Energy Tax

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.

*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

“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 analyse how the implementation of the energy taxation directive will affect the EU and its member states
_ to analyse 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)

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)

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.

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).

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)

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.

Return to EU Policy