EU’s energy taxation and subsidy policies don’t match its climate ambitions

Many countries in the bloc are still not levying carbon taxes

The European Court of Auditors (ECA) published a review yesterday, which concluded that the energy taxation and subsidy policies in many of the member states do not square with the overall goal of the union to achieve carbon neutrality by 2050.

The document covers the period 2008-2021. During this time, even though renewable-energy subsidies almost quadrupled, fossil fuel subsidies have remained relatively constant over the last decade despite commitments from the European Commission and some Member States to phase them out.

Synchronization of policies across the continent is needed

The auditors recommended that several things need to be done if palpable progress is to be felt in terms of climate efforts. The most important are: ensuring consistent energy taxation across sectors and energy carriers, reducing fossil-fuel subsidies, and reconciling climate objectives with social needs.

“Energy taxation, carbon pricing and energy subsidies are important tools for achieving climate goals. The main challenge, in our opinion, is how we strengthen the links between regulatory and financial measures and find the right mix between these two,” explained Viorel Ştefan, the member of the European Court of Auditors responsible for the review.

“With our review, we aim to contribute to the discussion on energy prices and climate change, and in particular to the upcoming debate around the proposed revision of the Energy Taxation Directive”.

As part of the European Green Deal, the European Commission plans to align energy taxation with climate objectives. The European Union faces several challenges in revising the energy taxation legislation, which will also require unanimous agreement in the Council.

One of these, for instance, is that coal is taxed less than natural gas, and some fossil fuels are taxed significantly less than electricity. Moreover, while a majority of Member States impose high taxes on fuels, several others keep taxes close to the minimum established by the Directive, and this may distort the internal market.

Low carbon prices and low energy taxes on fossil fuels increase the relative cost of greener technologies and delay the energy transition.

In terms of carbon taxation, Sweden is the absolute champion, not only in the EU but in all of Europe. The tax rate there currently sits at 116.33 euros per ton of carbon emissions. The levy has been imposed since 1991. The lowest carbon tax is in Poland (0.07 euros per ton), yet there are 13 EU countries that are still not imposing direct fees on emissions.