscal power of the Union, in order to finance EU policies and create a true budgetary unit among all European Member States.
Environmental taxation, therefore, acting through an operational convergence between all Member States based on a heritage of shared values, including environmental protection, is functional to the construction of a new federal-state body capable of definitively overcoming the nature of a mere supranational organization. which has traditionally characterized the European Union.
6. Essential Bibliography
Alfano R., Tributi ambientali. Profili interni ed europei, Torino, 2012, 184; Boria P., Taxation in European Union, Berlin, 2017; Brandi C., Priorities for a Development-friendly EU Carbon Border Adjustment (CBAM), in Deutsches Institut für Entwicklungspolitik, Briefing Paper n. 20/2021; Cerioni L., The European Union and Direct Taxation. A solution for a difficult relationship, Oxon-New York, 2015; Cole D.H. - Grossman P.Z., When Is Command-and-Control Efficient? Institutions, Technology, and the Comparative Efficiency of Alternative Regulatory Regimes for Environmental Protection, in Wisconsin Law Review, 1999, 887; De La Feria R., Blueprint for Reform of VAT Rates in Europe, in Intertax, 2/43 2015, 155; Ficari V., Nuovi elementi di capacità contributiva ed ambiente: l'alba di un nuovo giorno ... fiscalmente più verde?, in Riv. trim. dir. trib., 4/2016, 827; Gallo F., Profili critici della tassazione ambientale, in Rass. trib., n. 2/2010, 303; Heber C., Enhanced Cooperation and European Tax Law, Oxford, 2021, 30; Helfand G.E. - Beck P. (eds), The Theory and Practice of Command and Control in Environmental Policy, Oxon-New York, 2018; Mathis K. - Huber B.R. (eds), Environmental Law and Economics, Berlin, 2017; Panayi C.H., Corporate Tax Law, Cambridge, 2021, 331; Pirlot A., Carbon Border Adjustment Measures: A Straightforward Multi-Purpose Climate Change Instrument?, in Journal of Environmental Law, 2022, 34; Pistone P., Diritto tributario europeo, Torino, 2018; Singhal P., Environmental Regulations: Lessons from the Command and Control Approach, in DIW Roundup: Politik im Fokus n. 124, 2018; Theuring A.S. - Hüfner S., The EU-Emission Trading System. Goals, Success and Challenges, Grin, 2016. Tofan M., Tax Avoidance and European Law. Redesigning Sovereignty Through Multilateral Regulation, Oxon-New York, 2022; Tournepiche A.M., Le budget de l’Union européenne, in Costa O. –Mérand F., Études européennes, Bruxelles, 2017, 205.