EU Commission Pushes to Resolve Energy Tax Reform Deadlock

Energy Taxation Directive Reform Faces Delays

The European Commission is pushing EU governments to break the deadlock over the Energy Taxation Directive (ETD). A leaked draft action plan suggests cutting green levies and VAT could help lower energy costs for European consumers. However, negotiations have stalled since 2021 due to disagreements, particularly over exemptions for the airline and shipping sectors. Achieving reform requires unanimous approval from all 27 EU member states, which has proven difficult.

The draft calls on the EU Council to finalize the ETD revision, aligning energy product taxes with EU climate goals. It advocates removing outdated exemptions, reducing fossil fuel reliance, and promoting clean technologies. The plan also proposes tax relief for low-income households, which would provide immediate relief for those struggling with rising energy prices.

Although the European Parliament’s industry and energy committee has endorsed the proposal, it still needs approval from the EU Council and the Parliament’s economy committee before proceeding.

Exploring Non-Tax Solutions to Reduce Energy Costs

The Commission’s draft action plan also looks beyond tax reforms to reduce energy costs. Key proposals include improving energy efficiency and promoting demand reduction during peak electricity use to prevent price spikes. It suggests adopting market-based mechanisms to incentivize businesses and consumers to adopt energy-saving measures.

A major proposal is “demand aggregation” for liquefied natural gas (LNG). EU member states would combine purchasing power, negotiating joint agreements to secure lower prices. Another idea is to adopt the “Japanese model,” where European countries would invest in export facilities in gas-producing nations, strengthening long-term supplier relationships.

Additionally, the Commission plans to decouple electricity bills from volatile gas prices. This would make it easier for businesses to secure long-term power purchase agreements with renewable energy providers. The European Investment Bank will help fund these projects, but details on the financing remain unclear.

While electricity prices spiked during the 2022 energy crisis, the Commission aims to stabilize the market. The leaked draft indicates that with the right strategies, EU governments can reduce electricity levies and create a more predictable energy market.