EN    EN EN 
EN    EN  EUROPEAN COMMISSION 
Brussels, 13.4.2011 
SEC(2011) 410 final 
  
COMMISSION STAFF WORKING PAPER 
SUMMARY OF THE IMPACT ASSESSMENT  
 
Accompanying document to the 
  
Proposal for a 
 
COUNCIL DIRECTIVE 
 
amending Directive 2003/96/EC restructuring the Community framework for the 
taxation of energy products and electricity  
 
 
{COM(2011) 169 final} 
{SEC(2011) 409 final} 
EN 2   EN 1. PROBLEM DEFINITION  
The Commission services carried out an imp act assessment to examine the impacts of 
possible options for the revision of  the Energy Taxation Directive1 (hereafter "the ETD" or 
"the Directive"). 
The EU has set itself a series of demanding, le gally binding climate and energy targets. The 
current Directive is not consistent with this policy framework and contains several shortcomings from the perspective of the functio ning of the internal market. In particular, the 
following problems should be addressed: 
(1) The current minimum rates are based on th e volume of energy products consumed. They 
do not reflect the energy content or the CO
2 emissions of the energy products, leading to 
inefficient energy use and distortions in the intern al market. They also create incentives that 
are contradictory to the EU energy and climate ch ange goals as, for inst ance, they promote the 
use of coal (lower tax rate) which is the product with the highest CO 2 content. As regards 
motor fuels, lower minima for diesel further re inforce the natural advantage that diesel has 
over petrol due to its higher energy content. The current minimum rates also discriminate 
against renewables which are in principle taxed at  the rate of the conventional fuel which they 
replace even though their energy content is lowe r (e.g. ethanol versus petrol and biodiesel 
versus gas oil). Moreover, the current minima do not create a level playing field for business 
consumers, because, in practice, economic opera tors can be better off compared to others 
depending on the energy source they use. 
(2) There is lack of coor dination between the ETD and the EU ETS (Emission Trading 
System) Directive2. The purpose of both th e EU ETS and of a CO 2 tax which Member States 
can levy on the basis of the ETD is to allow for cost-efficient reductions in greenhouse gases 
for a specific set of activities. However, CO 2 taxation on the basis of  the ETD is applied by 
Member States in an uncoordinated manner. He nce, more guidance and clearer rules in the 
ETD are required. The scope of the ETD cove rs in principle all energy products and 
electricity used to produce heat or to move  engines. The EU ETS Directive applies to 
greenhouse gas emissions from major energy a nd industrial installations. Some operators 
consuming energy are covered by both instrument s (e.g. paper mills), whilst others are left 
outside the scope of both regulatory framewor ks (e.g. small installations using energy in 
certain industrial processes). Bo th situations can lead to cost-efficiency losses and can distort 
the internal market. Whilst combined applic ation of taxation and the EU ETS Directive 
produces a strong incentive to reduce emissions, this might not be where reducing emissions 
would be the cheapest. This undermines the ve ry logic of the EU ETS and distorts its 
functioning. 
(3) The ETD contains two provisions allowing for special treatment of certain energy 
consumers which have to be reviewed by the Council on the basis of  a Commission proposal. 
Article 9(2) of the ETD allows three Member States (BE, LU and DK) to apply levels of taxation for heating gas oil below the minimum level of taxation. Article 15(3) of the ETD 
                                                
 
1 Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for taxation 
of energy products and electricity (OJ L 283 of 31.10.2003 p. 51). 
2 Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a 
scheme for greenhouse gas emission allowance trading within the Community and amending Council 
Directive 96/61/EC (OJ L 275, 25.10.2003, p. 32–46). 
EN 3   EN allows Member States to a pply a level of taxation down to  zero to energy products and 
electricity used in agricultural, horticultural or piscicultural works, and in forestry. It is the 
only provision in the ETD that allows that  certain business consumers benefit from 
unconditional reductions/exemp tions below the EU minima. 
