Fuel Duty revenue is hugely 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 of 27 — see our Fuel Duty Tracker) have reacted by cutting fuel taxes. This study analyses the cost of these measures to public finances and explores other ways to raise revenue and help low-income families through the energy crisis.
While this policy approach has a 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 tax cut.
It is also an extremely expensive approach, already totalling nearly €9 billion in Member State commitments — an amount that may continue to rise if more Member States announce similar measures or if the temporary reductions are prolonged.
We call on EU member states to:
- Reverse the excise duty cuts, and at the very least declare that the cuts will not be renewed.
- Introduce a tariff on Russian oil imports. This could generate up to €27 billion in revenues.
- Design income support measures (e.g. consumption cheques, reduced labour taxes) focused on low and middle class families that do not incentivise oil use and car driving.
- Support citizens’ efforts to reduce fuel use by cutting public transport fares, making homeworking a right, and reviewing speed limits (e.g. limiting truck speed to 80km/h).
- Coordinate decisions on national fuel taxes to prevent a race to the bottom.
These recommendations provide a more equitable distribution of financial benefits by helping the poor as much as the rich and a more just means of public financing by taxing Russian oil imports. These recommendations would also avoid the perverse environmental and health impacts that arise from subsidising fuel and would move us closer towards a Europe free of Russian oil and free from fossil fuels altogether.
Originally published on Transport & Environment. Related story:
Taxpayers face €9bn bill for fuel tax cuts skewed towards the rich, study finds
Originally published on Transport & Environment.
Fuel tax cuts for drivers will cost European taxpayers almost €9 billion, new analysis finds. The richest 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). It said governments should instead place an import tariff on Russian oil to raise revenue for cash support to low-income households and boost Europe’s energy security.
The richest 10% of drivers will receive eight times more in fuel tax cuts than the poorest, on average, because they consume far more fuel, the report finds. Wealthier motorists drive more, often alone, and with larger, more polluting vehicles. For example, a 15 cent cut in fuel excise over six months will reduce a BMW X5 driver’s bill by €300 compared to €85 for a Citroën C3 driver. Meanwhile, people who take public transport receive nothing.
EU countries would raise €27 billion this year from an import tariff of $25 a barrel on Russian oil, the analysis also finds. Russia’s oil industry would have to absorb the cost as they have no alternatives 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 solely on cutting fuel taxes, the study also finds. An IEA report published last week found that if all advanced economies take 10 emergency actions, they can quickly cut global oil demand by 2.7 million barrels a day, equivalent to the oil demand of all the cars in China.
Griffin Carpenter said: “The easiest way to avoid high oil prices is to make it possible for people to drive less. Governments should make homeworking a right and temporarily slash public transport fares. If governments want to help low-income households dependent on cars, they should lower income taxes, increase mobility allowances or simply issue cash cheques to those who need it.”
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