European Fuel & Auto Regulations

Although it is too early to assess whether the fuels Directive will be properly implemented in the Member States over the coming months, it is clear that a flurry of activity has occurred since we last met in Washington this past September. This activity predominantly focuses on what I have coined the “early phase in option”. But before going into more detail on the early phase in option let me just remind you of what I think the main points of the Fuels Directive are (key points transparency). [:] To get back to the phase-in option, this is a tool which you may remember was adopted to allow for the phasing in of the 2005 specifications prior to the 2005 deadline whilst not discouraging the request for derogations from the countries which felt they needed more time. Pro-active industry and Member States pushing for cleaner fuels before 2005 indicated that through the use of fiscal incentives, market pressures would push toward a swift improvement of fuel quality. The experience in my home country and in nearby Sweden had proven exactly that but would other European countries be quick to use this trick?

I am extremely pleased to report to all of you that Sweden and Finland are no longer alone in their incentivised clean fuels policy. What was only two years ago considered a radical policy by many, is now becoming part of the mainstream in the majority of the Member States while interest in derogations has so far stayed limited to the Southern countries. I will mention several cases of phasing in later but I’d like to take a bit of time to focus on the UK. Why the UK ? Maybe because the UK was holding the Presidency during the final negociations of the Directive, or maybe -some might recall- because they were quite reluctant to mention the use of fiscal instruments let alone promote them! The UK Treasury’s recently adopted package of tax measures contains several key provisions to tax polluters and assists in the phasing in of cleaner vehicles and fuels: lower tax rates will be imposed on energy intensive sectors that improve their energy efficiently with a view to reduce carbon pollution by 1.5 million tons. · The tax on unleaded petrol will rise by 3.79 pence/liter. · The tax on leaded petrol will rise by 4.25 pence/litre. · The tax on diesel fuel will rise by 6.14 pence/litre yet the tax on 50 ppm sulfur diesel will be lower at 4.96 pence/litre (this industry predicts will assist in the 100% phase in of 50 ppm sulfur diesel by 1 Jan 2000). · The annual car tax for smaller cars (<1100 cc) after 1 June 1999 will be reduced by £55 from the current £155. In addition, the car tax will most likely be based on CO2 emission levels by the end of 2000. · Finally, the vehicle excise duty fee will be cut by £1000per/year for clean trucks and buses that up-grade their emission performance with new engines or by fitting particulate traps. The UK treasury has not only addressed the use of fiscal incentives to promote cleaner fuels but also more efficient vehicles. If we are able to turn around a sceptic country like the UK in such a short time, I am convinced that most of the Member States will soon follow suit.

In fact if you look at current developments, very few countries have not or are not considering the use of fiscal incentives to promote fuels with the 2005 values (remaining overheads). So if the early phase-in option is working what are the outstanding problems. My main concern is that taxation is a purely sovereign issue to be regulated by each individual Member State. Although I fully support the need for national sovereignty in the allocation of taxes, I’m a bit worried about the haphazard development of fiscal incentives across Europe and the potential for market distortion. This is clearly an area where the issue of harmonsiation may need to be addressed and where dialogue with industry regarding existing or possible market distortions must occur. Both the fuels and automobile industries have a lot to gain from the use of fiscal instruments. It could be useful for policy makers to hear from those of you who support fiscal incentives that greater cohesion amongst European Governments in this area makes sense. If we don’t get the calculation right, I’m afraid we may hinder rather than help those industries which we set out to assist in the first place. Another area which must be addressed over the next few years is the need for integrated solutions to air pollution problems. This is the the focus of the Commission’s proposal for a new air quality programme “the Clean Air for Europe Programme” (CAFÉ) which will address air pollution from mobile as well as stationary sources. I look forward to further collaboration with the Commission on CAFÉ. Finally, an issue of increasing importance to policy makers like myself is the issue of globalisation. Everything is global these days, from environmental degradation to industrial policy and the current merger craze. Companies are increasingly more global in outlook yet policy makers still tend to be quite provincial when regulating. If we are to respond to the globalisation of our market place we must develop policies which reflect this global market place and therefore work with our colleagues in the States, in Japan and elsewhere to exchange policy information as well as technical/scientific data. I am convinced that that is the only way that we will achieve my ultimate goal; zero emissions across the globe. May I remind you that I am still a green!

International Fuel Quality Center Technology Briefing Sheraton Hotel & Towers, Brussels, Belgium Tuesday, May 18, 1999