Energy Taxation Directive (ETD)
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
Fit for 55 includes the maritime industry in the scope of its decarbonization and GHG reduction measures for the first time. Several existing measures are being expanded, including a revision of the Energy Taxation Directive (ETD). Adopted in 2003, the ETD would be updated to:
- Align with current EU climate and energy objectives (e.g., a 55% reduction in GHG emissions by 2030)
- Incentivize investment in clean technologies
- No longer favor fossil fuels
- Improve clarity and legal certainty for Member States
The initial ETD (Directive 2003/96/EC) provides a taxation mechanism that allows subsidies for fossil fuels. Under the new revision, the fuels that pollute most would be taxed at higher rates.
HAS THE ETD PROPOSAL BEEN FINALIZED?
The ETD proposal is still subject to change as it remains under discussion at both the Parliament and Council.
The Council's proposal will require unanimous confirmation from Member States before the text is formally adopted. The Council is not legally obliged to take into account the Parliament’s position but it cannot take a decision without having received it.
HOW DOES THE ETD IMPACT SHIPPING?
The ETD does not impact international shipping (i.e., beyond the EU), but it does apply for:
- All bunker fuel sold within the EU
- All bunker fuel used on voyages within the EU (i.e., intra-Union waterborne navigation)
Energy products and electricity produced from fossil fuels used in waterborne navigation would be subject to higher taxation. Tax exemptions would incentivize the use of sustainably produced alternative fuels and electricity, as well as the use of shore-side electricity while at berth.
Fishing and private pleasure vessels – such as yachts – would also be subject to ETD.
HOW MIGHT THE ETD WORK?
ETD introduces a system of minimum taxation rates depending on the fuel’s category. The new categories are determined based on energy content instead of volume, as it is currently the case. These minimum rates will increase over a ten-year transitional period (2023-2033), with exemptions for certain sustainably produced fuels.
Energy products are to be classified into three categories, from the highest taxation rate to the lowest:
- Category 1: fossil fuels
- Category 2: low-carbon fuels , sustainable biofuels and biogas (i.e., excluding biofuels and biogas from food and feed crop feedstocks)
- Category 3: renewable fuels of non-biological origin, advanced sustainable biofuels, bioliquids and biogas
Taxation shall be calculated in Euro/Gigajoule (EUR/GJ) on the basis of the fuel’s net calorific value.
A combination of the EU ETS, FuelEU Maritime and ETD, will thus reduce a fuel’s carbon content and other pollutants.
WHAT COULD BE EXEMPT FROM THE ETD?
The revised ETD’s entry into force would be followed by a transitional phase of ten years. During this period, several alternative fuels would be subject to a total or partial taxation exemption. These fuels may include:
- Advanced sustainable biofuels and biogas
- Low-carbon fuels
- Renewable fuels of non-biological origin
- Onshore power supply (OPS) from sustainable sources