EXPLANATORY MEMORANDUM

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

Taxation of energy products and electricity in the Union is governed by Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity (the ‘Energy Taxation Directive’ or the ‘Directive’).

Pursuant to Article 19(1) of the Directive, in addition to the provisions laid down in particular in its Articles 5, 15 and 17, the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce further exemptions or reductions in the level of taxation for specific policy considerations.

By virtue of Council Implementing Decision 2014/722/EU of 14 October 2014 (preceded by Council Implementing Decision 2011/445/EU of 12 July 2011), Germany has already been authorised to apply a reduced rate of electricity taxation to electricity directly supplied to vessels, other than private pleasure craft, berthed in ports (‘shore-side electricity’).

The objective of this proposal is to extend that authorisation as requested by Germany, given that the current derogation expires on 16 July 2020.

By letter dated 29 January 2020, the German authorities informed the Commission of their intention to prolong the current measure until 31 December 2025. Additional information was provided by letter dated 30 April 2020.

Germany is seeking for a renewal of the authorisation to apply a reduced tax rate of EUR 0.50/MWh, equal to the minimum rate of taxation for electricity for business use as laid down in the Directive, to shore-side supply of electricity to vessels operating exclusively for commercial purposes in Union sea and inland waters (including fishing).

The requested period of validity is from 17 July 2020 until 31 December 2025, which is in continuity with the current derogation and within the maximum period allowed by Article 19 of the Energy Taxation Directive.

This reduction aims to continue to provide an economic incentive for the deployment and use of shore-side electricity in order to reduce air pollution in port cities, improve local air quality and reduce noise for the health benefit of inhabitants.

The objective of the measure to be applied by Germany is also to reduce the environmental impact of water-borne transport.

With the requested measure Germany wants to keep an incentive for the use of shore-side electricity which is considered a less polluting alternative to the generation of electricity on board vessels lying at berth in a port. As indicated in the request, in Germany the standard rate of electricity tax is EUR 20.50/MWh. The tax concession currently stands at EUR 20.00/MWh. This means that beneficiaries are charged at the applicable EU minimum tax rate for electricity under the Energy Taxation Directive of EUR 0.50/MWh (as specified in Article 10(1) and Table C of Annex I to the Directive, for business use). Germany allows the tax advantage to be provided both as a reduced tax rate charged at supply (a permission is needed) or as a tax refund.

On the other hand, according to Article 14(1)(c) of the Energy Taxation Directive Member States have to exempt energy products used to produce electricity on board ships at berth in ports. They may also do so in the case of electricity produced on board ships for navigation on inland waterways according to Article 15(1)(f) of the Directive. Germany confirmed the transposition of this latter optional exemption.

The German authorities have indicated that the tax reduction applies to all ships other than private pleasure craft, meaning that all ships involved in commercial navigation, regardless of size or flag, can benefit from the tax reduction. There is however no obligation for vessels to use shore-side electricity.

As indicated in the request, since the entry into force of the scheme in 2011, the number of beneficiaries has substantially increased; in the inland waterway sector, almost all vessels are able to purchase shore-side electricity; there are currently very few installations in the maritime sector, which are not intended for island ferries. Furthermore, according to the available data, in inland waters, there are 454 operational facilities, 385 planned facilities and the potential for a further 115 facilities. In maritime ports, there are 240 operational facilities (of which 237 are for island ferry services), 30 planned facilities (mainly for cruise ships and container ships) and the potential for a further 32 facilities.

As an estimation of the tax expenditures from the measure, the German authorities calculated the loss of tax revenue based on the amount of electricity consumed for the benefit and the amount of the advantage. The tax relief currently amounts to EUR 20.00/MWh (the standard tax rate, as mentioned before, is EUR 20.50/MWh). In 2019, 79 302 MWh of electricity were taken from shore-side electricity in ports. Taking into account the tax relief, this results in a loss of tax revenue for 2019 amounting to EUR 1.586 million. Assuming that increased use of shore-side electricity will occur in the future because of the support measures, a loss of EUR 2 million per year is estimated for the coming years.

Germany requested the authorisation to be granted until 31 December 2025, starting from 17 July 2020, without interruption with the current derogation and within the maximum period indicated in Article 19(2) of the Directive.

With the tax reduction, Germany wants to provide an incentive for vessel operators to use shore-side electricity in order to reduce airborne emissions and noise from the combustion of fuels by vessels at berth as well as CO2 emissions. The application of a reduced tax rate would strengthen the competitiveness of shore-side electricity relative to the burning of bunker fuels on board, which is tax exempt.