ISSUE PAPER | TAX POLICY | ENERGY TAXES
Reform of the Energy Taxation Directive under the Green Deal Competitive energy and electricity taxes in Germany
Introduction and summary
July 2021
In order to implement the new climate targets, the European Commission presented the Fit-for-55 package of climate measures on 14 July 2021 as part of the Green Deal, which also includes a proposal for a revision of the EU Energy Taxation Directive (ETD). The BDI supports a revision of the EU Energy Taxation Directive and hereby makes an initial assessment of the key points. Exempt climate-neutral energy sources In order to support the launch of climate-neutral energy carriers (hydrogen, electricity-based fuels, sustainable biofuels), mandatory tax exemptions for all sectors are needed to encourage investment in these technologies. Avoid distortions of competition for European air and sea transport through unilateral European action The unilateral taxation of aviation and shipping fuels (kerosene tax) within the European Union should be rejected in order to avoid distortions of competition to the detriment of European companies in international aviation and shipping. Ensure relief for industrial processes and energy-intensive industries Industrial processes will continue to need support. In order to achieve more legal certainty, the tax exemption of industrial processes should in general be regulated as a mandatory tax exemption and thus be independent of state aid law. Mineralogical processes should again be exempted from the application of the directive. Reduce electricity tax in Germany to the EU minimum tax rate When comparing the European countries, Germany has the highest rates of energy and electricity taxes. A significant reduction of the electricity tax in Germany to the EU minimum tax rate is urgently needed.
Department of Tax and Financial Policy | T: +49 30 2028-1430 | steuerpolitik@bdi.eu | www.bdi.eu
Reform of the Energy Taxation Directive under the Green Deal
Table of contents Introduction and summary ................................................................................................................. 1 Key points of the Green Deal ............................................................................................................. 3 Reform of the Energy Taxation Directive 2021 (ETD) ...................................................................... 4 Objective in Europe and Germany ........................................................................................................ 4 Protection of energy-intensive industry ................................................................................................. 4 BDI assessment of the reform of the Energy Taxation Directive ................................................... 5 Exempt climate-neutral energy sources ................................................................................................ 5 Avoiding distortions of competition for European air and sea transport through a European stand-alone solution .................................................................................................................................................. 5 Ensure relief for industrial processes and energy-intensive industries ................................................. 6 Reduce electricity tax in Germany to the EU minimum tax rate ............................................................ 6 At a glance: BDI’s key messages on energy taxation ........................................................................... 7 Imprint .................................................................................................................................................. 8
2
Reform of the Energy Taxation Directive under the Green Deal
Key points of the Green Deal On June 28, 2021, the European Union adopted new climate targets for the years 2030 (reduction of CO2 emissions by 55 %) and 2050 (EU-wide carbon neutrality). These stricter climate targets are associated with significant competitive disadvantages for German companies in an international comparison. To ensure that environmentally friendly production in Europe does not migrate to third countries or that international air and sea transport is not increasingly carried out by non-European companies, higher targets must be backed up by stronger protection against the relocation of CO 2 emissions to third countries (carbon leakage protection) – at least until comparable prices become binding worldwide. In addition, the central task of politics is to make climate-neutral alternatives marketable. This requires a stable and investment-friendly regulatory framework. To implement the climate targets, the EU Commission presented a legislative package called "Fitfor-55 climate action package" on 14 July 2021. This package aims to set a more ambitious regulatory framework for numerous areas - including a reform of the European emissions trading system, the introduction of a carbon border adjustment mechanism, a burden sharing between member states and the revision of the EU Energy Taxation Directive. Among numerous other measures, the Fit-for-55 package contains the following key elements: ▪ First, the existing European emissions trading system will be aligned with the new climate targets (more ambitious reduction targets, reducing the amount of free allowances, and a onetime lowering of the cap on emissions) ▪
Furthermore, the EU Commission is planning to expand the European emissions trading system by including a separate system for the transport and building sectors. These two components are intended to form the basis for pricing energy sources based on carbon in order to align regulation with climate targets.
▪
In addition, the EU Energy Taxation Directive is to be amended. In the future, a new structure of tax rates for fuels and electricity is to be introduces which will be based on the energy content and environmental performance. The alternative of focusing on carbon content would have been advantageous in that sense as there would have been no need for a new system for the buildings and transport sectors and that the climate targets could have been implemented in the existing energy taxation system.
