COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Smarter energy taxation for the EU:  proposal for a revision of the Energy Taxation Directive
Date: 2011-04-13
Institutions: European Commission
Subjects: electrical energy, energy-generating product, tax system

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EUROPEAN COMMISSION 

Brussels, 13.4.2011 
COM(2011) 168 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE 

Smarter energy taxation for the EU:  
proposal for a revision of the Energy Taxation Directive 

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE 

Smarter energy taxation for the EU:  
proposal for a revision of the Energy Taxation Directive 

1. 

THE NEED TO ACT ON ENERGY AND ENVIRONMENTAL TAXATION 

Energy taxation as a key driver towards the Europe 2020 goals 

The EU has set itself a series of demanding, legally binding climate and energy targets to be 
met by 2020. These are spelled out in the Europe 2020 Strategy defining the challenges that 
Europe is facing for the next decade, in economic, environmental and social areas and setting 
as  a  priority  sustainable  growth  resulting  in  a  more  resource  efficient,  greener  and  more 
competitive economy1.  

This  includes  the  commitment  to  bring  energy  taxation  more  closely  in  line  with  the  EU's 
energy  and  climate  change  objectives  as  requested  in  the  March  2008  European  Council 
conclusions2  and  as  the  Commission  highlighted  as  a  priority  in  its  2011  Annual  Growth 
Survey3.  

Energy taxation, when giving the right incentives, plays  an important role in reaching  these 
objectives.  In  fact,  energy  consumption  is  responsible  for  the  majority  of  greenhouse  gas 
emission,  representing  79%  of  total  gas  emissions.  As  part  of  the  Europe  2020  strategy, 
Member  States  are  committed  to  setting  national  targets  for  energy  efficiency  implying 
substantial energy savings.  

The  financial  and  economic  crisis  has  substantially  changed  the  environment  in  which  we 
operate. It has put huge pressure onto businesses and communities across Europe, as well as 
causing considerable stress on public finances. However, legally binding energy and climate 
change  targets  are  part  of  our  sustainable  future  and  our  long-term  path  for  sustainable  and 
stronger  recovery  from  the  crisis.  The  challenge  is  how  to  achieve  them  in  the  most  cost-
effective  way  -  for  governments,  business  and  citizens  -  and  how  to  obtain  simultaneous 
benefits  for  the  economy.  We  need  policy  responses  that  reinforce  each  other,  not  only 
improving the environment, but also supporting the economy and avoiding social hardship.  

Key issues for reforming energy taxation 

It is in this context that the Commission is presenting its proposal for a revision of Directive 
2003/96/EC4  (hereinafter  "the  Energy  Taxation  Directive"  or  "the  ETD"):  to  allow  Member 

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2 
3 
4 

Communication from the Commission: EUROPE 2020, A strategy for smart, sustainable and inclusive 
growth - COM(2010) 2020, 3.3.2010. 

European Council of 13-14 March 2008, Presidency conclusions (7652/1/08 rev.1, 20/05/2008). 
Annual Growth Survey - COM(2011) 11. 
Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the 
taxation of energy products and electricity (OJ L 283, 31.10.2003, p. 51). 

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States  to  make  the  best  use  of  an  existing  instrument  in  the  new  policy  framework.  More 
rational and targeted energy taxation will contribute in a technology-neutral manner to cleaner 
and  more  efficient  consumption  of  energy,  therefore  supporting  sustainable  growth.  In  a 
nutshell, the proposal for the ETD revision: 

•  rebalances  the  charge  between  different  fuels,  including  renewable  energies,  in  an 

objective manner (based on energy content and on CO2 emissions); 

•  provides  for  a  framework  for  CO2  taxation  in  the  internal  market  and  in  that  way  puts  a 

price on CO2 emissions which are not covered by the EU Emission Trading System. 

The  proposal  also  fits  well  with  the  ongoing  discussions  on  the  restructuring  and 
modernisation of tax systems as part of the national strategies to exit from the financial and 
economic  crisis.  Furthermore,  it  shows  the  path  towards  a  qualitatively  better  way  of 
generating  revenue  in  line  with  Europe  2020  and  the  need  to  encourage  suitable  economic 
recovery and job creation. The proposal as such does not aim at raising additional revenue but 
rather  to  rebalance  the  charge  between  different  energy  sources  and  different  energy 
consumers (outside and inside the EU Emission Trading System (hereinafter 'ETS')).  

