What Updating the EU Energy Taxation Directive Means For European Power Producers

They say that in life there two guarantees: death and taxes. Unfortunately, there are no guarantees that either one will be sensible. This is very much the case within the European Union, which is still operating under the Energy Tax Device (ETD). This ETD is out of step with the EU’s 20-20-20 plan, and unsustainable if the goal is to achieve a low-carbon, energy efficient economy. While it seems inevitable that the ETD will be updated, power producers may not know what those changes will be, or what impacts they will make.


The current ETD was written in 2003, before the robust EU Emission Trading System was in place, and sets minimum rates for the taxation of energy products used as motor fuel, heating fuels, and for electricity. The glaring problem with this tax scheme is that it does not factor in carbon emissions or, even stranger, energy density. When considering the EU’s lofty energy goals, these tax rates appear to be arbitrary.


In 201l, the EU Commission submitted a proposal to revise the ETD to factor in energy density and carbon emissions with the stated goal of “promot[ing] energy efficiency and consumption of more environmentally friendly products”. As an olive branch to emitters, they also proposed that industries who were under the EU carbon cap be exempt from these energy taxes to avoid what would be a double taxation. Despite a sound plan, the EU Parliament eventually voted down the proposal, largely due to concerns about what it would do to diesel prices.


Although this parliament vote is discouraging, we now live in a post COP21 world, where decarbonisation is no longer a request, but a mandate. The EU continues to discuss the issue, while ramping up its 20-20-20 program, it is hard to imagine that this contradictory taxation scheme will endure much longer. When it does change, the last proposal gives us a pretty good glimpse at what a restructured tax scheme would mean for the european energy industry.


It is important to remember that utility-scale energy is already heavily taxed by the EU Emissions Cap and Trade system, and a revised ETD would aim to complement this by taxing fuel consumption outside of those who are currently regulated. The commission has stated its intentions to not double tax such industries and the ETD would therefore not have a significant impact on large scale renewables. It’s purpose would be to make improvements in energy consumptions outside of the currently regulated industries.


Under a restructured ETD, coal stands to lose favour as a heating fuel. It’s high carbon density will make it cost prohibitive, and we will see a shift to natural gas or, in more moderate climates, electric. In addition to shifting to be more sensitive to carbon, the EU will see a progression to more energy efficient technology. This means efficient appliances on the household level and, on the industrial level, technologies such as combined heat and power should see a major boost.


Clearly, the EU ETD is badly out of touch with the EU’s energy goals. With the 20-20-20 plan, the EU has charted its course, and it needs a tax plan that falls into line. This outdated tax device is hindering progress like a hole in a sail. By sewing up the hole, we won’t change the direction of the ship, but rather increase it’s speed. The EU energy plan will be accomplished with time and through a complicated system of revisions, including this. This poses a challenge for power produces to stay on top of all of each and every development, moving forward in the transition to distributed generation. Good data will be key in keeping compliant, accurate, and investor friendly. Implementing an energy investment management system will not only ensure this, but give power produces the competitive advantage they need to thrive in the multi-trillion euro transition to the renewable world of tomorrow.