2. IS EU ACTION JUSTIFIED ON GROUNDS OF SUBSIDIARITY ? 
The problems identified can only be remedied by means of a revision of the ETD. Under the 
existing ETD, Member States can increase the rates of their energy taxes or introduce CO 2-
related taxes. However, such national approaches  risk distorting the internal market, due to 
the non-harmonised structure and le vel of the national taxes:  
(1) The current minimum rates limit the level of  ambition that Member States can pursue 
with taxes on energy, in particular for bus iness use where energy taxation directly 
affects the competitiveness of companies.  
(2) CO 2 taxes introduced in the framework of th e existing ETD do not adequately address 
emissions in the non-ETS sector as a larg e part of energy use remains untouched by 
those CO 2 taxes. Furthermore, for energy uses  covered by the ETD, it is difficult to 
apply a CO 2 tax only to non-ETS installations. 
(3) A theoretical "CO 2 tax" can be put into practice in a number of wa ys and the lack of an 
EU-framework opens the door to the creation of national solutions which can lead to 
internal market distortio ns and/or double taxation. 
3. THE MAIN POLICY OBJECTIVES  
The main objective of the revision  of the ETD is to bring it mo re closely into line with the 
EU's energy and climate change objec tives, in particular to address CO 2 emissions in the non-
ETS sector, avoid negative inte rference with the EU ETS, f acilitate energy savings and 
deployment of renewables and allow revenue ge neration in an un-distortive way. In general, 
the revision should improve the stru cture of the current Directive, so as to enable the Member 
States to use energy taxation more effectivel y for environmental and other policy purposes 
and to improve the functioni ng of the internal market. 
The objectives of the revision of the ETD  can be further specified as follows: 
(1) Ensure consistent treatment of energy sour ces in the ETD and therefore create a real 
level playing field between different energy consumers. 
(2) Provide an adapted taxation framework for renewable energies. 
(3) Provide a framework for the use of CO 2 taxation in areas where the EU ETS does not 
apply and avoid overlaps between both inst ruments leading to losses in cost-
efficiency.  
4. POLICY OPTIONS  
In order to examine how the different policy obj ectives could best be addressed, a number of 
options were examined, comparing them to the ba seline (= no further changes to the existing 
EN 4   EN ETD beyond the gradual expiry of the remaini ng transitional periods). Option 1 and 2 consist 
in revising the minimum rates of the various energy sources in a cohe rent way, respectively 
based on an energy-content and on a CO 2 basis. Options 3A and 3B propose to revise the 
structure of the Directive by splitting existing minima into two parts (energy content and CO 2 
emissions) reflecting the diffe rent environmental objectives  behind energy taxes - energy 
savings on the one hand and reduction of CO 2 emissions on the other (option 3B having lower 
minimum rates for CO 2 taxation). Option 4 consists in introducing an addi tional uniform CO 2 
tax on top of the taxes already levied under the ETD to compleme nt the EU emission trading 
scheme (policy option 4). Two transport specific  options (options 5 a nd 6) model the impact 
on the fuel mix of aligning the petrol a nd diesel rates on an energy content and CO 2 basis. As 
opposed to option 5, option 6 requires Member Stat es to respect the relationship between the 
minimum rates in their national tax rates. 