However, if Member States decide to implement a revised ETD in a way that does generate 
additional  revenue,  the  Commission  would  encourage  them  to  use  this  revenue  in  an 
appropriate  way  according  to  their  specific  budgetary  situation.  This  could  mean  using 
resources  to  address  fiscal  consolidation  needs.  A  growth-friendly  tax-shift  using  additional 
revenue wholly or partly to reduce the tax burden on labour would be in line with the 2020 
Strategy. Another possible growth-enhancing alternative which Member States could choose 
would be to use additional revenue to further incentivise green research and development, as 
well  as  green  investment,  in  particular  by  SMEs.  Additional  revenue  could  also  be  used  to 
mitigate the impact of underlying policies on household income by compensating less well-
off  sections  of  the  population.  Targeted  subsidies  to  low  income  households  (lump-sum 
checks unrelated to energy consumption) would be the best example.  

The  following  figure  shows  the  evolution  of  the  share  of  environmental  and  of  energy  tax 
revenues as a % of total tax revenues in the EU-25 from 1995 until 2008. Both have declined 
by about 1% during this period, which shows that, on average, there is room for increases in 
energy taxation and, more generally, environmental taxation. 

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Evolution of the environmental and energy tax revenues
 1995-2008, EU-25, in % of Total Tax Revenue

8%

7%

6%

5%

4%

3%

2%

1%

0%

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Energy

Environment

Source: Taxation trends in the European Union, 2010 edition, Eurostat, European Commission 

Further coordination on environmental taxation is needed 

While  the  ETD  is  absolutely  key,  more  can  and  must  be  done  in  the  broader  area  of 
environmental taxation to foster the Europe 2020 strategy. In particular, an intensified debate 
on  the  use  of  taxes  that  promotes  the  transition  to  a  sustainable  economy  is  needed.  New 
developments (e.g. the introduction by Member States of waste taxes, plastic bag taxes and air 
ticket  taxes)  also  need  to  be  taken  into  account.  According  to  Article  1(2)  of  Directive 
2008/118/EEC,  Member  States  are  free  to  introduce  such  new  taxes,  provided  they  do  not 
give  rise  to  formalities  connected  with  the  crossing  of  frontiers  between  Member  States. 
Member States should also ensure non-discrimination in taxation to prevent distortions in the 
internal  market  (Articles  34-36  and  110,  TFEU).  The  proper  functioning  of  the  internal 
market warrants mutual information and coordination of Member States' taxes in this field so 
as to, for instance, tackle discrimination between directly competing products facing different 
tax regimes. 

The  Commission  is  committed  to  take  these  discussions  forward  and  support  the  necessary 
coordination  in this field, inter alia via appropriate discussions with Member States (e.g. in 
the Tax Policy Group and at Council level) and with other stakeholders. As far as the broader 
political  context  is  concerned,  the  outcome  of  the  UN  Climate  Change  Conference  held  in 
Cancun, Mexico, between 29 November and 10 December 2010 also constitutes an important 
landmark for the future development of the EU's own ambitions in this field.  

2. 

BACKGROUND TO THE PROPOSAL 

The current Energy Taxation Directive is unsustainable and sets the wrong incentives 

The  ETD  sets  minimum  rates  for  the  taxation  of  energy  products  used  as  motor  fuel,  for 
energy products used as heating fuels, and for electricity. The minimum rates apply generally 
to  the  volume  of  the  energy  product  consumed.  The  following  figures  show  the  current 

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minimum  rates  of  the  most  commonly  used  energy  products  taking  into  account  CO2 
emissions (rate in euro per tonne CO2) and energy content (rate in euro per Gigajoules (GJ)5: 

Motor fuels 

Figure 1: Existing  m inim a expressed in euro per 
tCO2

Figure 2: Existing m inim a expressed in euro per GJ 

160

140

120

100

80

60

40

20

0

1

petrol

diesel

LPG

Heating fuels 

Figure 3: Current minima expressed in euro per tCO2 

8

7

6

5

4

3

2

1

0

1

petrol

diesel

LPG E85

Figure 4: Current minima expressed in euro per GJ

18

16

14

12

10

8

6

4

2

0

0,6

0,5

0,4

0,3

0,2

0,1

0

1

gas oil

natural gas

coal

1

gas oil

natural gas

coal

Source: Own calculations. 

