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Energy taxation in support of climate action

EU legislation on energy taxation needs to be revised to better support climate change mitigation and the functioning of the internal market. During its Presidency of the Council of the EU, Finland will initiate discussion on the subject among member states.

Finland considers the reform of energy taxation important because the current Energy Taxation Directive does not take into account the differences in emissions between different forms of energy and does not differentiate between renewable and non-renewable energy sources. This is not consistent with energy policy, which encourages the transition to renewable and other clean energy sources. Nor does the directive cover new fuels or, for example, energy storage.

The Energy Taxation Directive currently sets minimum levels of taxation for different energy products. However, the minimum rates do not reflect any specific logic and are too low, which means they do not encourage energy-efficient technology and emission-free activities. In addition, international aviation and maritime transport are exempt from fuel taxes.

From the point of view of the internal market, it is problematic that there are divergent tax rates among member states and the minimum tax rates are low. These differences may distort competition and erode the tax base in high-taxing countries.

Shaping the reform

Finland will begin discussing the reform of energy taxation during its Presidency of the Council of the EU. The discussion began at the Informal Meeting of Ministers for Economic and Financial Affairs (Ecofin) in Helsinki on 14 September.

This is very relevant as the European Commission published an evaluation of the Energy Taxation Directive on 11 September. The finance ministers will consider what needs to be taken into account if a decision is taken to revise the directive. The aim is also to share member states’ experiences of energy taxation reforms undertaken to reduce emissions.

Supporting emissions reductions

During its Presidency of the Council, Finland is stressing the need for the EU to raise its profile as a global leader in climate action. The aim is to establish a long-term climate strategy for the EU that will enable it to become carbon neutral by 2050. Finland is also promoting emissions reductions and implementation of the energy union.

Energy taxation alone will not solve climate challenges, but it can contribute to creating effective and easily implemented economic incentives that will guide the economy in a more sustainable direction.

The European Commission is due to publish its evaluation of the Energy Taxation Directive in autumn 2019. The Commission and the member states will then exchange views on the need to reform the directive.

The purpose of discussing energy taxation during the Finnish Presidency is to lay the necessary groundwork and to move forward with the debate. If the Commission proposes amendments to EU legislation, these will be considered by the Council of the EU after the end of Finland’s Presidency.

Inquiries

Leo Parkkonen, Senior Ministerial Adviser, Ministry of Finance, tel. +358 2955 303072, leo.parkkonen(at)vm.fi