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Maritime industry ready and Fit for 55 – vol. 3: Revision of the Energy Taxation Directive

This article is the last of a string of three articles aiming to explain how the Fit for 55 package affects shipping and the maritime industry. The first article covered the EU Emissions Trading System (ETS) while the second focused on the FuelEU Maritime Initiative. In this third and last article, we will have a look at the revision of the Energy Taxation Directive (ETD).
Container Ship at Sea

The Fit for 55-package

To achieve EU’s Paris climate goals, the EU Commission presented in December 2019 the European Green Deal, including a commitment to reduce greenhouse gas emissions by at least 55% by 2030 (compared to 1990 levels) and become carbon neutral by 2050. The EU Commission now intensifies the work and has on 14 July 2021 presented an ambitious package of legislative proposals called “Fit for 55 Package” which involves a range of sectors, also including the maritime sector.

With the Fit for 55 package, the Commission has introduced a set of proposals to revise and update EU legislation and to put in place new initiatives with the aim of ensuring that EU policies are in line with the climate goals. The form and content of the final reforms will depend on agreement between the member state’s governments, the European Parliament and the EU executive branch. One thing is however certain; along with several other sectors the maritime sector is designated to take greater responsibility for contributing to the climate goals.

The current Energy Taxation Directive (2003)

EU’s Energy Taxation Directive (ETD) entered into force in 2003 and contains structural rules and minimum rates for taxation.

Certain sectors, such as the maritime industry, is however exempted from the present directive. According to the Commission, the ETD has failed to stimulate the development of alternative fuels and the investment in green technology. It has also been made a wide range of national exemption to the rules which has led to preferential treatment of the use of fossil fuel.

The Commission considers that in order to complement the measures under the EU ETS and the FuelEU, a revision of the ETD is essential. The revisions centres on two main areas of reform, namely a new structure of tax rates and a broadening of the taxable base.

See also

New structure of tax rates

The new structure of tax rates will be based on the real energy content and environmental performances of fuel and electricity, and not on the volume itself. Energy products and electricity will be grouped into five categories and ranked according to its energy content and environmental performance. A specific minimum tax rate will apply to each energy product within the same category. In that way it is ensured that the highest tax will apply to the most polluting fuels.

Broadening of the taxable base

The taxable base will be extended to include further products and industries. Furthermore, certain current exemptions and reductions will be removed so that the member states may no longer adopt extensive national exemptions favouring fossil fuels.

ETD and the maritime industry

The revised ETD will be extended to also include parts of the maritime industry. Starting in 2023, the revised ETD proposes a minimum tax on energy products supplied for use as fuel to vessels and electricity to be used directly for charging electric vessels. The applicable rate will vary with the type of energy product. As an incentive for their use, for a transitional period of 10 years, sustainable and alternative fuels will be subject to a minimum zero tax rate.

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The minimum rates set out in the revised ETD will apply for intra-EU waterborne regular service navigation, fishing and freight transport. In this context, “intra-EU navigation” means navigation between two ports located in the EU, including domestic navigation. “Regular service” includes inter alia ro-ro passenger vessels and high-speed passenger vessels regularly serving traffic between the same ports or to and from the same port. “Freight transport” shall include both scheduled and non-scheduled voyages where the vessels carry revenue loads (other than passengers).

For extra-EU waterborne navigation, it will be up to each member state to decide whether it should be exempted or if the same levels of taxation as for intra-EU navigation shall apply according to the type of activity. Electricity produced on board a vessel shall be exempted from taxation under the revised ETD. Taxation of electricity supplied while the vessels are at port will be up to each member state.

Due to the risk of shipping companies bunkering fuel outside the EU, the tax rate is set more than 10 times lower for shipping compared to other industries. The rates will however gradually increase over a period of 10 years.

Entry into force

EU directives relating to tax are subject to a unanimous vote by all member states as opposed to the normal majority requirement. If the revised ETD is adopted, the directive could apply as from 1 January 2023. It will then be up to each member state to ensure that the set tax rates are applied.

Taxation and thereby also the ETD, is not a part of the EEA Agreement. It should however be noted that EU’s state aid rules, which are included in the EEA Agreement, refer to the ETD and the rules are therefore relevant for EEA countries as well.