These  figures  clearly  demonstrate  that  the  current  minimum  rates  based  on  the  volume  of 
energy products consumed do not reflect the energy content (see figures 2 and 4) or the CO2 
emissions (see figures 1 and 3) of the energy products, leading to inefficient energy use and 
distortions in the internal market. They also create incentives that are contradictory to the EU 
energy and climate change goals as, for instance, they promote the use of coal as heating fuel 
(lower tax rate both when considering its CO2 emissions and its energy content expressed per 
GJ). As regards motor fuels, lower minima for diesel further reinforce the natural advantage 
that diesel has over petrol due to its higher energy content. The current minimum rates also 

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Source: Own calculations based on the current ETD (Annex I, table A), Directive 2006/32/EC (energy 
content  of  the  products),  Commission  decision  2007/589  (CO2  emission  factors.  E85  is  an  energy 
product which consist of 85% ethanol and 15% petrol).  

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discriminate  against  renewables  which  are  in  principle  taxed  at  the  rate  of  the  conventional 
fuel which they replace even though their energy content is lower (see figure 2, showing that 
E85 is taxed much more heavily than petrol, meaning that its lower energy value and better 
performance  as  regards  CO2  emissions  are  not  taken  into  account).  Moreover,  the  current 
minima  do  not  create  a  level  playing  field  for  business  consumers,  because,  in  practice, 
economic operators can be better off compared to others depending on the energy source they 
use. 

Revising the ETD is imperative so as to make it more consistent with other EU policies  

From an energy policy point of view, the ETD provides no incentive or even price signal to 
promote alternative energies and encourage consumers to save energy. With taxation based on 
volume, ethanol is effectively the most heavily taxed energy product today. The same goes for 
energy sources used for heating, where coal is currently the least taxed energy source. 

From  an  environmental  point  of  view,  sectors  outside  the  EU  ETS  such  as  transport,  small 
industrial  installations,  agriculture  and  households  account  for  half  of  the  CO2  emissions. 
Here, a potential lack of coordination between the ETD and the EU ETS may give rise to a 
double burden or, conversely, to the possibility of evading the responsibility for emissions. In 
the worst case, these sectors would not contribute to reaching the Europe 2020 climate change 
and  energy  targets.  Moreover,  the  current  treatment  of  biofuels  does  not  allow  taking  full 
advantage of its possible positive environmental potential. 

From  the  point  of  view  of  the  single  market,  Member  States  currently  might  not  tax  CO2 
emissions as much as they would like because it could put their businesses at a disadvantage 
or induce consumers to buy their fuel in lower tax Member States leading to revenue losses. 
Member States are beginning to implement a variety of different approaches to environmental 
taxation, which may lead to distortions and double taxation within the single market. 

Why now? 

Given  that  many  Member  States  are  now  defining  their  policy  strategies  to  exit  from  the 
economic and financial crisis and are considering structural reforms to their fiscal policies and 
tax systems the revision of the Energy Tax Directive comes at a particular appropriate time as 
it  provides  opportunities  to  meet  both  environmental  and  economic  objectives  at  the  same 
time. 

Taxation,  when  properly  designed,  can  play  a  major  role  in  support  of  the  EU's  energy  and 
climate change objectives and in promoting sustainable growth, resulting in a more resource-
efficient, greener and more competitive EU economy. This remains the case at times of rising 
energy prices when it becomes all the more important to restructure energy taxation so as to 
provide 
less  energy  overall,  from  more 
environmentally-friendly sources.  

the  use  of 

incentives 

the  right 

towards 

Member  States  are  currently  designing  and  implementing  their  strategies  to  meet  the  EU 
2013-20 energy and climate change goals. This proposal would provide a clear answer on the 
role  that  taxes  could  play  in  that  context.  The  revised  Energy  Taxation  Directive  is  also 
designed to complement the third phase of the EU ETS (2013-2020) and it is therefore urgent 
to make a proposal now in order to allow time for it to be agreed by Council. 

From an Internal  Market perspective, it  is also important to establish a common framework 
for CO2 taxation now. Member States are beginning to introduce their own CO2 taxes, and 

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approaches  may  differ.  A  patchwork  of  national  policies  could  create  difficulties  for 
businesses operating in different Member States and distortions in competition within the EU. 
It is better to introduce an EU approach now, when many Member States are still considering 
national legislation in this field, than later, when complex re-adjustments of national laws may 
be needed.  

