Energy taxation directive: No progress expected before EU elections

Despite the presentation of a new compromise text to national governments on Thursday (April 25), no serious progress is expected on revision of the energy taxation directive before the next term of the EU Parliament and Commission.

Euractiv spoke to several European diplomats close to the file, with one saying that the prospect of a common position before the Summer seemed “a bit ambitious”.

Belgium, which holds the rotating presidency of the EU Council for the first half of  2024 to 30 June, put the revision of the Energy taxation directive (ETD) on its agenda.

This was the Belgian Presidency’s second attempt to progress the file. At the end of February, its first compromise text failed to secure support, even though it built upon previous efforts by the Spanish and Slovenian Council presidencies in 2023.

For many stakeholders, the continued application of the current taxation rules are a serious problem, arguing that they discourage investment in more climate-friendly energy.

Three years of negotiations

The Energy Taxation Directive has been in force since 2003. It sets a minimum level of taxation on energy products, fuels and electricity. But its placing of all energy sources on an equal footing, whether carbon-emitting or not, is not aligned with wider EU climate objectives.

According to the European Court of Auditors, the directive’s rules are in contradiction with the EU’s climate policy.

As a result, the European Commission proposed a review in 2021. Since then, discussions have stalled, hampered not only by the war in Ukraine, but also by fact that tax matters remain an exclusive competence of national governments.

This means that all 27 countries must agree on new rule. In other words, each country has a de facto veto, which they can use to protect their own interests.

No parliamentary position

There is also a lack of consensus amongst political groups in the European Parliament, which has an advisory role only on this file.

Lead lawmaker on the text, Johan van Overtveldt (ECR), declined to submit a report for consideration by the Parliament’s Economic Affairs Committee last Thursday (April 18).

“It is clear that after all these years of negotiations there is still no clear majority for the compromises” he said. According to him, “the Socialists and Greens refused to compromise on the transition period for the aviation and maritime sectors, as well as on the role and future of nuclear energy”.

The Belgian parliamentarian is putting off the text off until after the elections. “It’s up to the next Parliament to decide the fate of this dossier”, he concluded.

Failed Council negotIations

The Belgian Presidencies initial compromise text, presented in late February to national governments, offered more flexibility on tax rules, for example excluding wood and charcoal from the directive’s scope.

The second compromise, discussed yesterday (25 April), includes a number of additional elements to satisfy the demands of the various delegations, such as greater flexibility on the taxation of aviation fuels, “one of the tricky points” of the text, a European diplomat said to Euractiv.

In spite of these concessions, little progress was made. “It’s not certain that we’ll be able to reach an agreement during the Belgian Presidency,” adds the first diplomat contacted.

A another diplomat was more cautious: “At this stage, it’s too early to say whether or not the Council will be able to reach an agreement by the end of the semester”.

“If the delegations cannot support the compromise text, there is a risk that the currently applicable Energy taxation directive will continue to apply for an undefined period, which would be regrettable”, notes the Belgian presidency in its compromise.

Problems for stakeholders

In France, maintaining of the current unrevised rules would be problematic, several stakeholders say.

It would be “disappointing”, Phuc-Vinh Nguyen, energy policy researcher at the Institut Jacques Delors think tank, tells Euractiv. “As it stands, the directive is a disincentive to investment in non-carbon energies, due to minimum tax rates that are more favorable to fossil fuels”, he continues.

At the same time, the Union française de l’électricité, which represents the interests of the French electricity industry, is insisting on a revision of the directive to “ensure a level playing field in terms of climate between energies, in order to support decarbonization”.

Former Italian Prime minister Enrico Letta noted in his recent high-profile report on the single market noted that that “a swift agreement on the ETD is necessary to provide the right incentive to renewables energy across the Single Market”.

[Edited by Donagh Cagney/…]

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