From economic self-sabotage to legal farce? ETD revision risks courtroom collapse

03 November 2025

Scientists, economists, and private sector representatives have highlighted the absurdity of maintaining fossil fuel subsidies as EU member states look poised to do exactly that with a revision of the EU Energy Taxation Directive (‘ETD’) that maintains tax exemptions for fuels used in the aviation, maritime transport and fisheries sectors.  

Now, a leading EU lawyer warns the text the Council wants to adopt may be illegal. 

The European Environment Agency recently reminded that there is no competitiveness without a healthy nature, actuaries warned that global economy could face 50% loss in GDP from climate shocks; the International Monetary Fund has for years described the inefficiency of fossil fuel subsidies and the harmful consequences of fossil fuel pricing which doesn’t reflect their environmental, human, and societal costs. Economists from the European Central Bank and the University of Mannheim warned of the unbearable costs of extreme weather events in summer 2025 in Europe only.  

From environmental and economic irresponsibility to illegality? 

In a legal opinion published on 14 October 2025,  the Head of the Institute for European Studies at UCLouvain, professor of EU law and lawyer at the EU Court of Justice,  Antoine Bailleux argues that the tax exemption for fuel used by commercial aircrafts and ships may be incompatible with the prohibition on state aid and the polluter-pays principle.  

“[…] the Council should think twice before deciding to maintain the current tax exemption regime in the revised ETD”  

Illegal State Aid for big Polluters? 

The legal analysis first addresses the issue of non-discrimination.  Many economic actors have argued for years that a total fossil fuel tax exemption for aviation, maritime and fisheries sectors gives an unfair competitive advantage over rail and other sustainable alternatives.   

Prof. Bailleux considers that tax exemption for fuels used by ships and aircraft could indeed amount to illegal state aid, not least as it could infringe principles of EU environmental law such as the polluter-pays principle, supporting the Commission’s initial proposal to end such preferential treatment. 

Polluters should pay, not get paid 

The “polluter-pays principle” is not a vague political objective; it is enshrined in Article 191(2) of the foundational Treaty on the Functioning of the European Union Treaty (TFUE) and has been the subject of abundant case-law, prof. Bailleux reminds us.

According to the Treaty “the cost of preventing and eliminating nuisances must in principle be borne by the polluter” and Union environment policy must be based on that principle.  

The author dismisses excuses for ignoring this in the ETD. Rather, he concludes that the revised ETD could be found to be invalid for not respecting the polluter pays principle, and lawmakers have no justification to maintain these tax breaks. 

ETS Alone Won’t Cut It – Tax the fuel to force real change 

Aviation and shipping companies often claim that the emissions trading system (‘ETS’) alone is enough.  

The author calls such claims “empirically flawed“. The fisheries sector is not covered by the ETS and what airlines and ships actually pay is nowhere near the true cost of their CO₂. At best, the ETS delivers a “polluter-pays-one-fourth” principle, and even that’s generous, given all the free allowances and loopholes these sectors enjoy.  

Bottom line: the ETS simply can’t uphold the polluter-pays principle on its own. 

Will Member States cross the legal red line? 

Professor Bailleux stresses that the EU’s own rules demand weaving strong environmental protection into every policy, including tax laws.  

The author highlights the risk that maintaining tax exemptions in the ETD may not withstand judicial scrutiny by the EU Court of Justice.  

After scientists and economists have slammed the folly of fossil fuel subsidies, legal experts are now piling on.  

This should leave Member States with no choice but to veto the current text and continue working towards an agreement that not only makes economic and environmental sense but respects EU law.  

Can the EU Commission, as guardian of the EU Treaties, ignore the legal argument or should it use all its powers including withdrawing the proposal to protect the EU and its highest laws if some Member States continue to seek to protect tax breaks for polluters?