Ship in horizon

Energy Taxation Directive (ETD)

Summary

The information provided on this page is based on the European Commission Proposal dated July 2021. Key elements are subject to change before the definitive measures are adopted.

Eliminating incentives for fossil fuel use in the EU

The EU’s Fit for 55 proposal includes the maritime industry in the scope of its decarbonization and GHG reduction measures for the first time. This means that several existing measures are being expanded, including a revision of the Energy Taxation Directive (ETD) is included in Fit for 55. Adopted in 2003, the ETD would be updated to:

  • Align with current EU climate and energy objectives
  • Incentivize investment in clean technologies
  • No longer favor fossil fuels
  • Improve clarity and legal certainty for member states

The ETD currently employs a taxation mechanism that allows subsidies in favor of fossil fuels. Under the new revision, the fuels that pollute most will be taxed at higher rates.

What does the ETD impact?

  • All bunker fuel sold within the EU
  • All bunker fuel used on voyages within the EU

Key dates

  • January 2023: Revised ETD comes into effect
  • 2023-2033: minimum exemption period for alternative fuels once the ETD is in force

How might the ETD work?

Working from a basis aligned with the established climate goals for 2030, there are three possible ETD variations under discussion:

  • Option 1 keeps much of the current scope, but includes intra-EU shipping, with transitional exemptions for certain sustainably produced fuels.
  • Option 2 introduces a system of minimum rates for intra-EU operations – based on energy content – which will increase over a ten-year transitional period. There are two possible variations of this option, one proposing a shorter transitional period, and the other the inclusion of air pollutants in the ETD’s scope.
  • Option 3 may not apply to the maritime sector, if the maritime sector is included in the EU Emissions Trading System (EU ETS).

By combining the EU ETS and ETD, both carbon content and other pollutants will be reduced from fuel content

What will be exempt from the ETD?

Most options consider a transitional phase of ten years or more once the revised ETD is in force. During this period several alternative fuels will be exempt from taxation. These fuels may include:

  • Sustainable and advanced sustainable biofuels and biogas
  • Low-carbon fuels
  • Renewable fuels of non-biological origin
  • OPS from sustainable sources

How will the ETD impact shipping? 

As concerns the shipping industry, energy products and electricity produced from fossil fuels used in waterborne navigation will be subject to taxation. Taxes will be calculated according to the net calorific value of the fuel. Tax exemptions will initially incentivize the use of sustainably produced alternative fuels, electricity and shore-side electricity used by vessels at berth. 

Has the ETD proposal been finalized?

The ETD proposal is still subject to change as it remains under discussion at both the EU Parliament and EU Council.* Points raised have included:

  • The need for a comprehensive assessment of all aspects of the Fit for 55 package
  • The introduction of a heavy fuels tax for the maritime sector
  • The clarification that only cleanly produced electricity can qualify for exemption status
  • The possibility of basing taxation rates on energy content rather than volume

* The Council is not legally obligated to take the Parliament’s position into account, but it cannot make a decision without it.

How can I keep up to date with ETD news?

The ETD will no doubt influence the choice of marine fuel used in EU waters. However, like all of Fit for 55, the final form of the ETD update has yet to be decided, though it will become clearer in the months ahead. Ship owners and operators can rely on Bureau Veritas experts to provide up to date information and advice on this and all Fit for 55 measures impacting them. 

To keep up with the latest developments on the ETD and other Fit for 55 measures, subscribe to our newsletter.

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