The Directive, which dates back to 2003, is in need of updating so that it better reflects the major development that has taken place during the past decade in technologies and policies aiming for a low-carbon society. As noted also by the EU Commission in the introduction of the consultation document, the ETD has been subject to numerous court proceedings during the years due to the apparent lack of clarity of certain provisions.
The energy system is undergoing a major transformation. Digitalisation and cloud-based services are playing an increasingly important role in the energy sector and new energy storage and demand-response solutions are emerging. All of these involve some taxation-related issues that need to be resolved so that taxation does not become an obstacle in the transition towards a cleaner world. From the point of view of safeguarding the proper functioning of the internal energy market, it is important that key principles are set at the EU level.
In the context of the review process of the ETD, Fortum would like to see the following issues addressed:
- Establishing a clear approach on how energy products are to be taxed should be the main target of the revised ETD. A harmonised EU taxation model based on clear systematics, for example basing the tax rates on the energy content and CO2 emissions of energy products, would greatly contribute to clarity and predictability and would make most of the exemptions set in the current ETD obsolete. Setting the minimum tax rates for different energy products is important but should be considered as a secondary target of the revision.
- Clarification of the scope of the Directive is also needed. It is especially important to prevent financial double taxation of energy. A good example of the existing grey area is the special capacity tax for nuclear power plants that was implemented in Sweden (now already abolished) in addition to general electricity tax.
- The Energy Directive should be more clear on the principle that electricity and heat production that are covered by the EU ETS should not be subject to overlapping national CO2 taxation. Such overlapping policy steering on certain production forms is in practice a hidden national subsidy to those production forms that are not subject to overlapping policy steering. For example in some countries, district heating production is covered by the EU ETS, but it is also subject to additional (and increasing) national CO2 taxation whereas heating of individual buildings is not always subject to any CO2 steering - not ETS or CO2 taxation. This effectively distorts competition between different heating methods. To ensure fair competition between different heating methods, the scope of the EU ETS should primarily be broadened to cover separate heating and cooling of individual buildings (in addition to district and electric heating). Alternatively, heating and cooling of individual buildings should be subject to CO2 taxation. Energy taxation should complement and support the EU ETS targets and be clear, consistent and ensure the level playing field.
- It would be useful to assess also the possibilities to refrain from overlapping subsidies. For example, the ETD allows the application of preferential electricity tax rates to energy-intensive industries. At the same time, many EU countries have established national systems to compensate energy-intensive industries for the indirect costs related to the EU ETS (i.e. electricity price). It is important to find a balanced approach between ensuring competitiveness while still maintaining incentives for energy-intensive industries to invest in energy-efficient and clean technologies that help them to decarbonise their processes.
- Taxation should be assessed from the state aid point of view, especially when the same energy product is subject to a different tax rate because of different production technology. There is a need to further clarify taxation-related provisions in the context of the forthcoming EU energy and environmental state aid guideline revision.
- It is also important to re-establish the very basic rule of electricity taxation in the ETD: taxation shall take place when and where electricity is delivered for final consumption. Taxing production or capacities should not be acceptable in order to avoid double taxation and watering down other steering mechanisms, such as EU ETS or other environmental legislation.
- A clear definition of consumption would be helpful – also as it relates to electricity storages, where double taxation is currently a major risk because of the unclear legal framework. Only final consumption of electricity should be subject to consumption taxation, not intermediate grid energy storage.
- It is important that these principles are clarified at the EU level, not only at national level. Electricity storage solutions, such as batteries, pumped-storage hydroelectricity, and compressed air facilities will play an important role in the energy transition, enabling the increasing use of volatile renewable electricity. It is crucial to remove existing regulatory bottlenecks, such as double taxation, in order to facilitate the roll-out of storage solutions.
- Similarly, the tax treatment of electricity used by data centres, both for in-house use and for outsourced services such as cooling and heat recovery of data centres, should be clarified in the ETD. Currently in many member states, data centres face a lower overall tax burden if they take care of their cooling needs on their own instead of outsourcing it to a service provider. That should not be the case.
- In order to promote sector coupling, the transforming of excess electricity into other forms of energy (e.g. heat or synthetic fuels) for the benefit of the energy system should be subject to a lower electricity tax rate. Particularly during those hours when the electricity spot price is zero or negative, the tax should be zero.
- Regarding the charging of electric vehicles and other related services, it would be helpful if their tax treatment would be agreed at the EU level. The Directive should establish that a charging service is not about selling electricity but about selling a service.
- In an increasingly volatile energy system it is important to create incentives for electricity consumers to participate in demand-response. Currently, the share of fixed add-ons, such as taxes, grid and policy costs, is so big in the energy bill that there is very little left for consumers to gain by becoming an active consumer. Therefore, it would be useful to study the possibilities to move towards more dynamic electricity taxation where consumers could have a clear economic benefit by adapting their consumption to the market situation.
- In order to keep the ETD better updated with changes in the energy system, the possibility to move from unanimity to qualitative majority voting in the field of electricity taxation should be assessed. In addition, a new EU-level forum could be established to assess emerging tax-relevant questions relating to the energy transition. Such a forum would contribute to the internal market and help to level the playing field by, e.g., preparing guidelines on the implementation of upcoming taxation issues for national tax law makers and tax authorities.