Getting the price right - Exploring the legal possibilities of taxing meat and dairy consumption in the EU on environmental grounds

Abstract: This paper argues that industrialized meat and dairy production create substantial environmental costs that are currently not being reflected by the price paid by consumers. One way of addressing this could be by taxing those products proportional to the environmental damage they cause based on the principle that the polluter should pay. The question is if such a tax could be legally motivated under EU law, looking at the EU treaties, the environmental principles as well as the Union’s international obligations, in particular relating to climate change mitigation. If action at the EU level is not legally possible or politically feasible the paper also investigates the scope for introducing national measures in relation to EU law. The responsibility to protect the environment is shared between the EU and its member states, and the treaties allow for the introduction of fiscal measures that promote the EU’s environmental objectives. Apart from this, the EU has a separate mandate to harmonize taxes to ensure the functioning of the single market and the treaties require that the environmental objectives be integrated into such legislation as well. However, since the member states retain their power to levy taxes, complete unanimity is needed if the EU wants to introduce measures of a fiscal nature. Member states can introduce unilateral environmental levies on food products since that is not an area where the EU has taken harmonizing action yet and national environmental taxation could eventually pressure the EU to harmonize the area. Another option could be to reform the EU’s VAT system in order to increase the possibility for member states to use differentiated VAT rates on environmental grounds. The environmental principles, most notably the polluter pays principle and the precautionary principle, form an integral part of EU law but does not seem to create any positive legal obligations for the EU legislator. Consequently, there is no obligation to take legislative action in this case, although the principles do serve a guiding purpose. The paper concludes that a EU consumption tax on meat and dairy could be designed in a way that avoids legal obstacles. However, since there is limited public and political awareness concerning the environmental damage caused by industrialized meat and dairy production, a consumption tax should preferably be accompanied by a broader policy package that includes public awareness campaigns as well as production-side command and control measures, to minimize the risk of economic or political backlash.