All these reasons make a timely revision of the ETD as laid down in the Commission proposal 
imperative. 

3. 

KEY FEATURES OF THE PROPOSAL  

The proposal for a revision of the Energy Taxation Directive streamlines the existing taxes on 
energy and introduces framework rules for CO2 taxation within the single market so that CO2 
taxes can effectively complement the EU ETS.  

The proposal splits the minimum rate of taxation of energy products into two parts:  

–  CO2-related taxation, based on the CO2 emissions of the energy product, fixed at a level of 
20 euro per tonne CO2. The CO2-related part of taxation would be zero for all biofuels that 
comply  with  the  sustainability  criteria  laid  down  in  Article  17  of  Directive  2009/28/EC. 
Such  taxation  will  provide  for  a  technology-neutral  advantage  for  all  low  carbon  energy 
sources.  Introducing  a  CO2-related  part  will  also  align  the  ETD  better  to  the  EU  ETS. 
Taxation  will  apply  to  all  emitters  not  included  in  the  EU  ETS,  those  that  are  taxable 
already now as well as all small installations excluded from the EU ETS, even if they use 
energy for purposes other than heating. At the same time, emitters included in the EU ETS 
will  be  exempt  from  the  CO2  part  of  taxation,  whatever  the  actual  scope  of  the  EU  ETS 
might be. 

–  General energy consumption taxation, based on energy content measured in GJ, regardless 
of the energy product, thus providing an incentive to save energy. The tax will reflect the 
actual  energy  that  a  product  generates  and  energy  efficient  consumption  would 
automatically  be  rewarded.  For  motor  fuels,  the  minimum  level  of  taxation  is  fixed  at 
9,6 euro  per  Gigajoule,  which  corresponds  to  the  current  minimum  rate  applicable  for 
petrol  minus  the  corresponding  CO2  part  of  the  minima.  For  heating  fuels,  the  current 
minimum level for electricity of 0,15 euro per Gigajoule (corresponding to approximately 
0,5  euro  per  MWh)  is  applied  to  all  the  energy  products  used  for  heating,  taking  into 
account the energy content of the respective product. The scope of energy taxation remains 
unchanged and comprises heating use and motor fuel use and consumption of electricity in 
similar situations. 

To maintain the incentive effect, the real value of the minimum levels of taxation should be 
preserved  over  time.  The  minimum  rates  of  general  energy  consumption  taxation  should  be 
automatically aligned at regular intervals to take into account the evolution of their real value 
in  order  to  preserve  the  current  level  of  rate  harmonisation.  Since  CO2-related  taxation 
complements  the  operation  of  Directive  2003/87/EC,  the  CO2  minimum  tax  level  should 
follow  the  evolution  of  the  market  price  of  the  CO2  emission  allowances.  The  Commission 
considers  that  a  method  for  automatically  calculating  such  an  alignment  should  be  put  in 
place.  However,  the  development  of  this  method  would  need  to  be  based  on  objective 
evidence  from  observing  the  operation  of  the  emission  allowance  market  under  the  new 
arrangements for phase III of the EU ETS. It is therefore not possible to address this issue at 
the  time  of  presentation  of  this  proposal.  This  question  will  therefore  be  addressed  in  the 

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review that the Commission intends to present for the first time in 2015, in order to propose a 
method  for  an  automatic  alignment  that  would  be  operational  as  soon  as  possible  after  this 
date. 

Counter-productive subsidies are removed … 

The proposal to revise the ETD removes subsidies and inconsistencies that at present exist in 
energy  taxation.  It  reduces  the  tax  burden  on  renewable  energies  and  rebalances  the  charge 
between different fossil fuels in an objective manner (in basing it on energy content and CO2 
emissions). In consequence, sources of energy rich in CO2 or with high energy content will be 
taxed more per physical volume unit. This will encourage the consumption of energy sources 
emitting less CO2 and reward more energy efficiency, in line with and supporting EU climate 
and  energy  policies.  Energy  products  with  high  energy  content  (such  as  diesel,  LPG  and 
compressed  natural  gas)  will  continue  to  be  attractive,  but  they  will  ultimately  compete  on 
fairer  grounds,  without  an  additional  subsidy  from  taxation.  The  changes  introduced  by  the 
proposal are fully in line with our 2020 policies and are a direct reflection of the commitments 
that  the  EU  Member  States  have  already  taken.  This  also  means  that  differentiation  in  tax 
rates between private and commercial use of transport shall no longer continue, ensuring that 
the transport sector – the fastest growing source of emissions – is not left outside the emission 
reduction efforts. 

