On 14 July 2021, the Commission adopted a proposal for a revision of the Energy Taxation Directive.
The new proposal aims to:
- align the taxation of energy products with EU energy and climate policies
- promote clean technologies
- remove outdated exemptions and reduced rates that currently encourage the use of fossil fuels
Through this initiative, the EU hopes to reduce the harmful effects of energy tax competition and help secure revenues for EU countries from green taxes, which are less detrimental to growth than taxes on labour. It does so by reflecting more accurately the climate impact of the EU’s various sources of energy and encouraging consumers and businesses to change their behaviour.
Main changes
The following are the main changes in the revised Directive:
- Fuels will be taxed according to energy content and environmental performance rather than volume. This ensures that the environmental impact of individual fuels is better reflected, helping businesses and consumers alike to make cleaner, more climate-friendly choices.
- The categorisation of energy products for taxation purposes is simplified to ensure that fuels most harmful to the environment are taxed the most. Products covered by the Directive are grouped and ranked according to their environmental performance. Fuels that have the most negative environmental impact will be subject to higher minimum rates.
- Exemptions for home heating and certain other products will be phased out so that fossil fuels can no longer be taxed below minimum rates. EU countries will be able to support vulnerable households and protect against energy poverty.
- Fossil fuels used as fuel for intra-EU air transport, maritime transport and fishing should no longer be fully exempt from energy taxation in the EU. This is a crucial measure given the role of these sectors in energy consumption and pollution.
Why this proposal?
Taxation initiatives at both EU and national level can help us reach our climate policy goals by encouraging a switch to cleaner energy, more sustainable industry and more environmentally friendly choices, as part of a socially fair green transition.
In guiding these initiatives, the EU’s proposal for a revised common framework for energy taxation – the Energy Taxation Directive (ETD) – should play a central role.
The rules it lays down support and complement other initiatives in the EU’s 'Fit for 55' package in support of the EU’s climate targets by ensuring that the taxation of motor fuels, heating fuels and electricity in the EU reflects their impact on the environment and on our health.
Background
In 2011, the Commission proposed a revision of the Directive. However, Member States in the European Council could not agree on the revision. Meanwhile, energy markets and technologies have experienced significant developments and the EU’s international commitments, notably the Paris Agreement in 2015, have evolved considerably.
In 2019, the Commission started the process of revising the Directive again. As a first step in the legislative process, the Commission published an evaluation of the Energy Taxation directive.
Next steps
The proposal is currently being discussed by EU countries in a dedicated ad-hoc working group of the Council.
Legal texts
- Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity
- Proposal COM (2021) 563 for a Council Directive restructuring the Union framework for the taxation of energy products and electricity