Energy Taxation Directive

The revision of the Energy Taxation Directive is key to achieve the EU’s increased emissions reduction ambition. We welcome the current revision proposal included in the Fit for 55 Package for a taxation based on the climate impact of fuels and energy. It needs however to ensure a better harmonisation among Member States of taxation rules and levels, necessary to safeguard a well-functioning single market. Key regulatory measures are needed to help the development and deployment of low-carbon liquid fuels, one of which relates to the taxation of fuels and energies. We support a reform of fuel and energy taxation as enabler for very low or zero taxation for low-carbon fuels and energies and to ensure a level playing field for all energy sources.

We understand that taxation rates could be different for fuels and energies as function of their use as transport, heating or industrial energy source but is of the opinion that the taxation calculation base should be uniform for all their uses. In the heating sector, taxation rates could be lower based on social considerations.

Read our Fit for 55 recommendations here.

Energy Taxation Directive as a mean to develop and deploy low-carbon fuels

Taxation can be an important tool to provide strong market signals for the development of low-carbon fuels. Currently all liquid fuels for a certain purpose or a specific sector are taxed at a similar level regardless of carbon intensity. Zero or very low tax for low-carbon liquid fuels would facilitate fuel pricing that is both socially acceptable, and able to contribute to a business case for investments.

We are of the opinion that:

  • The energy taxation should shift away from a volume-based taxation towards a primarily, or wholly combustion CO2-based taxation;
  • The Energy Taxation Directive review should strive for an EU-harmonised approach and provide a long-term visibility on the applied taxation rates;
  • The taxation should concentrate on the CO2 emissions and not on all the greenhouse gas components to try to keep the legislation simple and effective;
  • Sustainability criteria should be based on the Renewables Energy Directive. The energy taxation directive review will need to evaluate how to adequately promote greenhouse gas emission reduction via several routes, including via alternative fuels. Within the list of indicated alternative fuels, we would like to see that all sustainable biofuels are considered in the energy taxation directive review and not only the advanced biofuels;
  • The framework must ensure that national tax systems reflect the above principles, and in particular that across the EU national tax levels of specific energy carriers follow the ratios between the minimum tax levels as set by the Energy Taxation Directive.
Road transport taxation

Road transport fuels are a crucial lead market for the timely development and scale-up of low-carbon technologies. Since this sector has already a well-developed excise taxation base, it is also a lead market to initiate the shift from an excise volume-based taxation to a primarily, or wholly combustion CO2-based taxation.

The CO2-based taxation should be determined based on the combustion carbon intensity of the fuel emitted at the point of final consumption. The point of consumption is considered as the point where currently excise tax becomes due. This is at the moment products are removed from the EU excise warehouse system and are supplied to a non-exempt destination (such as a retail station), which is the point of supply to the market, or any point of obligation that the Member State selects as being representative for the final consumption.

Sustainable low-carbon fuels should be exempted from the combustion- CO2 based taxation, creating as such the ability to deliver a contribution to a business case for investments.

Aviation taxation

In order to introduce aviation fuel taxation, we believe that following elements should be taken into consideration:

  • The aviation fuel taxation should only be applied for all intra-EU flights with a review to include international aviation at a later stage;
  • The aviation fuel taxation should be coherent with the taxation base of road transport fuel and energy taxation;
  • The mandatory exemption on taxation should be changed into a mandatory application. Exemptions should still be allowed but in exceptional cases and after formal approval by the Commission.

Aviation ticket taxation based on CO2 does not seem be an adequate way to provide incentives for the development and deployment of the sustainable aviation fuels as it is not addressing the main players in the delivery or use of sustainable aviation fuels. It is not necessarily proportional to the CO2-emissions and has a much bigger impact on low cost fares compared to higher cost fares.

Maritime fuel taxation

In order to introduce maritime fuel taxation, we believe that following elements should be taken into consideration:

  • The maritime fuel taxation should be coherent with the taxation base of road transport fuel and energy;
  • The mandatory exemption of taxation of maritime fuels in Community waters should be changed into a mandatory application. Exemptions should still be allowed in exceptional cases and after formal approval by the Commission;
  • Particular measures should be foreseen to avoid bunkering outside the EU as mean to circumvent EU marine fuel taxation. The risk for bunkering is much higher for maritime transport compared to the risk of tankering for aviation due the flexibility in navigation for maritime transport.
Taxation of heating energy sources

In order to review the taxation on heating fuels and energies we believe that the following elements should be taken into consideration:

  • The taxation on heating fuels and energies should be coherent with the taxation base of road transport fuel and energy;
  • Exemptions or use of lower taxation rates should be allowed when due to specific regional conditions there is a lack in the availability of alternative fuels/energies for heating purposes or for social considerations.
Taxation related to fuels and energy used in the manufacturing processes

FuelsEurope welcomes the review of the Energy Taxation Directive as an opportunity to harmonise the way in which several clauses are handled under the current Energy Taxation Directive. They lead to distortion of competition among companies located in different Member States and contribute to the fragmentation of the internal market.

In order to avoid double taxation, fuels and/or energies used in the manufacturing and in the logistics chain, should be exempted from combustion- CO2 based taxation when used as energy source. Therefore, we would like to maintain the provisions provided under article 2, article 21(3) and article 17 of the Energy Taxation Directive as unchanged, with the following recommendations:

  • Introduction of mandatory exemptions for both the produced and purchased energy under article 21 (3), without the possibility to tax those upon Member States decision;
  • Maintaining the exemptions for the energy intensive businesses but considering the revision of the eligibility criteria (article 17). These exemptions should be mandatory, avoiding the possibility for taxation upon Member States decision.
  • The own use privilege covers the production of all energy products defined in article 2 (1) of the Energy Taxation Directive, irrespective of their uses.