France and Britain will next month press their European partners to boost
environmental awareness among consumers through tax incentives.

Following a promise last month by Nicolas Sarkozy, France’s president, and
Gordon Brown, UK prime minister, to use tax policy in the battle against global
warming, the two governments are developing details of the controversial
plan. The initiative has been welcomed by environmental groups but could
face resistance from industry and other member states, including Germany.

Officials suggest that VAT rates could be linked to existing European Union
environmental labelling schemes rating the energy efficiency of white goods,
such as refrigerators and freezers. Other products could include insulation
materials, double-glazing and renewable energy. But it may be difficult to
cover cars in the initial proposal –- as originally suggested by Mr Sarkozy –
because of that industry’s complexity.

One British official said: “We are trying to use indirect taxation as a way of
encouraging environmentally responsible behaviour.”

Environmental groups have welcomed the Franco-British move that will be
presented to European Commission officials and EU finance ministers next
month. Dave Timms, economics campaigner at Friends of the Earth, said: “It’s
a good idea to use the tax system to reduce the costs for consumers to make
the right environmental choice.”

However, the proposal is likely to run into difficulties.

László Kovács, EU tax commissioner, says he will study any plans carefully
but must consider them in a broader context. The Hungarian commissioner is
already tackling how to handle the end of a series of exemptions and reduced
rates, often negotiated by countries when they entered the EU, in 2010.

Privately, his staff doubt all 27 member states would agree to such a change.

White goods manufacturers are also doubtful. Older generation appliances
that still attracted higher-rate VAT would have to be sold off at deep discounts,
they say. They also worry about whether imports would comply with legislation.

Ceced, the industry’s representative body, in March said it would pull out of a
voluntary agreement to keep tightening standards because governments had
not enforced them properly.

“Too many governments are not stopping careless or unscrupulous operators
from marketing products that claim better energy efficiency than they actually
deliver,” said Magnus Yngen, of Electrolux, the Swedish manufacturer, who is
Ceced president. Ceced is testing products to see if they meet their claims. It
is moving towards recommending consumer tax credits, which are more
flexible and already used in Belgium.

Germany has yet to respond to the Anglo-French initiative; a fact some
officials excuse on the grounds of holidays, others as foreshadowing a
German veto.

Berlin has long opposed VAT exemptions, arguing it is better to have a unitary
rate that can be kept relatively low, rather than a litany of exceptions that drive
up the standard rate. Berlin repeatedly shot down proposals by Jacques
Chirac, former French president, to lower VAT on restaurants.