In order to examine the impacts of the policy options, assumptions on the levels of taxation 
had to be made. For the part of taxation based on CO 2 emissions, a range of CO 2 prices 
covering the range of price e xpectations inside and outsid e the ETS were used in the 
modelling (10, 20 and 30€/t). The energy content pa rt of taxation was based on the current 
rates of certain heating products  and, for motor fuels, on the ra tes proposed in the commercial 
diesel proposal3. The resulting rates used for modelling options 1 to 6 expressed in the units 
used in the ETD are shown in the following table: 
Table 1: Minimum rates of taxation  used for modelling options 1 to 6 (rates on 1/1/2013) in current ETD 
units 
Option 
Energy product Unit Minima as 
set in the 
ETD Commercial 
diesel 
proposal 1 2 3A 3B 4 5 6 
Motor fuel use           
Petrol  €/1000 l 359 380 380 380 380 380 380 380 380
Gas oil  €/1000 l 330 380 380 380 380 380 380 438 438
Kerosene  €/1000 l 330 330 330 330 330 330 330 409 409
LPG  €/1000 kg 125 125 125 125 125 125 125 528 528
Natural gas  €/GJ 2.6 2.6 2.6 2.6 2.6 2.6 2.6 na na  
Heating use (non-
business use)           
Gas oil  €/1000 l 21 21 22.2 54.9 66 38.6 60.3 na  na 
Heavy fuel oil €/1000 kg 15 15 24.0 61.8 73.8 42.9 68.0 na  na 
Kerosene €/1000 l 0 0 20.9 50 59.0 34.7 55.0 na  na 
LPG €/1000 kg 0 0 27.6 58.0 71.2 42.5 63.8 na  na 
Natural gas €/GJ 0.3 0.3 0.6 1.1 1.4 0.9 1.2 na  na 
Coal €/GJ 0.3 0.3 0.6 1.9 2.2 1.3 2.1 na  na 
Electricity €/MWh 1.0 1.0 2.16 0 1.0 1.0 0 na  na 
Heating use (business 
use)           
Gas oil  €/1000 l 21 21 22.2 54.9 60.4 33 60.3 na  na 
Heavy fuel oil €/1000 kg 15 15 24 61.8 67.8 36.9 68.0 na  na 
Kerosene €/1000 l 0 0 20.9 50 55.2 30.2 55.0 na  na 
LPG €/1000 kg 0 0 27.6 58 64.9 35.9 63.8 na  na 
Natural gas €/GJ 0.15 0.15 0.6 1.1 1.3 0.7 1.2 na  na 
Coal €/GJ 0.15 0.15 0.6 1.9 2 1.1 2.1 na  na 
Electricity €/MWh 0.5 0.5 2.16 0 0.5 0.5 0 na na 
                                                 
3 COM(2007) 52. 
EN 5   EN Moreover, two additional policy options were  identified to respond to revision clauses 
contained in Articles 9(2) and 15(3) of the Directive. Finally, a number of options were 
assessed for awarding special treat ment to sectors deemed to be at risk of carbon leakage.  
5. ASSESSMENT OF IMPACTS  
The assessment is based on the wide range of  contributions from various stakeholders 
(Member States, businesses, ot her Commission services). In  addition, the Commission has 
made a qualitative and quantitative analysis, usi ng the results of three models in order to 
assess the impacts (E3ME, TREMOVE, and QUESTIII). 
In general, a more efficient tax structure in itself would provide better  and more consistent 
price signals and would ensure more effectiv e use of energy taxation both for environmental 
and fiscal purposes. This impact assessment show s that the costs of restructuring the existing 
tax system now would be very low or even negative. As far as administrative costs are 
concerned, using the existing excise system for the purpose of CO 2 taxation allows 
introducing a new element in energy taxation without any additional costs and without any 
new administrative burden for co mpanies and tax administrations. 
Macroeconomic impacts of all policy options are essentially driven by how Member States 
use additional revenue. If the revenue is recycled through reductions in labour costs, effects 
on GDP and employment are always positive, alt hough limited in size. As the scale of effects 
depends on the amount of additional revenue gene rated, option 4 yields the highest effects. 
GDP change nevertheless stays below 1/3 of a percentage point, whereas the number of 
additional jobs created would grow to just under 1 million in 2030. The effects of the other 
policy options would remain cons iderably smaller. These trends  were confirmed by additional 
modelling carried out on the ba sis of updated baseli ne projections taki ng into account the 
effects of the financial and economic crisis. Revenue recycling in the form of lump-sum 
transfers to households or the use of additi onal revenue for fiscal consolidation does not 
generate positive GDP and employment effects.  
The level of additional revenue for Member States under the different policy options 
(independently of the qu estion of recycling) was found to depend heavily on how they would 
implement the new structure and in how far th ey would make use of the possibility for 
exemptions or reductions. An additional CO 2 tax of 20€/t on all non-ETS emissions has a 
budgetary potential of about 40 billion € in 2020 for the EU-27.  
The most relevant environmental exte rnality addressed by taxation is CO 2 emissions. Under 
all options total CO 2 emissions would reduce, up to around 2% under option 4. This 
represents about 37% (or 92 million t CO 2) of the reduction effort needed outside the ETS if 
one takes into account the baseline emissions as  corrected downwards recently. Likewise, all 
options would, to varying degr ees, provide a more favourab le tax environment for the 
deployment of renewable energies  and in particular biofuels. 
