Clock ticking as EU tries to unblock energy taxation directive

The French electricity sector fears that the revision of the EU’s energy taxation directive will fail before the June European elections, despite a last push by the Belgian EU presidency, which is seeking to break the deadlock in the Council of the EU.

Read the original French article here.

French electricity bills rose by 8-10% on 1 February 2024, after changes brought to the “tariff shield” introduced in 2021 in response to the energy crisis caused by Russia’s war in Ukraine.

“The reason is very simple: a gradual phasing out of the tariff shield,” explained the office of Economy Minister Bruno Le Maire at the end of January, referring to the €90 billion that the shield had cost the state just two years after the start of the crisis.

At the same time, the French government also announced a decision to reintroduce a tax exemption on non-road diesel to appease angry farmers, who have been protesting across the country.

In other words, the government increased taxes on France’s highly decarbonised electricity while reducing taxes on a polluting fossil fuel.

“Our tax policy is totally out of step with our national objective of moving away from fossil fuels,” energy market expert Nicolas Goldberg reacted on X.

The situation is not unique to France: In Europe, coal is taxed at an average of €2.9 per megawatt-hour, while natural gas is taxed at €7/MWh. Electricity, by comparison, is taxed at €32.1/MWh, according to a recent report by the EU Court of Auditors.

In Brussels, the European Commission is trying to clarify the situation with a proposal to revise the Energy Taxation Directive, tabled in July 2021.

But the unanimity rule that applies to tax matters has so far blocked progress in the Council of the EU, where the 27 EU member states are represented.

This is “the last major energy issue in the Green Deal”, an energy sector representative told Euractiv France. “Taxation is the big forgotten factor in public policies for energy transition,” he added, saying a root-and-branch revision is necessary.

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Taxes make up over 40% of the bill

Taxes and levies account for around 41% of Europeans’ electricity bills, according to the latest figures from the trade association Eurelectric (23% in France, according to the Union française de l’électricité, UFE).

This figure has increased by 29% in ten years, “discouraging the use of electricity-based technologies and services” at a time when electrification is becoming a priority for decarbonising Europe’s energy system, argues Eurelectric.

Electricity is indeed much less carbon-intensive than other fuels. In a recent note, UFE points out that the carbon content is four times higher for petrol than electricity, nine times higher for natural gas and 11 times higher for heating oil.

To remedy this, the European Commission proposed in 2021 a revision of the EU’s Energy Taxation Directive, which sets minimum levels of taxes on energy products to reduce market distortions within the EU single market.

The Commission’s aim is to base taxation on environmental performance, to ensure that taxes are lower for decarbonised energy than for fossil fuels.

But over the last two years, discussions have stalled due to the unanimity rule, which applies to taxation matters in the EU. Taxation is an exclusive competence of member states, giving each country a right of veto.

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Act fast

According to UFE, the underlying issue is the price of energy paid by Europe’s industry.

The steel sector, for example, defends the idea of a tax exemption for electricity used in metal production, which is less carbon-intensive than using coal or gas, an industry source said. Steelmakers are also defending tax reductions for products derived from renewable energies, such as hydrogen.

In any case, the situation is becoming urgent, said the Electrification Alliance, of which Eurelectric is a member.

“As long as we delay these negotiations, the EU cannot claim to have completed the Green Deal or to have comprehensively addressed the energy crisis,” the alliance said in a letter sent to the Belgian EU Presidency on 15 February.

The latest attempt to unblock the directive dates back to May 2023, under the Swedish EU Council Presidency.

But things could well speed up in the next few days.

According to an energy insider, the directive will be on the agenda of the next Economic and Financial Affairs Council scheduled for Wednesday (22 February) in Ghent. The Belgian presidency is then expected to present a fresh compromise proposal by the end of February.

At the time of publication, the Belgian presidency had not replied to Euractiv’s requests for comment on the matter.

The directive, “certainly postponed until the next parliamentary term” according to UFE, may not be “dead” after all, as Eurelectric pointed out.

Energy Taxation Directive: Europe's key climate law stuck in a quagmire

Talks to revise the 20-year-old Energy Taxation Directive are moving at a snail’s pace amid resistance from EU countries in a matter that requires unanimity among the 27.

[Edited by Frédéric Simon/Zoran Radosavljevic]

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