The International Network
for Sustainable Energy

Updated: June 2010

Revision of the Energy Tax Directive

On 10 March 2010, the European Commission anounced a plan of an EU-wide minimum tax on carbon. The Commission is looking at reviving the idea of revising the 2003 Energy Taxation Directive, to bring energy taxation into line with the EU’s 2020 objectives (reducing greenhouse gas emissions by 20% by the year 2020, when compared to 1990 levels).
A minimum carbon tax would be introduced through an amendment to the EU's Energy Tax Directive. The directive, originally adopted in 1992, as part of the EU's efforts to build the internal market, sets minimum tax rates for energy sources such as petrol, coal, and natural gas when they are used as motor and heating fuel or to produce electricity.

Background: The existing Energy Tax Directive 2003/96/EC, started as an internal market harmonisation instrument. The highest minimum tax rates were introduced for oil fuels (excluding international aviation and shipping). Coal and electricity minimum tax rates were introduced but at extremely low levels.
Under the current regulation, the tax to be paid is calculated according to the quantity of fuel that is consumed. The Commission is interested in changing this taxation method, to calculate it according to carbon dioxide (CO2) emissions and the energy content of the fuel that is consumed. Fuels with high CO2 emissions and low energy content would be taxed most heavily.

A previous Commission proposal was drafted in 2009, but was held back and not formally presented to the Council, due to concerns that it would cause political wrangling and distract from the ratification of the EU’s new Lisbon Treaty. The new Commission is now reportedly finalising an impact assessment which will consider and revise the draft proposal for the revision of the Energy Taxation Directive prepared by the previous Commission.

The EU’s 2009 draft proposal to amend the Energy Taxation Directive planned to set a minimum carbon tax to be imposed by Member States. Compared to the existing Directive provided important environmental tax incentives:
- It introduced a CO2 tax quite distinct from the general energy tax to reduce CO2 emissions and to switch to more energy efficient fuels and/or technologies for energy production.
- It changed the tax base of the latter from the metric unit of 1000 litre to the energy unit of Gigajoule, thereby relating it to the calorific ( = energy content) content of each fuel.
- It introduced minimum levels of taxation (€10 per tonne of CO2 emitted) on different types of fuels linked to the intensity of their emissions, to be effective from 2013.
The aims of the draft proposal were to reduce emissions and influence consumer behaviour, educating them to select low-energy products and to give a big push to the use of renewable energy sources (RES). The main areas to be covered by the 2009 draft proposal were transport, agriculture, households and installations not covered by the EU’s emission trading scheme.

European Parliament's Resolution on the Green Paper on Market-Based Instruments for Environment and Related Policy Purposes

On the 24th of April 2008, the European Parliament adopted an own initiative report on the Green Paper on market-based instruments (MBI). The EU Parliament urges the Commission to adopt a clear strategy on MBI to price environmental damages. It also asks for the suppression of Environmentally Harmful Subsidies (EHS), who undermines the polluter pays principle, and suggests new measures such as a carbon tax and a kerosene tax and NOx emissions charges for airplanes. About Emissions Trading Scheme (ETS), the EU Parliament calls the Commission to establish a progressive tightening cap with quantitative limits and qualitative requirements and to base the EU-ETS on auctioning. It concludes by calling the European Commission and Member States to study the possibility to measure European growth using “green” indicators.

Download the resolution on the European Parliament's web site.

European Council, 13-14 March 2008

In its conclusions, the European Council stated that a review of the Energy Taxation Directive is needed to make it fitted more with the EU energy and climate’s objectives. The European Council also invited the Commission to publish its proposals on reduced VAT rates.

Read the European Council’s conclusions on the EU Council's web site( pdf file188kB)

EU Council’s Published a Draft “New Impetus on EU environmental policy”

On the 21 June 2007, the Council of the European Union published its draft conclusions on “A New Impetus for EU environmental policy”. The Council highlights the fact that market-based instruments can provide positive incentives. In addition, it stresses the fact that internalization of environmental costs are vital and it encourages Member States and the EU Commission to think about possibilities to shift the tax burden from labour to energy production and consumption and pollution.
The Council also reminds that the Commission is supposed to publish a roadmap about the reform of subsidies in 2008. These conclusions have been adopted by Environment Ministers on the 28th of June 2007.

Read the conclusions of the EU Council on the EU Council's web site ( pdf file 142kB)

Read the press release about the Environment Ministers Council (28.06.2007) on the EU Council's web site ( pdf file 267kB).

Green Paper on Market-Based Instruments for Environment and Related Policy Purposes. 28 March 2007. COM (2007) 140 final

In 2007 the European Commission launched a debate on how taxes, tradable emission rights and other instruments can be better used to fulfil the EU environmental and energy objectives. It did this with a Green Paper COM(2007)140. The paper tackles different issues such as:
_ How to make the Energy taxation directive more supportive of the EU environmental and energy policies?
_ How can the EU abolish environmentally harmful subsidies?
_ How can the use of market-based instruments be combined with the EU emissions-trading scheme?
The Commission also suggests the creation of a forum that could encourage and facilitate exchange of best practices between member states. It concludes that the use of market-based instruments should be increased both at the European and national levels.
The Green Paper launched a consultation closed on 31 July 2007.

Download the Green Paper on the European Commission's web site.

Communication from the Commission on the Review of the Derogations Allowed by the Directive 2003/96/EC. (COM (2006) 342 final)

In 2006 the EU Commission review the derogations (national reduced tax rates and tax exemptions)

Download the full text of the communication on the EU Law web site ( pdf file 173kB)

Directive on Taxation of Energy Products and Electricity (2003/96/EC)

Content and Background
The EU Commission proposed already in 1997 this directive for minimum levels of fossil fuel taxation, but the countries were only able to agree in March 2003 because of continued resistance from a few countries such as Spain and in the last phase Italy. Like any other tax proposal, it required consensus to be adopted.

The directive sets the minimum tax levels on fossil fuels for the coming 10 years, starting in 2004; but many countries have specific exemptions for up to 5 years. It broadens the scope of EU energy-tax rates to cover coal, gas, and electricity. Its effect is small, because most countries already have higher rates than the minimums.

The below table gives an overview of the new minimum tax levels:

*Unleaded petrol; leaded petrol is 17% higher.
** Rate in brackets are for business purposes; for natural gas, the low business-rate only applies for heating.

Status

In March 2003 the Economic and Finance Ministers (ECO-FIN Council) agreed to the new directive. The agreement waters down the proposal to be little more than a regulation for inflation of the energy tax rates introduced in 1992.

Several NGOs including EEB and Friends of the Earth have campaigned for this directive, but they criticized the result for being too weak to make a meaningful contribution to sustainable development. The new directive is not sufficient to motivate significant reductions of CO2 emissions. Thus, the European Environmental Bureau (EEB) continues its campaign for a fiscal reform (see www.ecotax.info).

Read the text of the Directive on the EU Law web site.

Read also more about the directive Minimum Taxation of Energy Products, COM(97)0030 on: www.eeb.org, www.foeeurope.org and www.europa.eu