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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 has been striving to give shape to the reform.

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.

Political guidance for the Commission

During its Presidency, Finland has encouraged discussion of the reform of energy taxation. The discussion began at the Informal Meeting of Ministers for Economic and Financial Affairs (Ecofin) in Helsinki on 14 September.

This was very relevant as the European Commission had published its 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.

On 5 December, the Economic and Financial Affairs Council (Ecofin) is expected to adopt conclusions on the reform of energy taxation. The conclusions would provide political guidance on energy taxation reform to the new European Commission.

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.

During its Presidency, Finland has laid the necessary groundwork and moved forward with the debate on energy taxation. Preparation of the proposed amendments to the Energy Taxation Directive is the task of the Commission. 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

Merja Sandell, Senior Ministerial Adviser, tel. +358 2955 30191, merja.sandell(at)vm.fi