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Poland: raising CNG excise tax could deter uptake

The Polish Finance Ministry has reportedly announced that it is looking into imposing an excise tax on compressed natural gas.

However, if European governments are serious about reducing carbon emissions, they should not impose excise duty on alternative fuels when the products are in their infancy, as this will discourage uptake. Market representatives have not responded favorably to the Polish government’s plans to impose compressed natural gas (CNG) taxes.

Indeed, they are arguing that by imposing such taxes, the government will effectively kill off the nascent industry when it should, in fact, be encouraging consumers to switch away from petroleum products towards alternative fuels such as CNG. This is not the first time that a European government has placed a tax on an alternative fuel once the product has started to become popular.

For instance, in Germany, the government has introduced a new €0.09 per liter tax on biofuels, claiming that it could not afford to continue losing the tax revenues from the product. Since the introduction of the tax, German sales of biofuels have fallen by around 30% compared to the previous year. European governments’ strategy of introducing an excise duty on cleaner fuels once their popularity increases goes against their stated objectives, especially with regard to the EU’s commitment to reducing carbon emissions.

However, aside from lower carbon emissions, there are other important reasons why the Polish government should support CNG. One factor is that, compared to oil, there are abundant remaining reserves of gas in the world. As a result, CNG has the potential to provide a much more stable supply of fuel in the future. Additional benefits of CNG include significant reductions in particle and nitrous oxide emissions, compared to diesel. When it comes to the promotion of alternative fuels, there has recently been a substantial gap between what many governments have said and what they have actually done.

However, for cleaner fuels to take off, fiscal incentives need to remain in place for much longer while the alternative fuel develops. If policy makers across Europe are serious about reducing carbon emissions, they should tread more carefully when imposing an excise tax on a nascent alternative fuel. (