This Communication aims to explain the existing legal framework for the use of environmental taxes and charges by Member States. It shows that there is a considerable scope for action by the member states to implement such instruments, particularly when improving the efficiency of environmental policy. On the other hand, the Communication does not deal with economic efficiency and environmental effectiveness of using environmental taxes and charges at Member States level. Also the Communication cannot provide definite answers on future cases. Each individual case will have to be considered on its own merit.

Chapter II of the Communication deals with the question of definitions and sets out the general legal context. Chapter III defines detailed guidelines for the use of environmental taxes and charges. In addition, this part describes the control mechanism existing in the EU, known as the rule of notification: In general, member states have to inform the Commission before introducing a new environmental instrument.

When introducing any tax or charge, the protection of domestic products and discrimination against products of Member States have to be avoided in any case, because both would be regarded as a custom duty which no longer exist between Member States. According to the Articles 9 to 12 of the EC Treaty, a custom duty effect occurs when a charge of fine is levied only on foreign products, or, if the revenue is used to fully compensate domestic producers. Article 95 aims at guaranteeing the neutrality of internal taxation by prohibiting discrimination against products of other Member States and protection of domestic products. Under this scheme, Article 95 is infringed if a product of another Member State is more heavily charged than a domestic product or if the revenue from a levy is used to partly offset the burden borne by domestic products.

Article 92 of the Treaty deals with state aid and defines it as any aid granted by a Member State which distorts or threatens to distort competition. Revenues from charges destined for a certain enterprises, productions or consumers or exemptions from emission and product levies are exemplar cases. The Commission allows state aid if it is temporary, does not provide any sector with net benefit and in principle, reduces over time. It is essential that criteria used for state aid application are open, transparent, non-arbitrary and provide incentives for a desirable behavior.

In the future, the Commission will reflect on examinations of levies introduced for environmen-tal reason, on the evaluation on economic and environmental implications of the use of economic instruments in environmental policy with regards to the single market, and, further attention will also be given to the analysis of Article 30 which prohibits all measures having an equivalent effect to quantitative restrictions on import.

The Communication has high importance for CEECs that apply for the membership in the EU since various aspects related to the present use of environmental levies in CEECs may cause conflicts with EU regulations. Compared to EU Member States, both emission and product charges are quite common in CEECs and major parts of the revenue is redistributed by environmental funds. In case of full membership of the applicant countries, this might represent a conflict area, especially Article 92 of the Treaty on state aid.

Commission of the European Communities: Environmental Taxes and Charges in the Single Market. Communication from the Commission COM (97) 9 final, 24p. Can be obtained free of charge in any Community language, by contacting: European Commission, DG XI, Directorate B - Environmental Instruments, Economic Analysis and Environmental Forward Studies. Rue de la Loi 200, B-1049 Brussels. Fax: +32 2 296 95 59.