… but due account is taken of the wider context… 

In relation to competitors outside the EU, in order to avoid that CO2-related taxation makes 
our companies leave Europe while emissions globally remain unchanged or increase ("carbon 
leakage"),  the  proposal  introduces  an  approach  similar  to  the  free  allocation  of  allowances 
under the  EU  ETS for  sectors  that  are deemed to be at a significant risk of carbon leakage. 
Small industrial installations subject to the CO2-related taxation will be granted a lump sum 
tax credit calculated on the basis of a fuel benchmark. In that sense the environmental effect 
of  the  tax  will  be  maintained,  while  companies  will  be  compensated.  Other  sectors  or  sub-
sectors of the economy may also be subject to carbon leakage. As far as the agricultural sector 
is  concerned,  the  Commission  is  currently  preparing  a  report  examining  the  risk  of  carbon 
leakage  in  that  sector.  As  soon  as  this  report  is  available,  the  Commission  will  take 
appropriate  follow-up  action  to  ensure  that  all  sectors  susceptible  to  carbon  leakage  are 
subject to the same treatment under the future ETD, either by ensuring the conclusions of the 
report  are  taken  into  consideration  during  the  ongoing  discussions  in  the  Council  on  the 
proposal  revising  the  ETD  or,  should  the  report  not  be  available  before  the  adoption  of  the 
proposal, by way of a separate legislative initiative. 

Taking into account the architecture of the EU 2020 emission reduction commitments and the 
principle of solidarity between Member States, the Commission proposes to grant transitional 
periods  for  a  gradual  phasing-in  of  CO2-related  taxation  for  uses  other  than  motor  fuel  in 
those  situations  where  less  effort  is  required  from  certain  Member  States  to  meet  these 
commitments  (Bulgaria,  the  Czech  Republic,  Estonia,  Latvia,  Lithuania,  Hungary,  Poland, 
Romania and Slovakia). 

And particular situations will continue to be given appropriate treatment … 

In preparing the proposal the Commission paid careful attention to ensure that it does not lead 
to  abrupt  changes  in  price  levels  that  could  lead  to  unacceptable  difficulties  or  hardship  for 
those concerned: 

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Acknowledging  that  differences  in  taxation  of  domestic  heating  are  less  relevant  for  the 
proper functioning of the internal market and that heating costs might be an important issue in 
the domestic social conditions of some Member State, the Commission proposes to maintain 
the possibility for Member States to apply tax exemptions or reductions for energy products 
and electricity and to extend it to all heating fuels. 

CO2-intensive  energy  sources  (such  as  coal)  will  be  subject  to  a  higher  charge  under  the 
revised system. The change will ensure that all energy consumers, not only those included in 
the EU emission trading system, face an incentive to shift towards cleaner energy sources. At 
the  same  time,  the  proposal  introduces  the  rule  that  external  costs  of  CO2  emissions  are 
addressed only once. As a consequence, the direct price impact on coal consumers would be 
limited  as  coal  is  largely  used  in  the  heavy  industries  and  in  power  generation  already 
included in the EU ETS. Moreover, the proposal leaves it up to the Member States whether to 
mitigate or completely avoid the impact on households. 

Diesel will gradually face higher minimum levels of taxation per litre compared to petrol as a 
mere consequence of the fact that diesel has a higher energy content and also generates more 
CO2  emissions  per  litre  than  petrol.  Even  under  the  new  system,  diesel  will  still  keep  its 
advantage  on  a  distance  driven  basis,  but  the  removal  of  the  diesel  subsidy  will  encourage 
energy  efficiency  improvements  on  the  petrol  engine  and  will  also  create  a  market  for  less 
CO2-emitting and alternative energy sources which are expected to become more common on 
the  fuel  market  in  the  next  decade.  Rebalancing  petrol  and  diesel  taxation  will  also  help 
rebalancing the supply and demand on the European fuel market, which faces an increasing 
need  to  import  diesel.  Taking  into  account  that  European  car  manufacturers  have  invested 
heavily in diesel technology and that vehicles running on alternative fuels or power trains are 
not  yet  available  in  larger  quantities,  the  alignment  of  all  motor  fuel  taxation  will  be 
introduced gradually in three steps over the period of time 2013 – 2023. The gradual phasing-
in  of  the  new  tax  treatment  for  diesel  will  also  provide  for  an  adaptation  period  for  the 
commercial transport sector. 

