Energy taxation rules are out of step with EU energy and climate ambition, new report finds

EU rules on energy taxation no longer deliver the same positive contribution as when they first came into force in 2003, according to a new report published by Commission services today. While the evaluation of the Energy Taxation Directive (ETD) does not make any policy recommendations, it explores how more environmentally friendly policies could better support the EU’s wider climate change commitments. The EDT lays down rules for the taxation of energy products used as motor or heating fuels and for electricity. Today’s report shows that while it initially made a positive contribution to the internal market, current rules do not contribute to the new EU regulatory framework and policy objectives in the area of climate and energy, where technology, national tax rates and energy markets have all evolved considerably over the past 15 years. For example, no link exists between the minimum tax rates of fuels and their energy content and CO2 emissions. The evaluation also points out that the high divergence in national energy tax rates is not in line with other policy instruments and can lead to fragmentation of the internal market, a problem exacerbated by the widespread use of optional tax exemptions. At a time when the EU has considerably raised its ambition by setting new climate targets for 2030 – including reducing greenhouse gas emissions domestically by at least 40 % compared to 1990 levels – the EU’s energy taxation framework has not kept pace. For instance, the ETD does not reflect the current mix of energy products on the market in the EU. The evaluation concludes that overlaps, gaps and inconsistencies significantly hamper EU objectives in the field of energy, environment, climate change and transport. The full report is available here. Today’s publication is part of the Commission’s Regulatory Fitness and Performance (REFIT) programme and follows our blueprint for a transition to QMV decision-making in the area of climate and energy taxation published earlier this year. It comes as EU Finance Ministers prepare to debate the EU’s energy taxation architecture at their meeting in Helsinki this weekend.