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EU Energy Policy:
Energy Tax - Directive 2003/96/EC

Updated: June 2014

Index of this Page:
Energy Taxation Directive 2013 and New Revision Work in 2014
New rules on Energy Taxation, April 2011.
Read
Revision of the Energy Tax Directive 2003/96/EC, March 2010. Read

Parliament's Resolution on MBI, April 2008. Read

• Council’s Conclusions, March 2008. Read
• EU Council’s “New Impetus on EU Environmental Policy”, June 2007. Read
Green Paper on Market Based Instruments (MBI) for Environmental Purposes (COM(2007)140final), March 2007. Read
The EU Commission Reviews the Derogations Allowed by Energy Tax Directive 2003/96/EC. (COM(2006)342 final), June 2006. Read.

• Study on the Impact of Energy Taxation, July 2005. Read

  Energy Tax Directive 2003/96/EC, October 2003. Read

Encouraging the use of Alternative Fuels through the Energy Tax Directive, Article 16 by 2010, November 2001-03. Read


Energy Taxation Directive 2013 Adoption and New Revision in 2014
In June 2014,
the EU countries continue to discuss a revision of the Energy Taxation Directive, and have not reached an agreement yet.

In 2003, the Energy Taxation Directive was adopted. It was designed primarily to avoid competitive distortions in the energy sector within the Internal Market.
As it does not address the EUís higher ambitions in energy and climate change policies, the discussion started to revise it.

On 20 April 2012
the European Parliament, with a majority of votes including the EU conservatives, has voted against the draft Energy Taxation Directive stating that this is not a good moment to increment energy taxes, since it is a time of economic austerity and high fuel costs.
The vote of the European Parliament is not binding, it's now up to the EU countries to decide if they will follow the Parliament or the proposal from the EU Commission.

New Rules on Energy Taxation

On 13 April 2011 the European Commission presented a proposal to renovate the rules on taxation of energy products in the EU. The new rules pretend to reflect in the taxes on energy products its CO2 emissions and energy content.
With this measure, the Commission wants to promote energy efficiency and a more environmentally friendly consumption as well as to boost the market of alternative energies by removing unjustified subsidies to certain energy products (as diesel and coal), giving a consistent treatment to all sources of energy. It will also avoid distortions of competition in the EU market.

The new minimum taxes would be introduced in stages until 2018. Tax for diesel and kerosene would increase to a higher per-volume rate than petrol (CO
2 emissions and energy content are higher per volume in those). Minimum taxes on LPG and natural gas would increase in a factor of four, and biofuels would be also taxed though there won't be a CO2 tax for sustainable fuels because its emission factor is zero.

Fuels used to generate electricity would be mostly exempted from CO2 tax because they are subject to ETS. But CO2 tax would be applied in small installations exempted from ETS.

Electricity produced by nuclear energy would be now taxed as all other electricity, with no CO2 tax because it does not produce CO2.

Regarding to business, the Member States would retain flexibility to apply reduced taxes for certain businesses but above the Community minima. Taxes below minima could apply just for sectors under risk of carbon leakage.

Read this presentation from the European Commission for more information and find out here the proposal for the new Council Directive.

To recalculate the existing energy taxes they must be split into two components to determine the new tax. In this way higher values are done to fuels with higher CO2 emissions and lower energy content.
For detailed information about the how the taxes are calculated see this presentation of the EC.


Ideas for Revision of the Energy Tax Directive
On 10 March 2010, the European Commission announced 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 harmonization 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 finalizing 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 liter 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 behavior, 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)


“Impacts of Energy Taxation in the Enlarged European Union” 11 July 2005
This external study carried out for the European Commission has two objectives:
- to analyze how the implementation of the energy taxation directive will affect the EU and its member states
- to analyze how energy taxation can contribute to climate policy in the enlarged Union
Results show that a common EU carbon tax would be the most efficient way to reach the EU climate policy objectives. However an EU carbon tax would harm competitiveness in some energy-intensive sectors.

Read the study on the European Commission's web site
(pdf file 257kB)


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:

New EU minimum taxes Rate, 2004 €-Cent/kWh Increase from 1992 directive
Diesel-petrol* for transport
3.0-4.0 25%
Natural gas -LPG for transport
0.94-0.98 25%
Natural & coal for heating **
0.11 (0.055) New tax
Fuel oil –heating oil
0.13-0.21 14%
LPG & Kerosene for heating
0 -
Electricity**
0.1 (0.05) New tax

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

 

Encouraging the use of Alternative Fuels through the Energy Tax Directive
In November 2001, the European Commission incorporated the 2003/96/EC Directive, mainly within Article 16 to an Action Plan and two proposals for Directives to foster the use of alternative fuels for transport, starting with the regulatory and fiscal promotion of biofuels. The Directive provides Member States the option of applying a reduced rate of excise duty to pure or blended biofuels, when used as heating or motor fuel. This Directive was proposed with another one, which was adopted on 8 May 2003, the Directive 2003/30/EC. The objective of that Directive is the promotion of the use of biofuels or other renewable fuels for transport purposes. Member States must ensure that the minimum share of biofuels sold on their markets is 2% by 31 December 2005 at the latest, and 5.75% by December 2010.

Read more at the European Commission about energy products.

 

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