Fuel Tax Abandonment – Europe’s €9 Billion Gift to Putin

Fuel tax revenues are extremely important and Russia’s invasion of Ukraine has pushed fuel prices to recent highs. To appease drivers at the pump, half of EU member states (14 out of 27 — see our Fuel Duty Tracker) have responded by cutting fuel taxes. This study analyzes the cost of these measures for public finances and explores other ways to increase incomes and help low-income families get through the energy crisis.

While this policy approach has simplistic appeal, it also generates perverse environmental incentives and inequitable social outcomes, as the rich use eight times more fuel than the poor, and oil companies will adjust their prices to take a share of the fuel reduction. ‘tax.

It is also a hugely expensive approach, already totaling almost €9 billion in member state commitments — an amount that could continue to rise if more member states announce similar measures or if the temporary cuts are extended.

We call on EU Member States to:

  • Cancel the excise duty reductions and, at the very least, declare that the reductions will not be renewed.
  • Introduce a tariff on Russian oil imports. This could generate up to 27 billion euros in revenue.
  • Design income support measures (e.g. consumer vouchers, working tax cuts) targeted at lower and middle class families that do not incentivize oil use and driving automobile.
  • Support citizens’ efforts to reduce fuel consumption by reducing public transport fares, making working from home a right and reviewing speed limits (for example, limiting truck speeds to 80 km/h) .
  • Coordinate national fuel tax decisions to avoid a race to the bottom.

Download the study.

These recommendations provide for a fairer distribution of financial benefits by helping the poor as well as the rich and a fairer mode of public financing by taxing imports of Russian oil. These recommendations would also avoid the adverse environmental and health effects that arise from the fuel subsidy and bring us closer to a Europe without Russian oil and without fossil fuels.

Originally published on Transport & Environment. Related story:


Taxpayers face a 9 billion euro bill for fuel tax cuts skewed in favor of the wealthy, study finds

Originally published on Transport & Environment.

Fuel tax cuts for drivers will cost European taxpayers almost €9 billion, according to a new analysis. The wealthiest motorists will receive eight times more public money than the poorest, on average, according to the study by green transport group Transport & Environment (T&E). He said governments should instead impose an import duty on Russian oil to generate revenue for cash support to low-income households and boost Europe’s energy security.

Griffin Carpenter, automotive analyst at T&E, said: “EU governments claim to be on Ukraine’s side, but instead of taxing Russian oil, they are subsidizing it with 9 billion euros of taxpayers’ money. There are better ways for governments to help people. We could impose a tariff or a tax on Russian oil imports now. Instead of subsidizing wealthy drivers of gas-guzzling cars, cash assistance could be distributed more equitably to families who really need it.

The wealthiest 10% of drivers will receive an average of eight times more fuel tax cuts than the poorest because they use significantly more fuel, according to the report. Wealthier motorists drive more, often alone, and with bigger and more polluting vehicles. For example, a reduction of 15 centimes in excise duty on fuel over six months will reduce the bill of a BMW X5 driver by €300 compared to €85 for a Citroën C3 driver. Meanwhile, people who take public transport get nothing.

EU countries would raise 27 billion euros this year from a $25-a-barrel import duty on Russian oil, according to the analysis. The Russian oil industry is expected to absorb the cost as it has no alternative to selling on the European market in the short term.

So far, no measures have been taken to reduce oil demand in Europe, with governments focusing only on reducing fuel taxes, the study also reveals. An IEA report released last week found that if all advanced economies took 10 emergency measures, they could quickly reduce global oil demand by 2.7 million barrels a day, equivalent to demand oil from all cars in China.

Griffin Carpenter said: “The easiest way to avoid high oil prices is to let people drive less. Governments should make working from home a right and temporarily reduce public transport fares. If governments want to help low-income, car-dependent households, they should cut income taxes, increase mobility allowances, or simply issue cash checks to those in need.


 

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