Taxes account for a significant share of the final prices consumers pay for energy around the EU and can have a strong impact on consumption and investment patterns, the type of energy consumed and their use.
This is reflected by the different rates of energy taxation in different EU countries, with important variations between households and industrial use, between different energy sources, diesel and other transport fuels, and with rates that bare little relation to the energy content or externalities, such as CO2 emissions or air pollution.
Taxation policy is an important instrument for governments to ensure achievement of the energy union objectives, and in particular to facilitate the clean energy transition, while respecting the principle of subsidiarity and proportionality. The study on energy costs, taxes and impact of government interventions on investments was published in October 2020. It includes a chapter on energy taxation that examines the questions of the relation between energy taxes and energy subsidies, the relation of external costs, and how they are internalised by energy taxes. The 4th Commission report on “Energy prices and costs” (COM(2020)950) was also published in October 2020.
Progress towards the completion of the single energy market is on-going and energy taxation has an important role to play in it.
Qualified majority voting for energy and climate
The European Commission gas published a communication on more efficient and democratic decision making in the EU;s energy and climate policy, as part of the 4th State of the energy union report, in April 2019. The document asked the European Parliament and Council to reflect on how energy taxation could better contribute to the EU's energy and climate objectives, and how a move to qualified majority voting decision-making amongst EU countries could help unlock progress in this area. This strand of work builds on the Commission's blueprint for a gradual transition to qualified majority voting decision-making in all areas of taxation, first published in January 2019.
The current tax framework has not changed since 2003 and contains a range of incentives for fossil fuels, despite the EU’s ambitious energy and climate objectives and international commitments. These tax benefits have been persistent over the last decade in the EU and amounted to around €40 billion in 2016. A factsheet on energy taxation for energy products provides more detailed figures.
The Commission report from 2019 that evaluates the energy tax directive, is pointing out that existing gaps and inconsistencies significantly hamper the EU’s energy, climate and transport objectives.
Revision of the energy taxation rules
Driving the ambition further, the energy taxation directive 2003/96/EC will be revised in June 2021, as part of the European Green Deal. The preparatory work is underway, as a roadmap and an inception impact assessment were published in March 2020 and a public consultation was open for feedback until 14 October 2020.
Ensuring that taxation is aligned with the climate objectives is essential and the Commission proposes that the revision focuses on environmental issues and propose to use the provisions in the Treaties that allow the European Parliament and the Council to adopt proposals in this area through the ordinary legislative procedure by qualified majority voting, rather than by unanimity.
- Factsheet: Making energy taxation greener (July 2021)
- Evaluation on the energy taxation framework (SWD(2019) 332 final)
- A more efficient and democratic decision making in EU energy and climate policy COM(2019) 177 final
- Factsheet: Energy taxation for energy products (April 2019)
- Energy Taxation Directive 2003/96/EC
- Energy prices and costs in Europe
- Excise duty on energy (DG Taxation and Customs Union)
- Consultation: Evaluation of the EU framework for taxation of energy products and electricity (2018)
- Press release on a gradual transition to more efficient and democratic decision-making in EU tax policy (15 January 2019)
- Q&A - Revision of the Energy Taxation Directive (ETD) (July 2021)