EU Energy Tax Reform Shows Green Ambition Tempered by Pragmatism

The EU’s quest to balance economic realities with environmental ambitions took another turn on Sept. 22, when it unveiled an amended draft of its energy taxation directive.

Whether this pivotal move in Europe’s ongoing energy transition will compel countries to finalize the directive by November isn’t clear. What is clear, however, is that some sectors likely will face greater compliance challenges in the EU’s push for compromise.

Some key amendments to the directive include a 10-year exemption for aviation and maritime fuels, updated technical definitions to terms such as “waste,” and a timing delay. Specifically, tax rate increases linked to inflation—intended to keep pace with rising energy costs—have been pushed back from 2038 to 2041.

This would give stakeholders a longer runway to adapt, which could be particularly helpful given the wide range of implications for various affected sectors.

Winners and Losers

Businesses face a mixed bag in the amended draft, with exemptions shielding some while exposing others to higher compliance costs.

For example, energy-intensive industries such as steel or chemicals could benefit from zero-rating for renewable electricity, potentially saving millions in excise duties and accelerating decarbonization investments. The energy taxation directive’s alignment with the renewable energy directive, known as RED II, allows tax breaks for biofuels and shore-side electricity in ports, helping shipping firms that are transitioning to green technology.

But fossil fuel-dependent sectors, such as trucking or manufacturing, appear relatively vulnerable—they face elevated minimums on gas oil and natural gas, possibly adding to operational costs.

Airlines and maritime operators are exempted until 2035, preserving competitiveness against non-EU rivals. But the looming review could force research and development in sustainable aviation fuels, with early adopters qualifying for reduced rates.

The technical changes, such as defining waste, benefit waste-to-energy plants by clarifying taxable status—potentially spurring circular economy investments. Firms should model scenarios now, leveraging the 10-year phase-in to optimize supply chains—perhaps hedging with carbon credits.

Long-Term Response

The amended energy taxation directive gives companies a decade to prepare for higher fuel taxes and shifting energy incentives, but the clock is already ticking. Businesses that act sooner will be better positioned to manage costs and avoid disruption.

One likely response is a shift in energy sourcing. Firms in energy-intensive sectors, such as steel and chemicals, may accelerate the move to renewable electricity, taking advantage of zero-rated excise duties. Long-term power purchase agreements and on-site generation—solar, wind, or both—could become standard.

Companies also will need to model the financial impact of rising fuel duties. Scenario planning and carbon cost forecasting will help guide investment decisions and hedge against volatility. Logistics and supply chains are another pressure point. Businesses may restructure freight operations to reduce reliance on taxed fuels—shifting from road to rail, investing in electric fleets, or reviewing distribution hubs.

For aviation and maritime operators, the 2035 exemption deadline is a signal to begin investing in sustainable fuels now. Early adopters of biofuels and sustainable aviation fuels may qualify for reduced rates and avoid future penalties. Waste-to-energy and recycling firms stand to benefit from clarified definitions and incentives. These changes could spur innovation in circular economy infrastructure and energy recovery.

Tax Advisers’ Role

Tax advisers are positioned to help businesses not only comply with new regulations but also seize incentives to gain a competitive edge. They can evaluate eligibility for high-value exemptions, such as zero-rated taxes on renewable electricity or credits for biofuels.

For example, advisers can guide manufacturers to reclassify energy inputs under the directive’s innovative energy content framework, optimizing tax profiles to strengthen profitability. They also can conduct modeling to forecast the long-term financial impact of escalating fuel duties, empowering firms to adjust supply chains or invest in renewables to mitigate risks ahead of the 2041 tax hikes.

For maritime and aviation companies, advisers can devise strategies to adopt sustainable fuels, such as biofuels, to secure reduced tax rates after 2035. They also can streamline reporting for small-scale electricity producers or waste-to-energy plants under the directive’s clarified rules, reducing administrative costs and freeing up resources for innovation.

Moving Forward

As the amended energy taxation directive reflects the EU’s search for balance between economic challenges and environmental ambitions, it’s apparent that fossil fuels will become more expensive, and clean energy will be rewarded.

Companies that rely heavily on gas oil and natural gas—particularly in transport and manufacturing—should begin modeling cost impacts and exploring alternatives. Meanwhile, energy-intensive industries and waste-to-energy firms may find new opportunities in the directive’s incentives.

The impact of the energy taxation directive will depend on both its final form and how businesses across sectors respond.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Jodi Ader is senior manager in RSM US’ trade and tariff advisory services practice.

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