Lower minimum rates apply to motor fuel used in agriculture, aquaculture and horticulture 
and this will remain the case with the ETD revision. The ETD revision will affect the current 
possibility for Member States to fully exempt from taxation motor fuels and heating fuels as 
well as electricity consumed in these sectors. With the revised ETD, they will become subject 
to the CO2-related part of the tax as well as being liable to the general energy consumption 
part of the tax. Full exemption from the latter part of the tax will remain possible in exchange 
for energy efficiency improvements, thus no longer without counterparts as is the case now. 
In consequence, Member States will still be able to provide a more beneficial treatment to the 
primary sectors, while at the same time ensuring more consistency in the taxation of a sector 
which is a patchwork of various exemptions today.  

4. 

IMPACTS OF THE PROPOSAL 

The Commission services carried out an impact assessment examining the impacts of possible 
options  for  the  revision  of  the  Energy  Taxation  Directive.  On  the  basis  of  this  impact 
assessment, which is published together with this Communication and the proposal to revise 
the ETD, a number of important conclusions can be drawn. 

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The ETD revision can achieve a "double-dividend" but is in any event beneficial … 

The revised ETD rebalances the charge between fossil and non-fossil energy sources and to a 
certain degree also between the ETS and non-ETS sector. Whilst it is for Member States to 
decide  how  to  use  possible  additional  revenue,  the  modelling  in  the  impact  assessment 
assumes that any revenue would be used to reduce the tax burden on labour. This assumption 
reflects  the  practices  of  many  Member  States  which  have  carried  out  environmental  tax 
reforms  and  is  in  line  with  the  general  orientation  in  the  ETD  itself6,  which  promotes  the 
principle of tax neutrality as a means to modernise national tax systems in favour of both the 
environment and employment. Such modelling confirmed that via the ETD revision, energy 
taxation would in all circumstances contribute to the Europe 2020 goals and at the same time 
create tangible economic benefits. Even if the energy tax receipts were not "recycled" into the 
economy via lower taxation of the factor labour, the contribution to fiscal consolidation would 
still help to deal with the high crisis-driven budgetary needs.  

The proposal creates an improved level playing field for European business. The new minima 
will become a true benchmark on the internal market by providing an objective value for each 
energy  source  and  treating  energy  consumers  equally  whichever  energy  products  they 
consume.  

… while the precise effects depend on the choices made by Member States 

The precise impacts of the ETD revision will to a large degree depend on pre-existing national 
rates and on the choices made by Member States in accordance with the subsidiarity principle, 
in particular on the balance between the CO2 and the energy component of the tax and the tax 
rates applied. The impacts of the proposal would also depend on the extent to which Member 
States  decide  to  avail  themselves  of  the  transitional  periods  and  options  contained  in  the 
proposal to take account of the context and specific situations as described in section 3 above. 
For  heating  fuels,  for  instance,  the  following  two  scenarios  can  be  identified  in  order  to 
describe the likely impacts: 

–  A  maximalist  scenario  1  assuming  that  Member  States  decide  to  introduce  CO2-related 
taxation  equal  to  the  proposed  minimum  level  of  20  euro  per  tonne  CO2  on  top  of  their 
existing  national  tax  rates.  Their  current  rates  would  then  become  their  rates  of  general 
energy consumption taxation.  

–  A scenario 2 assuming that Member States revise their tax rates only if needed to respect 
the EU minima and fix the CO2-related taxation at a level of 20 euro per tonne CO2. This 
would mean that they split their current rates into a CO2-related part of 20 euro per tonne 
and a general energy consumption taxation part.  

