Yes to the revision of the Energy Taxation Directive

By Henrike Hahn , MEP (Greens, Germany) - Member of the ITRE Committee, European Parliament

But we need higher ambitions and Member States who stop to oppose the necessary reforms.

The review of the Energy Taxation Directive is part of the Fit for 55 package to implement the Green Deal to make Europe the first climate neutral continent by 2050 the latest. We have a once-in-a-generation opportunity to fulfill at least our Paris climate goals and to trigger a fair and green energy tax reform across the EU.

It has to be spelled out: The Commission favors de facto fossil fuel use since the existing 2003 Directive. Additionally, Member States’ highly divergent national tax rates are applied in combination with a wide range of tax exemptions and reductions, which can be seen as well as indirect fossil fuel subsidies.

In times of urgently needed action, we have to change that. The present 2003 Directive does not adequately promote greenhouse gas emissions reductions, energy efficiency and the take-up of electricity and alternative fuels such as renewable hydrogen, synthetic fuels, advanced biofuels, etc. This is the case because new, less carbon-intensive fuels are often taxed with the same rate as their fossil equivalent if the new fuel emerged in the years after 2003. And biofuels are disadvantaged by the volume-based taxation as well if the rates are expressed per liter. We have to change that as soon as possible.

Energy taxation is a fiscal instrument that gives us the chance to build up and provide economic incentives for a successful energy transition and that also ensures the proper functioning of the internal market. At the same time, it will drive lower greenhouse gas emissions and energy savings investments and contribute to sustainable growth.

In the end, energy taxation can contribute essentially to ending fossil fuel subsidies as an important Green policy demand.

The reform which the Commission proposed recently is overdue. From 2011, attempts to revise the Directive and to introduce a CO2 tax system based on energy content rather than volume, to achieve a better coordination with the EU Emission Trading System (ETS) and to remove the special treatment of energy consumers in Member States have long been blocked. It was blocked by the Conservatives in the European Parliament and by some Members States in the Council, including Poland and Germany. This was possible because the revision of the Energy Taxation Directive requires unanimity in the Council, unlike other energy and climate legislation which only requires a qualified majority in the Council and the Parliament.

Finally, we have a first new proposal on the table. And with the EU Green Deal and the EU’s raised ambitions in climate and environmental protection, there are no excuses for EU member states to finally adapt the Energy Taxation to the new European climate targets.

The central part of the proposed reform will be to transform the EU-wide taxation system based on volume – or euros per liter – to energy content-based taxation. This is done by eliminating incentives for fossil fuel use and by introducing a ranking of rates according to their environmental performance.

Moreover, it simplifies the current tax structure by grouping energy products and electricity into five categories and by ranking them according to their environmental performance. A specific minimum rate would apply to each energy product within a category. The five categories are:

■ Traditional fossil fuels (including e.g. petrol, gasoil, kerosene) and non-sustainable biofuels, bioliquids and certain solid biomass

■ Kerosene

■ LPG, natural gas and non-renewable hydrogen

■ Sustainable but not advanced biofuels, bioliquids and certain solid biomass

■ Electricity, advanced biofuels, e-fuels and renewable hydrogen

The highest minimum rate would apply to traditional fossil fuels due to their poorer environmental performance compared to other energy products. We Greens welcome the higher minimum tax rates for fossil fuels and lower rates for renewable energy products. We need to decrease the relative price advantage of fossil fuels over less polluting alternatives.

Of course, it needs to be worked on tax reductions and exemptions, for gas and oil used in agriculture, gas, oil and coal used by households for heating, or fossil fuels used by energy-intensive industries. These reductions and exemptions significantly lower the effective tax rate for fossil fuels and have to be abolished. Furthermore, the Commission’s proposal would finally end the current mandatory exemptions for the aviation and waterborne navigation as well as the fishing sector.

The revision of the Energy Taxation Directive has to envisage the necessary levels of carbon prices as well to effectively cut greenhouse gas emission and set an example globally. It will be very important for us in the European Parliament to address this missed opportunity in the forthcoming negotiations.

We also regret that, in legal terms, the Commission chose article 113 TFEU and not article 116 TFEU for their proposal. For article 113 unanimity is required in the Council, whereas with article 116 a qualified majority would have been sufficient for the revision to pass.

Article 113 TFEU leaves the file almost completely in the hands of Member States, which would again require – as already mentioned above – an unanimous agreement on a revised text. In 2011, the attempt to revise the ETD has failed already because there was no consensus among the EU Member States. It is now on the national governments to demonstrate the necessary leadership in revising the ETD to ensure that the EU delivers the European Green Deal objective of carbon neutrality and fully internalizes the “polluter pays” principle for the sale of energy products. Let’s hope that the newly elected German government will play an important role and push with ambition for a revision of the Energy Taxation Directive in the light of the Green Deal.