EC seeks views on updating EU taxes to boost low-carbon fuels, EVs

Brussels — The European Commission is seeking views on how to update the EU's energy taxation rules to align them with the bloc's goal to be carbon-neutral by 2050 and reduce implicit subsidies for fossil fuels.

Any tax changes, if eventually imposed, could have a major impact on demand for diesel, gasoline, biofuels, natural gas, electricity and hydrogen in transport, for example, by changing the relative cost of various fuels.

The EC said more than 75% of the EU's greenhouse gas emissions are caused by using energy, including electricity.

It wants to revise the current minimum tax rates for road transport, which favor diesel over petrol, and fossil fuels over lower-carbon alternatives such as biofuels and renewable electricity.

This is because the 2003 EU energy taxation directive taxes fuels according to volume, not energy content.

The EC has projected that electric vehicles will have a 50% to 80% share by 2050 in a climate-neutral scenario.

The 2003 directive does not include a specific provision for electricity used for transport, so the EC is seeking views on whether to introduce a specific low rate, or an exemption, or not change anything.

The directive also does not include any special tax treatment for low-carbon fuels such hydrogen, which the EC is keen to promote in hard-to-decarbonize sectors such as oil refining, steel making and heavy goods vehicles.

The EC is seeking views on how to tax hydrogen, for example as a transport fuel, a heating fuel, and/or as a feedstock for e-fuels or industrial processes.

It is also seeking views on how to tax LNG and CNG, which offer low-carbon alternatives to gasoline, diesel, and coal/lignite.

The EC is seeking views on changing taxes on energy use by heavy industry, both inside and outside the EU's Emissions Trading System.

It also wants to rethink the tax exemptions for aviation and shipping fuels.

For example, it suggests directly taxing kerosene and other aviation fuels for intra-EU flights, and/or introducing distance-based ticket taxes for flights.

Battles ahead

The public consultation is open until October 14, and the results will feed into the EC's formal legislative proposal expected in June 2021.

Any changes to the 2003 directive must be agreed unanimously by EU national governments, meaning each individual government has a veto.

This makes agreeing changes notoriously difficult, as the EC found in 2011 when it proposed new minimum EU energy tax rates to start in 2013, based on CO2 emissions and energy content rather than volumes.

The move failed to achieve unanimous approval and the EC eventually withdrew it.

Energy tax revenues contribute to around 3-5% of EU national governments' budgets, so changes can directly impact how much governments have to spend.

The EC wants EU governments to switch to qualified majority voting for energy taxation to make it easier to agree changes.