Scope:

EU legal framework for energy taxation (Directive 2003/96/EC).

Evaluation findings:

• The ETD is not in line with EU policy objectives: The Directive does not adequately promote greenhouse gas emission reductions, energy efficiency, or alternative fuels (hydrogen, synthetic fuels, e-fuels, advanced biofuels, electricity, etc.). The ETD does not provide sufficient incentives for investments in clean technologies. Moreover, there is a lack of alignment between the ETD and, among others, the Renewables Directive and the Energy Efficiency Directive. The treatment of the business sector, in particular energy intensive business and manufacturing sectors, under the ETD varies considerably. For the same reasons, the ETD is not in line with the objectives of the European Green Deal.

• Persistence of fossil fuel subsidies: Highly divergent national rates are applied in combination with a wide range of tax exemptions and reductions in order to safeguard the competitiveness of EU industries and economy as well as to pursue other national policies. The wide range of exemptions and reductions are de facto forms of fossil fuel subsidies, which are not in line with the objectives of the European Green Deal. All this increases the fragmentation of the internal market and in particular distorts the level playing field across the involved sectors of the economy. In addition, there are some aspects of the ETD that lack clarity, relevance and coherence.

• Lack of relevance for the internal market: The ETD does no longer achieve its primary objective in relation to the proper functioning of the internal market, as the minimum tax rates have lost their effect. In the absence of an indexation mechanism, their real value has eroded over time and they no longer have a converging effect on national rates as the vast majority of Member States tax most energy products and, in some cases electricity, considerably above the ETD minima.

Estimated savings and benefits

The ETD dates back quite a while and it has left the Member States significant flexibility as to the scope and application of its provisions. The somewhat expected result stemming from the latter is a high level of diversity in how the ETD is implemented, including some CJEU disputes and subsequent rulings. As for the former, over the years of application, accentuated furthermore by a rapid technological development and emergence of new products, the ETD accumulated backlog, discrepancies and confusion over certain legal provisions.

Based on the available feedback, the evaluation concluded that ensuring compliance with the minimum levels of taxation overall did not cause notable compliance costs.

The specific implementation of the ETD is dependent upon several specific national or other EU policies being applied in the same domain, national priorities and industrial legacy, prevailing economic and trading conditions or business models of individual sectors or companies. Due to the wide ranging flexibility left to Member States to apply exemptions, reductions and refunds it is vastly complicated to even calculate effective rates in a harmonised way across the EU. Particularly that at the time of the evaluation, no official data collection existed to capture effective tax rates. This means that it was difficult to single out and quantify some effects of the Directive's working.

Which objective(s) does the Commission pursue?

The Commission proposal is part of the ‘FIT for 55’ package. One of its main objectives is to contribute to the EU environmental objectives, and namely, the reduction of emissions.

Other two main objectives of the review are the proper functioning of the internal market, via updates harmonisation rules and the contribution to the preservation of public revenues for the general budgets.

The impact assessment accompanying the proposal confirms that the revision would imply a substantial contribution to the intended objectives. See: SWD/2021/641 final