3
Reform of the Energy Taxation Directive under the Green Deal
Reform of the Energy Taxation Directive 2021 (ETD) Objective in Europe and Germany Energy taxation is a key pillar in the design of public finance in Europe. In Germany, energy taxation (energy and electricity tax) accounted for 47 billion euros in 2019 as a 40 per cent of total federal federal tax revenue (BMF, Datensammlung zur Steuerpolitik 2020/2021). The first objective of the revised Energy Taxation Directive is to secure tax revenue from energy taxes in the EU member states. To this end, the tax base is to be increased and this is to be achieved mainly by removing current tax exemptions. In the future, Member States must respect the minimum rates by covering all sectors (including agriculture and fisheries) and all modes of transport (including aviation and shipping), and by reducing the number of preferential tax regimes in coordination with state aid law. Furthermore, the further development of the internal market and ensuring a level playing field continue to be the basis of European energy taxation. In addition, energy taxation is intended to ensure a sufficient price signal to achieve the climate targets. A new structure for minimum tax rates According to the European Commission's proposal, future minimum tax rates of fuels and electricity will be based on the real energy content and environmental performance of fuels and electricity. The environmental performance of energy products and electricity will be determined in line with the revised Renewable Energy Directive (RED). The future level and structure of the minimum tax rates show that the European Commission is giving a price signal with the ETD in order to achieve the climate targets. Fossil fuels are taxed at the highest level and carbon neutral fuels and heating fuels are taxed as low as electric power. For natural gas a transitional period of ten years will apply before being taxed at the same rate as fossil fuels. Rates for heating fuel are subject to moderate taxation without a transitional period. In principle, tax exemptions below the EU minimum tax rate are no longer possible. With the fixed tax rate structure according to the climate contribution of energy products and electric power, the separate tax rates for business use are to be abolished. In addition, the proposed minimum rates will also be adjusted to reflect the most recent prices. However, Member States are still given the option of higher tax rates, but according to the established "environmental performance" structure. A reduction of tax rates as an option for Member States (in compliance with state aid law) is only provided for renewable energy products and renewable electric power. By taxing energy products in relation to their energy content, a possible tax rate differentiation is abolished. In the future, the new Energy Taxation Directive will cover all modes of transport and thus also tax intra-community air and sea transport meaning that the preferential tax treatment of aviation kerosene will be abolished. However, this will be done gradually: For intra-community air passenger transport, a transitional period of ten years (starting with zero percent and then an annual increase of ten per cent of the minimum tax rate) is envisaged in order to achieve the minimum tax rates on aviation fuel and electricity. A general exemption will apply to air cargo. A ten-year tax exemption on these energy sources is established to promote sustainable alternative fuels and electricity, particularly for the aviation and marine sectors. Protection of energy-intensive industry The revised Energy Taxation Directive provides for the protection of energy-intensive industries under significantly stricter conditions. Member States still have the option, in line with state aid law, to
4
Reform of the Energy Taxation Directive under the Green Deal
grant tax benefits to certain energy-intensive businesses. The definition of energy-intensive businesses continues to distort competition through its dependence on national tax levels. Tax concessions under agreements to achieve environmental protection or energy efficiency targets (“Spitzenausgleich” / tax cap) are still possible. However, the revised Energy Taxation Directive restricts the tax exemption options for energyintensive businesses. On the one hand, the tax benefits for certain companies in the manufacturing sector and in agriculture and forestry will be abolished through operational tax rates, and on the other hand, the tax exemption of mineralogical processes (including cement production or the lime industry) in particular will be restricted through inclusion in taxation under the ETD. Until now, energy-intensive industrial processes have been excluded from the scope of the ETD. In relation to the status quo, tax relief of around 1.5 billion euros will be lost in Germany for the manufacturing industry and companies in agriculture and forestry. In addition, the directive misses the extension of generally binding relief criteria to ensure relief independent of state aid law.