The  table  below  shows  the  aggregated  impact  of  these  scenarios  for  the  EU  27  under  the 
assumption  that  revenues  are  recycled  by  reducing  charges  on  labour,  as  calculated  in  the 
impact assessment accompanying the proposal: 

6 

See recital (11) of Directive 2003/96/EC 

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Impact of the ETD revision from changes related to heating fuels (EU 27) 

Budgetary impact 

Environmental impact 

Social impact 

(Change in annual tax 
revenues annually 

(Reduction of CO2 
emissions in non-ETS 
sectors by 2020) 

(% change in the 
households real income 
by 2020) 

Scenario 1 

+39.6 billion euro 

Scenario 2 

+20 billion euro 

-4% 

-0.84% 

+0.29% 

+0.08% 

Source:  Impact  Assessment  –  Accompanying  document  to  the  Proposal  for  a  Council  Directive  amending 
Directive 2003/96/EC – Chapter 5.2., 5.3. and 5.4. (Scenario 1); modelling with E3ME by Cambridge economics 
(Scenario 2) 

These  figures  need  to  be  evaluated  in  relation  to  the  overall  objectives  of  the  Europe  2020 
strategy as outlined above.  

The impact on CO2 emissions is considerable and could reach  2% of total EU emissions or 
about  4%  of  emissions  outside  the  EU  ETS.  In  absolute  numbers  this  corresponds  to  92 
million  t  CO2  and  represents  more  than  one  third  (about  37%)  of  the  GHG  reduction 
effort needed outside the EU ETS.  

Similarly,  the  number  of  additional  jobs  created  as  a  consequence  of  reforming  the  ETD 
would grow over time and can, in absolute numbers, reach 1 million in 2030 under the most 
ambitious policy option7. An additional economic growth 0.27 of GDP can be expected under 
this policy option. The positive impact on employment is driven by the modelling assumption 
that  additional  revenue  from  energy  taxation  would  be  used  to  reduce  the  employers'  social 
security contributions. 

…  and  an  overall  assessment  after  five  years  will  allow  for  a  thorough  ex-post  policy 
evaluation. 

While  the  current  proposal  is  based  on  a  comprehensive  impact  assessment  and  policy 
analyses,  economic  circumstances  as  well  as  environmental  and  technological  framework 
conditions  might  be  subject  to  future  change.  The  Commission  therefore  considers  it 
appropriate to review the effects of the amended ETD after five years (from the adoption) so 
as to achieve a better understanding of the impact of the new tax structure with regard to the 
objectives of the proposed revision. Accordingly, the Commission intends to present a report 
to  the  Council,  if  appropriate  with  proposals  to  amend  the  relevant  rules.  This  concerns 
notably (1) the adaptation of the CO2 minimum tax level to the evolution of the market price 
in the EU of the CO2 emission allowances with a view to establish an automatic link between 
the price of CO2 allowances and  the CO2 minimum tax level; (2) the adaptation  of national 
systems as regards exemptions and tax reductions for households' taxation, fuel used for the 
purpose  of  air  and  maritime  navigation  in  the  light  of  the  outcome  of  international 
negotiations, electricity produced on shore and directly provided to vessels while at berth in a 

7 

For  references  and  further  explanations  reference  is  made  to  the  related  Commission  services  impact 
assessment.  

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port  (shore-side  electricity),  alternative  fuels,  carbon  capture  and  storage  (CCS)  and  (3) 
taxation of electricity used for transport. 

5. 

CONCLUSION 

The revision of the ETD as proposed by the Commission will restructure the current energy 
tax system in order to make it more efficient and consistent. It will improve the functioning of 
the  Internal  Market,  creating  a  level  playing  field  for  businesses  which  will  be  treated  on 
equal  footing,  whether  they  consume  oil,  natural  gas,  coal  or  biomass.  Most  importantly,  it 
will have considerable positive environmental steering effects and thus contribute to realising 
the objectives of the Europe 2020 strategy. In the longer run, such a new EU framework will 
elp Member States to implement more ambitious policies on national level - due to both the 
need to fulfil environmental objectives as well as fiscal needs – which is why the proposal has 
the potential to provide efficiency gains that go largely beyond the impacts/gains at the time 
of  the  implementation.  It  thus  enables  Member  States  to  achieve  their  Europe  2020 
commitments in a cost-effective way and provides legal certainty for their structural reforms 
of their fiscal policies and tax systems under way in the exit from the economic and financial 
crisis. At the same time, the new framework will promote sustainable economic growth and 
support job creation. In short, smarter energy taxation will help both the environment and the 
economy.  

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