COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT Accompanying the document Proposal for a Council Directive restructuring the Union framework for the taxation of energy products and electricity (recast)
Date: 2021-07-14
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: electrical energy, energy-generating product, environmental tax, fiscal policy

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  EN 

   EUROPEAN COMMISSION  Brussels, 14.7.2021  SWD(2021) 642 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT  Accompanying the document Proposal for a Council Directive restructuring the Union framework for the taxation of energy products and electricity (recast) {COM(2021) 563 final} - {SWD(2021) 640 final} - {SWD(2021) 641 final} - {SEC(2021) 663 final}  
 
 
Executive Summary Sheet  

Impact assessment on the revision of Directive 2003/96/EC   

A. Need for action 

What is the problem and why is it a problem at EU level?  

In the context  of the European Green Deal  (EGD), the initiative for a revision of Directive 2003/96/EC 
(Energy Taxation Directive or ETD) is part of the ‘Fit for 55 Package’.  

The main problems addressed by the impact assessment are the fact that the ETD: i) is not in line with EU 
climate and energy objectives; ii) de facto favours fossil fuel use and iii) is no longer contributing to the 
proper functioning of the internal market. 

The main drivers of these problems are: i) the present level and structure of minimum rates (absence of an 
indexation mechanism, taxation of fuel based on volume instead of energy content and without taking into 
account  their  environmental  performance),  ii)  the  outdated  coverage  of  energy  products  (in  particular 
biofuels), and iii) the variety of tax differentiations, reductions and exemptions, which limit the effective 
coverage of the Directive. 

What should be achieved? 

The main objectives of the proposed policy options are: 

I. Contributing to the EU 2030 targets and climate neutrality by 2050 in the context of the European Green 
Deal.  This  would  align  taxation  of  energy  products  and  electricity  with  EU  energy  and  climate  policies 
and contribute to the EU efforts to reduce emissions while ensuring coherence with the ETS and avoiding 
inconsistencies and overlaps.  

II. Preserving and improving the EU internal  market  by updating the scope and the structure of rates as 
well as by rationalising the use of tax exemptions and reductions by Member States.  

III. Preserving the capacity of the ETD to generate revenues for the budgets of the Member States as well 
as the distributional effects are other elements to take into due account. 

What is the value added of action at the EU level (subsidiarity)?  

The problems identified  can only be remedied by means of a  revision of  the ETD, in  coordination with 
other  EU  policy  measures.  National  approaches  risk  distorting  the  internal  market  and  undermining  the 
EGD objectives due to  the non-harmonised structure and level  of the national  taxes. Only a harmonised 
framework can help to attain the EU levels of ambition in these areas while seeking to preserve both the 
competitiveness of the productive sectors and the equal taxation treatment among sectors and energy uses. 
The  EU’s  contribution  to  achieve  higher  climate  ambitions  globally  will  be  more  effective  if  the  EU 
coordinates  all  the  possible  policy  instruments,  including  taxation,  in  the  context  of  an  ambition  plan, 
which  encompasses  also  the  extension  of  the  ETS  and  other  relevant  policy  actions  in  the  “fit  for  55 
Package”.  

B. Solutions 

What are the various options to achieve the objectives? Is there a preferred option or not? If not, 
why? 

1 

 
 
The baseline (option 0) represents the existing 2030 climate and energy legislative framework, namely the 
previously  agreed  climate  and  energy  targets  of  40%  GHG  emission  reduction  by  2030,  as  well  as  the 
main policy tools to implement these. 

Option 1 would index the minimum rates and partly broaden the tax basis while substantially keeping its 
structure.  The  intra-EU  aviation  and  maritime  sectors  would  be  included  in  the  scope  with  a  zero 
minimum rate by removing the current tax exemptions. 

 Option 2 introduces a system of simplified rates Minimum rates are indexed and based on energy content 
and a transitional period (10 years for option 2a and a shorter period until 2030 for option 2b). It focuses 
on energy content with an increased taxation level (mostly for heating fuels) and extension of the taxable 
base intra-EU navigation in aviation and maritime sectors  would be included in the scope of the Directive 
with minimum rates which will be linearly increased during a transitional period of 10 years with respect 
to  intra-EU  activities.  Option  2c  introduces  a  new  component  in  the  rates  that  takes  into  account  air 
pollutant emissions of the products on top of the features of option 2a. 

Option 3 brings in a carbon content component for the sectors that are currently not covered by the ETS. 
As  for  option  2,  also  in  this  case,  two  transitional  periods  (10  years  and  2030)  are  considered.  The 
introduction of a pollution component is also analysed in this option. 

