Select Committee on European Scrutiny Thirty-Seventh Report

55 Energy taxes



COM(06) 342

Commission Communication: Review of the derogations in Annexes II and III of Council Directive 2003/96/EC that expire by the end of 2006

Legal base
Document originated30 June 2006
Deposited in Parliament6 July 2006
DepartmentHM Treasury
Basis of considerationEM of 18 July 2006
Previous Committee ReportNone
To be discussed in CouncilNone planned
Committee's assessmentPolitically important
Committee's decisionCleared


55.1 The Energy Tax Directive, 2003/96/EC, sets out which energy products are concerned, the uses that make those products liable to tax, the minimum rates of taxation applicable to each product, depending on its use as a propellant, for industrial and commercial purposes or for heating and specific exemptions from the normal rules. The Directive also sets out in annexes a number of derogations which allow Member States to apply reduced rates or exemptions from energy tax for various products and purposes. Most of these derogations are due to expire on 31 December 2006.

55.2 Under Article 19 of the Directive a Member State may ask the Commission to propose to the Council a new or extended derogation. If the Commission makes such a proposal it is decided by the Council unanimously.

The document

55.3 As required by the Directive the Commission has conducted a review of the current derogations and sets out in this Communication its view on whether or not these derogations should be allowed to continue beyond 2006. It considers derogations in four categories:

  • derogations relating to situations outside the scope of the Directive. Five current derogations involve the non-fuel use of energy products and the Commission suggests that, since such use is outside the scope of the Directive, there is no need for these derogations to be considered;
  • derogations which have become obsolete. The Commission says that at least eight derogations were no longer being applied and therefore could be allowed to expire;
  • current derogations the objectives of which are taken into account through the flexibility offered by the general provisions of the Directive. The Commission says many of these derogations are no longer needed because they allow Member States to apply a specific tax treatment that is covered by the provisions of the Directive, but some Member States may have to make some adjustments to their tax treatment in order to ensure that it is totally in line with the Directive. The Government's duty incentive for biodiesel and bioethanol falls into this category, but would not require adjustment; and
  • derogations concerned with objectives not taken into account by the general provisions of the Directive. The Commission reports 35 derogations which, following expiry of the derogations at the end of 2006, would have no legal basis under the Directive. These derogations cover:
    • fuel used by private pleasure air navigation;
    • fuel used for navigation in private pleasure craft;
    • waste oil reused as fuel;
    • specific policy purposes in certain geographical areas; and
    • miscellaneous purposes.

The Government holds derogations in the first three of these sub-categories.

55.4 The Commission's view is that the expiry of most of the derogations should be seen as an opportunity to achieve greater transparency and greater coherence in the energy tax legislation. It asks Member States to assess in the light of the Communication whether they wish to continue to seek renewal of any of their derogations. The Commission would assess any such requests on their own merits, taking into account the proper functioning of the internal market, as well as Community environmental, energy and transport policies.

The Government's view

55.5 The Paymaster General (Dawn Primarolo) says that the following derogations need to be renewed if the current Government duty treatment is to continue:

  • fuel used in navigation in private pleasure craft (shared by four Member States, including Ireland and Finland);
  • fuel used in private pleasure air navigation (shared by seven Member States, including France and Italy); and
  • waste oils reused as fuel (shared by ten Member States, including France and Spain).

She says that the Government confirmed in the 2006 Budget that it would apply for renewal of all three derogations. The Minister adds that the Government believes there is a credible case for renewal of these derogations and will shortly make formal applications for their renewal.


55.6 In clearing this document we draw it to the attention of the House, since renewal of the relevant derogations is fundamental to the Government's current duty regime for fuel used for private pleasure craft and aircraft and for waste oil reused as fuel.

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