Overall the ETD revision was not found to produce negative income  effects, but the 
distributional impact varies according to the method of re venue recycling chosen. Although 
labour-tax recycling produces th e best overall results for house hold income, it tends to favour 
higher income over low-income households. Lump-sum recycling avoids regressive 
distributional effects though at the cost of producing a sli ght overall income decrease. A 
parallel increase in transport costs mitigates re gressive distributional impacts of heating cost 
increases. 
EN 6   EN As a whole, the sectoral impacts do not raise a concern for adverse comp etitiveness effects in 
any of the policy options, a lthough effects are not equall y distributed among productive 
sectors. Under the assumption of labour tax r ecycling, employment levels are higher or 
constant in all sectors and only very fe w sectors experience small output losses. 
As regards the car manufacturing sector, it should be observed that the mandatory alignment 
between national rates for motor fuels under op tion 6, assuming that MS would keep their 
petrol rates unchanged and w ould only increase rates on dies el, would only slow down the 
increase in sales of diesel  cars (they would decrease by 11.7% by 2020 compared to the 
baseline, which still represents an increase in 9%  of sales of diesel car s in absolute figures). 
Option 6, removing the price advantage for diesel both in the EU minima and in national rates 
would also have a rebalancin g effect on the supply and dema nd on the fuel market. Such 
neutral treatment of all transport fuels woul d provide a technology neutral advantage to all 
CO 2-free fuels and would also encourage energy efficiency. 
6. COMPARISON OF OPTIONS  
The policy options were assessed against th e following key criteria , reflecting the policy 
objectives described in Chapte r 3: internal market and fa ir competition, environmental 
effectiveness (CO 2 reductions), budgetary  impacts and equity (among Member States and 
energy consumers). The results are summarised in Table 2: 
Table 2: Comparison of the policy options in terms of selected assessment criteria 
Policy 
option Internal market 
and fair 
competition Environmental 
effectiveness Budgetary 
impacts Equity 
Option 1  + (+) ++  
Option 2  - + - -  
Option 3A  ++ + + -  
Option 3B  + (+) (+) ++ 
Option 4  (+) ++ ++ - -  
Option 5  + + +++  
Option 6  (-) ++ ++ +  
 Note: The brackets denote that only half a mark is given. 
All policy options improve the functioning of the internal market  as they remove distortions 
between the tax treatment of energy sources. Di stortions between Member States are also 
reduced although somewhat less in option 3B because of the transitional period for nine Member States and in option 4 imposing an add itional tax on top of existing national rates. A 
fairer treatment of ETS versus  non-ETS companies is best achie ved by the variants of option 
3 which partially alleviate the tax burden on ETS companies by intr oducing a complementary 
CO
2 tax element for all installations not cove red. As far as the transport options are 
concerned, option 6 is better able to achieve equal treatment of energy sources (petrol and 
diesel) but on the other hand might lead to somewhat higher divergence in rates between 
Member States. 
Regarding environmental effectiveness , the highest CO 2 reductions are achieved under option 
4 which introduces a uniform CO 2 tax across the EU. As fo r transport emissions, the 
TREMOVE modelling showed that policy option 6 would not only impact on fuel mix but 
also on actual consumption thus le ading to an overall reduction in CO 2 emissions in spite of a 
EN 7   EN certain readjustment in the demand between petrol  and diesel in line with the objectives of the 
EU policies and with the CO 2 and cars strategy. 
Although the budgetary impacts  would very much depend on national taxation policies and 
are therefore rather difficult to predict, some policy options are more likely than others to create additional revenue or budgetary losses.  Option 2 is the weakest from the budgetary 
point of view because it restricts the tax base exclusively to fossil fuels consumed in the non-
ETS sector. Option 4, introducing an additional CO
2 tax on all non-ETS emissions, has the 
highest budgetary impact. It is estima ted that an additional tax of 20€/t CO 2 on all non-ETS 
emissions could potentially generate a bout 40 billion € in 2020 for the EU-27. 
