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Taxation and Customs Union

Revision of the Energy Taxation Directive

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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to align the taxation of energy products with EU energy and climate policies, promote clean technologies and remove outdated exemptions and reduced rates that currently encourage the use of fossil fuels. In this way, we can reduce the harmful effects of energy tax competition, and help secure revenues for Member States from green taxes, which are less detrimental to growth than taxes on labour.

Taxation initiatives at both EU and Member State 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 or ETD – should play a central role. The rules it lays down support and complement other initiatives in the EU’s July 2021 package in support of the EU’s climate targets by ensuring that the taxation of motor and heating fuels, and electricity in the EU reflects their impact on the environment and on our health.

The infograph explains that taxation can help reach our climate and environmental objectives by encouraging a switch to cleaner energy and greener industry.  It goes on to say that the EU’s energy taxation framework, last updated in 2003, is out of step with the EU’s Green Deal and poses problems for the EU’s internal market.  Finally, it states that we need to steer the transition away from fossil fuels towards cleaner energy and more environmentally friendly consumer choices.

What are the main changes in the revised Directive?

  • Fuels will start being taxed according to their energy content and environmental performance rather than their volume. In this way, we ensure that the environmental impact of individual fuels is better reflected, helping businesses and consumers alike to make cleaner, more climate-friendly choices.
  • The way in which energy products are categorised 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 impact on the environment will be subject to higher minimum rates.
  • Exemptions for certain products and home heating will be phased out, so that fossil fuels can no longer be taxed below minimum rates. Member States 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 – a crucial measure given the role of these sectors in energy consumption and pollution.