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EU reattempt tax on energy reforms to hit net-zero

New attempt on Energy Taxation Directive overhaul to reflect green ambitions of net-zero greenhouse tax emissions by 2050

The European Commission is to put forward to EU Finance Minister’s tax working group on 24 February 2024 a revised text for an overhaul for the Energy Taxation Directive (ETD).

The Directive set minimum excise rates on prescribed types of fuels and energies in 2003. Thanks to the directive, EU countries could no longer engage in price dumping to undercut each other and the single market was preserved. However, numerous exemptions were added – for aviation or maritime fuels used in fishing boats. This new version will seek to remove outdated exemptions and reduced rates that currently encourage the use of fossil fuels. Maritime shipping is one of the sectors whose generous exemptions could be abolished by the directive – but faces opposition from Spain and Portugal.  This includes a pivot away from taxing energy efficient electricity production towards oil and fossil gas.

Attempts to reform in 2011 failed due to lack of unanimous support from many states still dependant of coal and other fuels. Luxembourg, Poland and reportedly Germany were the main opponents. They are asking for longer transitional periods in sectors where sensitive exemptions are being abolished.

It works alongside the existing Emissions Trading Scheme (ETS) and the proposed Carbon Border Adjustment Mechanism (CBAM).

Energy Taxation Directive (2003/96/EC)

The Directive covers minimum excise duty rates on: motor; aviation; shipping; domestic heating fuels; and domestic electricity. It aims to support the Union’s green objectives to use minimum tax levels to encourage the switch to renewable energy. But also to ensure no distorting competition by under taxing fuels across borders.

2022 reforms: Minimum rates on energy content and CO2 emissions; withdrawal of exemptions

As with the 2011 attempted reforms, the new round of reforms will focus on energy source emissions, and how to link to duty rates. Minimum rates will be based on the energy content (expressed in euros per gigajoules) of each product. In this way, the new system will ensure that the most polluting fuels are taxed the highest. Many exemptions will also be removed – notably aviation kerosene and shipping heavy oil. It will be linked to the European Green Deal, the Commissions measure to help tackle greenhouse gas emissions.



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