With the energy landscape drastically impacted as a result of digitalization, new markets and the current environment, the Energy Taxation Directive is an integral part of the European Green Deal in addressing environmental issues, and the role environmental taxes can play in a green recovery across the EU. I will dive into the current review of the EU’s Energy Taxation Directive in this second blog in an ongoing series on the green recovery. In the first blog in this series, my colleagues focused on the EU’s proposed plastic tax.

In October 2003, the EU set out to define a number of rules surrounding the taxation of energy products through the Energy Taxation Directive. These energy products include electricity, motor fuels, heating fuels and more. Since then, many things have changed including the EU’s international commitments, its ambition for carbon neutrality by 2050, and its regulatory framework for energy and climate change. On top of this, there have been many new energy markets and technologies that have emerged, creating a very different energy landscape from that which existed in 2003, and this has only been amplified as a result of COVID-19.

After a re-evaluating the Directive’s effectiveness, the European Commission determined that the Directive’s numerous and wide-ranging list of exemptions and reliefs effectively favours the consumption of fossil fuels; fails to adequately promote greenhouse gas emission reductions, energy efficiency or alternative fuels such as hydrogen, advanced biofuels, synthetic and e-fuels; and no longer achieves its primary objective in respect of the proper functioning of the internal EU market.

In order to address this much-needed revision to the Energy Taxation Directive, a public consultation - ‘EU Green Deal – Revision of the Energy Taxation Directive’ - ran from 22 July to 14 October this year, bringing together the voices of citizens, NGOs, businesses, trade associations, national administrations and more. The result of this consultation is a document that aims to address various issues relating to existing and potential policy measures. It considers potential policy objectives for a revised Energy Taxation Directive, key priorities for energy taxation and looks at how tax might be structured, including standardization across member states rather than a base model to be flexed according to local markets.

With the EU recognizing the need to redesign its clean energy supply policies, following this public consultation the European Commission has an opportunity to consider all carbon pricing and policy measures together to ensure a consistent, holistic response that provides a clearly articulated policy accompanied by clear and simple taxation measures. This is, however, easier said than done.

As the next stage of review will look at the structure of energy taxation and its harmonization across EU member states, matters of consistency will be of paramount importance The Commission has some complex decisions to make, as adjustments could easily impair the effectiveness of any tax. The one thing that’s certain is that change is coming, and my hope is that this change will help us in achieving the long-term environmental objectives of the EU.