Equity  amongst Member States would best be enhanced under policy option 3B introducing 
transitional periods reflecting the solidarity a pproach of the energy and climate change 
package. Equity among energy consumers can be  significantly increased if both heating and 
motor fuel uses are covered by the ETD revision,  because such a combination limits potential 
negative distributional impacts.  
Additional policy options 
Repeal of country specific minima for heating gas oi l (Article 9.2): The existence of the lower 
minima for heating gas oil in BE, LU a nd DK creates an undue a dvantage for business 
consumers in these countries, riskin g distorting the internal market.  
Making the application of reduced tax rates to the primary sector subject to environmental 
counterparts (Article 15.3) : Article 15(3), with its unconditio nal exemption possibility, is not 
in line with the objectives of the Directive re lated to tax rate harmonisation and incentives 
towards energy efficiency and emission reductions . Exemptions from or reductions in general 
energy consumption taxation shou ld therefore be made conditi onal on providing a counterpart 
in terms of increased energy efficiency, while s till maintaining a certain margin of flexibility 
for Member States to account fort  specificities of the sector.  
Awarding special treatment to sectors deem ed to be at risk of carbon leakage: To mirror the 
approach taken under the ETS, the potential risk of car bon leakage needed to be addressed for 
small installations within ETS sectors but ex cluded from the application of the ETS. It 
appeared that this can best be achieved with a tax credit for these small installations based on 
past energy consumption of the company mult iplied by a fuel benchmark reflecting the CO 2 
content of a reference fuel. 
Preferred policy set 
From the analysis of the various options a set of preferred elements was then identified that 
would, taken together, score best  against the full set of criteria. Overall, policy option 3 was 
found to provide the best structure by proposi ng two separate minimum rates – one based on 
energy content and the other based on CO 2 emissions. Combining the somewhat more 
ambitious rates of option 3A with the transitiona l periods of option 3B is considered the best 
way of combining environmental effectiveness of the measure with re spect of the equity 
criterion. This should be combined with polic y option 6 for transport, which best ensures 
consistent treatment of energy sources.  
The full set of preferred polic y measures is the following: 
EN 8   EN • Structure and general level of taxation for heating fuels as presented in policy option 3A 
(20€/tCO 2 (2013-2020) and 30€/tCO 2 (2021-2030), (0.15 €/GJ fo r business use and 0.3 
€/GJ for non business use). 
• Transitional period for nine Member St ates for heating fuels to introduce CO 2 based 
taxation until 2020 as contai ned in policy option 3B. 
• Taxation of transport fuels on the basis of transport policy option 6. 
• Repeal of country specific minima for heating gas oil in accordance with Article 9(2) of 
the ETD. 
• Reduction in the CO2 tax liability for small installations from sectors deemed to be 
exposed to a risk of carbon leakage on the basis of a fuel benchmark. 
• Make the application of tax reductions for the primary sector (Article  15(3) of the ETD), 
subject to the delivery of environmenta l counterparts in a simplified manner. 
• Inclusion of biofuels into the li st of energy products in the ETD. 
• Indexation of the minimum rates based on en ergy content (Annex 14 explains how this 
could be done in practice). For the CO 2 part of the tax, this should take the form of a 
periodic alignment of the minimum rate to the evolution of the market price in the EU of 
the emission allowances based on an evaluati on in the Commission report to be submitted 
in accordance with Article 29 of the ETD. 
7. MONITORING AND EVALUATION  
Monitoring of taxation of energy consumption is  carried out at least once a year through the 
collection of information from Member States on  the occasion of the me etings of the Excise 
Committee. Moreover, twice ye arly DG TAXUD updates the information database on the 
energy tax rates applied by Member States (Excise Duty Tables). 
Moreover, Article 29 of the ETD  provides for a regular examin ation, on the basis of a report 
and, where appropriate, a proposal from the Co mmission, of the various provisions of the 
Directive and the minimum levels of taxation. This examination shall take into account the 
proper functioning of the intern al market and the wider objectives of the Treaty. Once the 
ETD will be reviewed, this examination will ha ve to focus, in particular, on how Member 
States have implemented the new framework for the taxation of energy products and electricity in their national sy stems, how it has allowed them to better integrate in them 
environmental and energy efficiency considera tions and what is the economic impact, taking 
into account the way in which Member St ates have used any additional revenue.