Energy taxation directive: A handful of Member States persist in undermining the EU’s climate ambitions

19 December 2024

On Tuesday December 10, at the ECOFIN meeting of the EU Council, ministers of economy and finance of the EU discussed the revision of the Energy Taxation Directive (ETD), the last pending piece of legislation of the Green Deal legislation. During this meeting, Germany and Italy joined Greece, Malta and Cyprus in requesting that fossil fuel subsidies for the aviation and marine (including fisheries) sectors be maintained until at least 2035, thereby undermining the EU’s ambitions to tackle climate change.

 

The ETD, a key element in achieving the EU’s climate objectives

As part of the Green Deal initiated in 2019, the European Commission proposed a series of legally binding measures in July 2021 (called “Fit for 55”) aimed at reducing our CO2 emissions by 55% compared to 1990 levels by 2030, of which the revision of the Energy Taxation Directive is one of the centrepieces.

This regulation dating from the 80ies, still in force today, includes an obligatory total detaxation for fossil fuels used in aviation and maritime sectors (including fishing). In other words, this measure is nothing less than a fossil fuel subsidy. Revising it as part of the Green Deal would therefore ensure that the tax regime applying to the use of energy products by different sectors is consistent with the EU’s climate objectives.

In July 2021, the Commission published a draft revision of the ETD proposing to eliminate the total exemption from tax benefiting, in particular, the aviation and maritime sectors (including fishing) and to introduce a minimum tax of up to EUR 0.036/L.

Despite the recurrent evidence of the climate catastrophe and the desperate call of scientists to phase out fossil fuel subsidies, the Hungarian presidency in charge of the negotiations proposed to keep an obligatory total detaxation for fossil fuel used in aviation, maritime transport and fishing until at least 2035.

Climate talks that propose to maintain fossil fuel subsidies are empty shells

Following on from his hearing at the European Parliament, Commissioner Hoekstra kicked off the meeting by reminding Member States that the Hungarian proposal was clearly a step backwards from the Commission’s original proposal.

This is particularly true with regard to the aviation and maritime sectors including fishing, for which a way more ambitious approach is required to meet the 2030 climate objectives. And in order to have a fairer implementation of these objectives, he stressed that if some sectors are not participating in the global effort, it would mean that some others would have to compensate for them. This would be utterly unfair. Therefore, all sectors need to do their share.

Germany, Italy, Greece, Malta and Cyprus are aligned to burn our future

During the ECOFIN meeting, a few Member States made very clear that their intention was to continue supporting the use of fossil fuels. Greece, Malta and Cyprus reiterated their position to maintain a mandatory taxation exemption for the aviation and maritime sectors until 2035 and were notably followed by Croatia, Germany and Italy.

After stating that climate objectives are one of their priorities, they rejected the idea of putting an end to the current taxation advantages of these sectors, mainly stating that such measure could undermine the European competitiveness and their tourism aspirations.

Some Member States (such as Denmark or Irland) would have preferred a more ambitious text on the protection of the environment, but would not prefer to continue negotiating on the text, considering that it already is a viable compromise. The definition of ‘viable’ is very generous as the text presented by Hungary is clearly missing its main objective: use taxation to support achieving climate change objectives.

On the other side, three Member States (France, the Netherlands and Belgium) followed by Estonia, showed some political courage by opposing the proposal of the Hungarian presidency, reminding the necessity to stick to the European climate objectives.  They expressed their disappointment with the direction these discussions and more generally the European Union was taking.

The future of ETD lies in the hands of the incoming Polish Presidency

Thanks to the opposition of these few Member States, the Hungarian presidency had no other choice but to conclude that there was no political agreement on the text they proposed. In this context, it is therefore necessary to continue discussions and negotiations, which is a positive point given the situation.

Since the Hungarian presidency will end by 31^st December 2024, the file will have to be further analyzed and discussed under the Polish presidency (starting as of 1^st January 2025), who already announced that they intend to continue the work on the ETD.

However, the Programme of the Polish Presidency highlights that “the most important areas on which the Polish presidency will focus are streamlining the Single Market and strengthening the competitiveness of the European economy”. Exactly the kind of argument rumbled on by the Member States opposing the initial proposal of the Commission.

It has been crystal clear for decades that the only adequate response to the ongoing climate crisis we are currently facing is to adopt strong political measures. The revision of the ETD is a unique opportunity to make a step in the right direction and show that Europe still has a key role to play as leader in the protection of the environment, and still has the credibility to meet its own commitments.

We do not want a license to pollute!

Accepting a revised ETD that grants a tax exemption to the aviation and maritime sector until 2035 is giving those sectors a license to continue polluting without shame. It means Europe is giving up on the phasing out of EU fossil fuel subsidies without even starting discussing it, despite burning fossil fuels being the number one activity responsible for climate change and the perilous times we will face.

It is therefore crucial that France, the Netherlands, Belgium and Estonia hold their ground, continue to support the ambitious proposal of the Commission and engage with all other Member States in order to find a compromise that respects our climate objectives and commitments, and does not threaten our future living conditions.

Commissioner Hoekstra also has a crucial role to play in these negotiations and has different tools at his disposal, including a red pen, to defend the only viable scenario for our survival.

Eliminating fossil fuel subsidies does not mean that the sectors concerned cannot be supported in other ways. But it is up to Europe’s leaders to find the right tools to facilitate the transition.