EU's Kovács says the key is energy diversification, not tax cuts

European governments last September said they would not cut fuel taxes to counteract the effect of higher oil prices, which they said could spoil chances for economic growth. France and Poland were among the member states that then reduced the taxes, while Hungary brought forward an energy tax cut by several months. „A tax cut doesn't change demand or supply,” Kovács said at a press conference in Warsaw yesterday. „The profit for the producers will be higher, while the tax revenues of the states adopting the reduction falls. The long-term solution for EU states is certainly diversification of sources, routes of supply and the energy mix.” Crude oil for September delivery jumped as much as 36 cents to $74.11 a barrel on the New York Mercantile Exchange. The contract was up 28 cents to $74.03 at 3:20 p.m. Warsaw time.
The EU suffered an energy crisis at the beginning of this year when Russia's OAO Gazprom, the world's biggest natural-gas producer, stopped deliveries to Ukraine in a dispute over prices. Polish Finance Minister Stanislaw Kluza said last week the government is not currently planning to eliminate a tax reduction of 7.8 cents on fuel introduced in September 2005 by the previous government of the Democratic Left Alliance and intended for a period of only three months. According to an EU agreement made when Poland became a member of the 25-member bloc two years ago, the country has until 2009 to gradually bring its fuel tax up to a minimum of € 359 ($452) per 1,000 liters, the European Commission said in an e-mailed response to questions. The Polish government is also seeking ways to diversify its energy supplies after arguing in vain for the EU to condemn a gas pipeline being built underneath the Baltic Sea by Gazprom and two German companies, bypassing Poland. According to Kovács, the EU must increase the proportion of fuel it gets from renewable sources and reduce its dependence on fossil fuels. (Bloomberg)