BDI assessment of the reform of the Energy Taxation Directive BDI supports a realignment of the Energy Taxation Directive against the backdrop of the (probable) expansion of the European emissions trading system in order to include a separate system for the transport and building heat sectors. In addition to meeting climate protection goals, the Energy Taxation Directive must ensure better functioning of the internal market and contribute to the global competitiveness of industrial sectors. Exempt climate-neutral energy sources From BDI's point of view, it must be ensured that carbon-neutrally produced energy sources are not subject to energy taxes and carbon prices linked to climate targets. The European Commission's proposal must therefore ensure that, despite a switch to the energy content of fuels, EU member states are obliged to fully exempt climate-neutrally produced and advanced, sustainable biological energy sources from energy taxation and a carbon price in the market ramp-up phase without restriction to individual sectors. In this respect, the ETD so far only provides for a member state option subject to state aid law. Avoiding distortions of competition for European air and sea transport through a European stand-alone solution In the view of BDI, the unilateral taxation of aviation and shipping fuels within the European Union is to be rejected, as this would lead to distortions of competition to the detriment of European aviation and shipping companies and thus to a shift of carbon emissions and tankering outside the EU member states. In order to strengthen the innovative power of European aviation companies, a European triple burden of ETS, aviation tax and energy tax must be avoided. This would favor nonEuropean hubs and airlines thereby shifting traffic. The global competitiveness of internationally operating carriers in air and sea transport must continuously be ensured. For sea transport, we welcome the possibility of a full or partial tax exemption for shore-side electricity supply to ships in ports. The tax exemption for alternative and sustainable fuels for aviation and shipping must be exempted from the energy tax until they are ready for the market.
5
Reform of the Energy Taxation Directive under the Green Deal
Ensure relief for industrial processes and energy-intensive industries Industrial processes still need support. Mineralogical processes should again be excluded from the scope of the directive. For more legal certainty, the tax exemption of industrial processes should in principle be mandatory and thus regulated independently of state aid law. In the absence of global ambition, stricter political targets also call for more political backing for companies. Especially for companies that are currently affected by hardly avoidable process emissions, the successful transformation of these industries towards carbon neutrality depends on fundamental process changes and is not feasible without financial compensation from the state. Therefore, we do not understand why the European Commission limits relief, especially for mineralogical processes. Relief for energy-intensive industries must be ensured. The current definition of energy-intensive industries must be adapted in order to avoid dependence on national tax levels. Reduce electricity tax in Germany to the EU minimum tax rate For the German economy, the costs from energy taxes are an increasing burden. In a European comparison, Germany is at the top in terms of energy taxes. A significant reduction of the electricity tax in Germany to the EU minimum tax rate is therefore necessary. In particular, by defining the taxation structure according to energy content, Germany can no longer act unilaterally when it comes to electricity taxation. By restricting the preferential treatment, it is urgently necessary to adapt the high electricity tax rates to European developments in order to protect the competitiveness of German manufacturing industry. To maintain competitiveness, automatic tax increases to compensate for inflation must also be rejected.
Source: BDI
6
Reform of the Energy Taxation Directive under the Green Deal
At a glance: BDI’s key messages on energy taxation ▪
Carbon-neutrally produced energy sources should be exempted and not subject to energy taxes and carbon prices
▪
Reduce electricity tax in Germany to the EU minimum tax rate
▪
Avoid distortions of competition for European air and sea transport through European stand-alone solution
▪
Mineralogical processes should again be exempted from the application of the directive.
▪
Maintain the businesses
tax
cap
("Spitzenausgleich")
for
energy
intensive
Notice: ▪
A final evaluation and assessment of all legislative proposals of the Fit-For55 package by BDI is scheduled for August/September. This will involve a deImprint tailed evaluation of the Energy Taxation Directive in the context of the overall package and, if necessary, an adjustment of the content.
7
Reform of the Energy Taxation Directive under the Green Deal
Imprint BDI – Federation of German Industries Breite Straße 29, 10178 Berlin www.bdi.eu T: +49 30 2028-0 Editorial Dr. Monika Wünnemann Head of Department Tax and Financial Policy T: +49 30 2028-1507 m. wuennemann@bdi.eu Annette Selter Senior Manager Tax and Financial Policy T: +49 30 2028-1430 a.selter@bdi.eu Philipp Gmoser Senior Manager Tax and Financial Policy T: +32 2 7921012 p.gmoser@bdi.eu
BDI document number: D 1427
8
