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.

Italy asked to be authorised to apply a reduced rate for the supply of shore-side electricity to vessels at berth in a port equipped with electrical installations with a rated installed capacity of more than 35 kW, for a period of six years. The objective of this proposal is to grant that authorisation by means of a derogation valid, as requested, for six years from 18 October.

By letter dated 14 September 2020, the Italian authorities informed the Commission of their intention to apply the measure. Additional information was provided on 12 May 2021.

Italy is seeking for an 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 at berth in a port equipped with electrical installations with a rated installed capacity of more than 35 kW.

The requested period of validity is six years, which is within the maximum period allowed by Article 19 of the Energy Taxation Directive.

With the requested measure Italy wants to give 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, the reduced rate for the beneficiaries will be EUR 0.50/MWh. That is the minimum rate for electricity as specified in Article 10(1) and Table C of Annex I to the Directive). Due to the degressive structure of the energy tax, the relative advantage will be higher for operators (and users) of installations with a relative low consumption.

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 -and electricity produced- on board ships at berth in ports. The exemption may also apply in the case of energy products used to produce electricity -and electricity produced- on board ships for navigation on inland waterways according to Article 15(1)(f) of the Directive. Italy confirmed the transposition of this latter optional exemption.

As indicated in the request, the electrification of port quays is currently not widespread in Italy and, therefore, the implementation of the tax reduction should not have financial effects in the short term. The Italian authorities could not make an estimation of the number of beneficiaries of the measure ex ante and, therefore, could not provide the annual budgetary expenditure.

The Italian authorities have indicated that the tax reduction applies to all vessels at berth in a port equipped with electrical installations with a rated installed capacity of more than 35 kW other than private pleasure craft, meaning that all ships involved in commercial navigation, regardless of size or flag, can benefit from the tax reduction.

The reason why the scope of the measure at issue has been restricted to vessels that are fitted with electrical systems with a rated installed capacity of more than 35 kilowatts is closely linked to the environmental objective pursued. The Italian authorities assume that vessels with electrical systems of low rated capacity, whilst in ports, would usually resort to electricity directly provided by ground installations to vessels at berth in a port (“shore-side electricity”) and not to stand-alone electrical generators through their own internal combustion engines. Therefore, vessels with a rated capacity of less than 35 kW lying at berth in ports do not contribute to the pollution. The rationale for addressing the tax measure in question to vessels with larger electrical systems that normally keep their own fossil fuel-powered electrical generators in operation is indeed to encourage them to use, during their berth, the electricity supplied by shore-side installations.