Aiming to maximise the role of taxation in meeting the EU’s climate goals, the European Commission launched on July 23 public consultations on the revision of the Energy Tax Directive (ETD) and the creation of a Carbon Border Adjustment Mechanism (CBAM).

“Europe must use taxation to deliver on its climate goals in a socially just way,” EU Economy Commissioner Paolo Gentiloni said. “The Energy Taxation Directive and the Carbon Border Adjustment Mechanism will be a key part of our work. That is why we are launching these two public consultations today: we want to hear from Europeans and all interested parties on what these rules should look like. We need to ensure that our taxation rules are able to help Europe to both recover from the coronavirus crisis and accelerate its green transition to a climate-neutral continent,” he added.

According to the Commission, both initiatives were identified in the European Green Deal as a means to help with Europe’s transition towards a greener and more sustainable economy. In addition, the Commission’s Recovery Plan for Europe proposed new own resources (such as the Carbon Border Adjustment Mechanism) that could contribute to financing the EU’s future budget and play a role in easing the burden on Member States in the wake of the coronavirus pandemic. New own resources, including the Carbon Border Adjustment Mechanism, were referred to in the European Council Conclusions of July 21.

The revision of the Energy Taxation Directive should overhaul the way in which energy products such as electricity, natural gas and coal are taxed in the EU, to better reflect the EU’s climate ambitions, the Commission said, explaining that this includes revising minimum rates for fuels and re-thinking current tax exemptions, to reduce implicit subsidies for fossil fuels and certain economic sectors.

The aim is to re-shape energy taxation in a way that encourages consumers and businesses to behave in a more environmentally way, the Commission said. In parallel, in view of the EU’s increased climate ambition, a WTO-compliant Carbon Border Adjustment Mechanism – applied to certain sectors – would help to reduce the risk of carbon leakage and deter companies from shifting production to countries with less stringent green regulations.

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