Considering that the ETS system should be extended to cover the emissions of transport and buildings, in 
order to avoid double taxation, option 2a is considered the prefered option.  

A  well-calibrated  extension  of  the  ETS  to  road  transport,  maritime  and  inland  shipping  and  buildings 
coupled with option 2 for ETD review could help to achieve the EU’s ambitious climate objective of 55% 
emission reductions while allowing attain the rest of the objectives with the ETD review.  

What are different stakeholders' views? Who supports which option?  

In a public consultation, a vast majority of businesses and public authorities consider relevant an energy 
tax  based  on  energy  content.  Moreover,  an  overwhelming  majority  of  all  types  of  respondents  are  in 
favour of a revision of the ETD that introduces incentives for alternative energy sources that supports the 
transition  towards  climate  neutrality  by  reducing  the  possibility  of  favouring  fossil  fuels  via  less  tax 
reductions, exemptions and rebates. A vast majority of citizens and public society representatives support 
the  removal  of  preferential  tax  treatment  to  specific  sectors  of  activity  and  of  the  distinction  between 
commercial and non-commercial uses. 

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise of main ones)?  

The preferred option 2a is fully coherent with other initiatives of the ‘Fit for 55’ Package and relevant EU 
policies.  The  proposed  policy  option  will  contribute  to  the  EGD  objectives  by  reducing  emissions  in 
EU27. Compared to the baseline scenario, emissions in 2035 are estimated to decline as follows:  

GHG: -1,6%;  NOx: -1,7%;  PM2.5: -2,5%;  SO2: -1,6%  

The  introduction  of  the  sector  of  aviation  and  maritime  intra-EU  transport  in  the  scope  of  the  Directive 
will  contribute  to  greater  coherence  of  transport  taxation.  The  introduction  of  new  minima  and  the 
broadening of the tax base will contribute to greater convergence of effective tax rates in the EU.  

2 

 
 
What are the costs of the preferred option (if any, otherwise of main ones)?  

Estimates indicate the following costs: i) Loss of employment by 0.2% at EU 27 level in 2025 compared 
to the baseline, ii) Increase in household heating and transport prices, and, iii) Cost increase for business 
due to reduced exemptions and increases in fossil fuel prices. 

Increased  tax  rates  lead  to  an  increase  in  consumer  prices,  both  for  motor  and  heating  fuels.  Under  the 
preferred option, this increase is similar across heating and transport fuel prices, around 0,8.% and 1.2% 
respectively.  The  results  indicate  that  the  proposed  tax  changes  may  reduce  adjusted  disposable  income 
(the disposable income net of indirect taxes) of households, often in a regressive way. However, when the 
extra tax revenues raised are transferred back to households in a lump-sum fashion, the whole tax change 
turns  to  be  progressive,  for  these  transfers  determine  a  larger  increase  in  disposable  income  for  poorer 
households. 

What are the impacts on SMEs and competitiveness?  

The  proposed  option  will  not  have  a  specific  impact  on  SME  not  on  the  competitiveness  of  the  EU 
industry 

Will there be significant impacts on national budgets and administrations?  

In the baseline, revenues in Member States are projected to decrease in the coming years by nearly 32% 
between 2020 and 2035 due to the expected evolution of the energy system with a decreasing dependency 
on fuels thanks to energy savings and a shift from fossil fuels as well if Member States do not increase 
their  national  rates.    The  preferred  option2a  would  mitigate  to  a  great  extent  this  trend  by  increasing 
revenues.  

The  revision  of  ETD  aims  at  introducing  improvements  and  simplification  in  the  tax  rates  and  taxable 
base. The envisaged changes however should not fundamentally alter the actual levy and administration of 
excise taxation on energy products and electricity. 

Will there be other significant impacts?  

No 

Proportionality?  

The proposal is proportionate and necessary to achieve the objectives, as it addresses current limitations 
with  the  ETD  while  substantially  keeping  its  structure.  The  proposed  option  2a  brings  new  minima, 
broadens the tax base, cares of the particular situation of vulnerable households and industry and provides 
for  a  transitional  period  of  10  years  to  allow  a  smooth  transition.  Furthermore,  the  initiative  foresees 
regular reviews to ensure proportionality of the policy measures.  

D. Follow up 

When will the policy be reviewed?  

Currently, article 29 of the ETD provides for a  regular  examination on the basis of a report and, where 
appropriate,  a  proposal  from  the  Commission.  A  report  will  be  prepared  5  years  after  the  Directive 
implementation. 

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