The European Commission has launched two public consultations on initiatives that aim to maximise the impact of taxation in meeting the EU’s climate goals: the Revision of the Energy Tax Directive (ETD) and the creation of a Carbon Border Adjustment Mechanism (CBAM).
- The review of the ETD is part of a series of measures announced in the European Green Deal. The Energy Taxation Directive 2003/96 lays down the EU rules for the taxation of energy products used as motor fuel or heating fuel and of electricity. However, since its adoption in 2003, energy markets and technologies in the EU have experienced significant developments. The EU’s international commitments, including the Paris Agreement, as well as the EU’s regulatory framework in the area of energy and climate change, have evolved considerably since then. The European Green deal adopted by the Commission on 11 December 2019 aims to transform the EU into a modern, resource-efficient and competitive economy where there are no net emissions of greenhouse gases in 2050 and where economic growth is decoupled from resource use. Well-designed taxes play a direct role by sending the right price signals and providing the right incentives for sustainable practices of producers, users and consumers. The consultation is now open until 14 October 2020.
- The new Carbon Border Adjustment Mechanism is a mechanism to counteract this risk of ‘carbon leakage’ that occurs when companies transfer production to countries that are less strict about emissions, or when EU products are replaced by more carbon-intensive imports. In such case global emissions would not be reduced, thus undermining Europe’s efforts to go climate-neutral by 2050 where international partners do not share the same climate ambition as the EU. The new mechanism would counteract this risk by putting a carbon price on imports of certain goods from outside the EU, ensuring that the price of imports reflect more accurately their carbon content. It would be an alternative to the measures that currently address the risk of carbon leakage in the EU’s Emissions Trading System (“EU ETS”). The consultation is now open until 28 October 2020.