Fuels industry urges EU countries to finalise dormant energy tax overhaul

The EU’s energy taxation directive (ETD), a proposal to bring energy tax rules in line with the bloc’s green goals, remains at a standstill more than two years after it was first proposed.

Unlike other rules put forward by the European Commission, tax matters are dealt with by unanimity decision at the Council of the EU, meaning each member state has a right of veto and can block the law from progressing.

Other institutions, such as the European Parliament, are relegated to providing opinions, in which they advise national governments on how to proceed.

A revision of the ETD, last updated twenty years ago, was a significant element of the European Commission’s so-called “Fit for 55” package, a series of legislative proposals unveiled in July 2021 aimed at slashing Europe’s carbon emissions in line with its Green Deal ambitions.

However, while the bulk of the package has passed into law, the Energy Taxation Directive remains conspicuously absent.

Instead, disagreements over the phasing out of tax exemptions for aviation and maritime fuels have brought negotiations to a halt.

According to a diplomatic source, who spoke to Euractiv on condition of anonymity, there has been little progress on the file, with the same divisions remaining. 

The energy crisis brought on by Russia’s invasion of Ukraine has added to national governments’ hesitancy to push the file forward, as capitals become increasingly wary of raising the tax burden on top of already high energy costs.

Within the Council, there has been “no shift in positions or anything else that would make a breakthrough more likely” the diplomatic source confirmed.

Asked by Euractiv if the European Commission retains its previously expressed optimism that the ETD would be finalised before the end of the year, an EU official responded only that they “encourage Member States to continue working constructively towards an adoption of the proposal as soon as possible”.

A request for comment on the status of the directive from the Spanish Presidency of the Council was not returned.

Fuels companies urge action

With EU talks stuck in a quagmire, pressure to move forward is coming from the outside. Last week, the fuels industry issued a strong plea for diplomats to move ahead with the law, urging countries to get the new tax regime back on track.

A letter signed by prominent oil and biofuel trade associations was sent to national negotiators dealing with the file, calling for progress on the revision. Finalising the ETD will provide the necessary price incentives to boost the production of green fuels, they argued.

The industry was concerned that member states were not aware of their support for the directive’s revision, so sought to make their position clear.

The missive was sent in advance of a Wednesday (8 November) working party organised by the Spanish Presidency of the Council, in which countries exchanged views on the dormant file.

“Currently, we fear that the lack of progress on the ETD recast negotiations will result in a withdrawal of the proposal, and we call for the continuation of the negotiations, both on technical and political level,” the letter states.

“Considering the divergencies in the Council related to the tax exemptions of intra-EU air and maritime transport, we recommend maintaining the ten-year minimum tax rate of zero for sustainable fuels in those sectors,” the letter continues.

Signatories also want to see the tax rate take into account the level of sustainable fuels present in fossil fuel blends – if 10% of a petrol mix is ethanol, that percentage should be taxed at a different rate, as defined by the ETD, they argue.

Under the current regime, taxation is based on the fuel product, so a biofuels and gasoline blend is taxed as 100% fossil fuels. 

The industry has long been “concerned about the unfair discrimination among different renewable fuels” said David Carpintero, director general of the bioethanol trade association ePURE.

“It simply goes against common sense to treat crop-based biofuels with proven sustainability and greenhouse gas-reduction performance as if they were fossil fuels,” he told Euractiv. “The goal should be simple: The EU’s energy taxation policy should be aligned with its climate ambitions, not work against them.”

While urging progress, the companies behind the letter are not necessarily expecting white smoke before the end of the year.

They are looking to next year, when Belgium holds the rotating presidency of the Council, for progress – hopeful that the law will be concluded prior to the shakeup of the EU Commission following the mid-year European elections.

[Edited by Frédéric Simon. Additional reporting by Jonathan Packroff]

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