On March 4, 2020 the European Commission ("Commission") started the consultation process for the revision of the Energy Tax Directive ("ETD") by publishing an Inception Impact Assessment ("IIA"). The revision of the ETD is one element of the European Green Deal, which was announced in December 2019 and is part of the European Union's ("EU") efforts to be carbon neutral by 2050. The aim of the revision is two-fold: (i) align the taxation of energy products and electricity with EU energy and climate policies and (ii) preserve the EU single market by updating the scope and the structure of tax rates and rationalizing the use of tax exemptions and reductions.

The ETD lays down the EU rules for the taxation of energy products such as motor and heating fuel and electricity. The Commission believes that a revision of the ETD is required in light of developments since its adoption in 2003. These developments include the emergence of renewable energy markets and technologies, the EU's international commitments (e.g., Paris Agreement) and the enhancement of the EU's regulatory framework in the field of energy and climate change. 

The IIA indicates that the revision of the ETD aims to tackle three issues: (i) the ongoing use of fossil fuel subsidies in EU member states; (ii) the lack of alignment between the ETD and other EU policies such as the EU Emissions Trading Scheme ("ETS"), the Renewable Energy Directive and the Energy Efficiency Directive; and (iii) the lack of relevance of the current ETD for the internal market since the minimum tax rates have lost their effect.

In order to tackle these issues, the Commission is considering a number of policy options, such as:

(i) Minimum excise rates, taking into account energy content and linkages to greenhouse gas emissions;

(ii) Sectoral tax differentiation, taking into account existing differentiation between motor and heating fuel and focusing on tackling fossil fuel subsidies; and

(iii) Product coverage, taking into account that the use of certain new energy products (such as hydrogen, synthetic fuels, e-fuels, advanced biofuels, and electricity) is currently discouraged since they can be taxed in the same manner as traditional energy products. 

The Commission thus intends to ensure, among other things, that "green" renewable electricity can be taxed more favorably than "brown" electricity, as was already highlighted in the 2019 Evaluation of the ETD1.  In addition, the Commission foresees that specific policy options may be needed for the aviation and maritime sectors.

From a procedural perspective, the IIA envisages a potential change in the legal basis of the ETD. Whereas the ETD is currently based on Article 113 of the Treaty on the Functioning of the European Union ("TFEU"), the Commission proposes that the legal basis for the revision of the ETD could be Article 192 of the TFEU, which focuses on environmental issues. The essential difference between these two provisions is that unanimity of all EU member states is required under the former, whereas the latter requires qualified majority voting in the Council. 

The consultation on the revised ETD starts with an initial feedback period that lasts until April 1, 2020, during which time stakeholders can provide early input on the revised ETD. This will be followed by an official questionnaire-based public consultation in the spring of 2020, which will allow stakeholders to give their views on all aspects of the revised ETD. The consultation is open to all stakeholders with an interest in the proposal, regardless of whether they are established in the EU or elsewhere.


1 European Commission, Commission Staff Working Document – Evaluation of the Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity, SWD(2019) 329 final, p. 32 and 35-36. Available at https://ec.europa.eu/taxation_customs/sites/taxation/files/energy-tax-report-2019.pdf

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