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New EU energy tax exempts renewables

European finance ministers have agreed to minimum tax levels for all competing energy sources in a move that will help the EU reduce pollution and meet its Kyoto commitments. Under proposals in the new energy tax directive, countries may exempt renewables altogether or tax them at a lower rate. The directive for a Community framework for energy taxation is due to enter force from the beginning of 2004. Harmonised taxation will reduce distortions between member states and between different energy sources since only minerals have been taxed up to now -- not coal, natural gas or electricity. The terms of the directive also allow countries to offer tax incentives to companies in return for measures to reduce emissions. Ministers have been debating harmonised taxation since 1997. The plan allows member states to compensate companies for the higher cost of energy taxes by lower taxation of labour. The agreement by ministers of EU countries effectively gives the directive the green light, but before it can be formally adopted it goes to the European Parliament for an "opinion."

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