EU pushed to look at green tax plan

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By Huw Jones and Adrian Croft

BRUSSELS (Reuters) - Britain and France won backing from the European Union’s leaders on Friday to study if sales tax on green products could be cut to help the environment even though the European Commission is unconvinced.

French President Nicolas Sarkozy said EU leaders agreed to ask the bloc’s executive to study all fiscal tools that could be used to increase the use of environmentally friendly products, including lower rates of Value Added Tax (VAT).

France and Britain put forward the proposal at a two-day summit of EU leaders that ended on Friday, arguing that it could help the bloc’s members meet their climate change goals as well as reduce energy consumption.

"I am convinced that reduced rates of VAT is one way to boost clean products. The Commission is mandated to study that," Sarkozy told reporters.

Consumers were mystified why a clean car should cost more than one that pollutes, Sarkozy said.

Prime Minister, Gordon Brown welcomed backing from EU leaders to study the Anglo-French proposal further.

"People have been persuaded by the arguments that we should look at this very carefully," Brown told reporters.

"The debate has started. We’ve got this review happening and I believe that’s very substantial progress in only two days," .....continued below

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The European Commission has sole right to propose changes to the VAT system and it remains unconvinced.

"We are not planning any proposal for the moment. We feel we need more in-depth study," a spokeswoman for EU Tax Commissioner, Laszlo Kovacs said in response to the request from EU leaders.

"The question is whether reduced VAT is the most effective tool. Also, in order to allow such a measure we have to have unanimity among EU states," the spokeswoman said.

Unanimity looked to be far from a done deal, however.

"Some countries, I cannot deny, are opposed to this, and others -- Britain and France -- are very favourable," Sarkozy said.

Brown suggested on Thursday that lower value-added tax on environmentally friendly fridges, dishwashers, electronic goods, cleaning materials, light bulbs and insulation could spur people to buy products that use less energy.

"You can do something by tax incentives, by incentivising people to take the right steps," he said. "I think that could be a powerful lever for change."

EU Commission President, Jose Manuel Barroso, said on Thursday evening: "We are informed that some member states, they do not accept this idea. We have to make an impact assessment of that proposal to see exactly if it can work. There we have some doubts.

It was also unclear what the impact on tax revenue streams would be, Barroso added.

British diplomats said they would be satisfied with a commitment from the Commission to study the idea, which was first put forward by Britain and France last year but got nowhere.

But some diplomats close to the negotiations played down the significance of the decision.

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