Taxation of energy products and electricity in the Union is governed by Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity 1 (the ‘Energy Taxation Directive’ or the ‘Directive’).

Pursuant to Article 19(1) of the Directive, in addition to the provisions laid down in particular in its Articles 5, 15 and 17, the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce further exemptions or reductions in the level of taxation for specific policy considerations.

By virtue of Council Implementing Decision 2015/993/EU of 19 June 2015 2 , Denmark was authorised to apply a reduced rate of taxation to electricity directly supplied to vessels, other than private pleasure craft 3 , berthed in ports (‘shore-side electricity’).

The objective of this proposal is to extend that authorisation as requested by Denmark, given that the current derogation expires on 18 June 2021.

By letter dated 5 May 2020, the Danish authorities informed the Commission of their intention to prolong the current measure until 17 June 2027. Additional information was provided by letter dated 16 February 2021.

The intention of the Danish authorities is to continue to apply a reduced rate of 0.4 øre per KWh (app. EUR 0.535 per MWh 4 ) of excise duty to shore-side electricity. At the time of the submission of the request proposed tax rate was in accordance with the minimum rate of taxation for electricity for business use as laid down in Directive 2003/96/EC. Article 13 of the Directive lays down a 5% tolerance limit for Member States that have not adopted the euro.

It is recalled that Article 13 of the Energy Taxation Directive obliges Member States to check once a year if the tax rates expressed in national currencies are in line with the minimum rates of the Directive. This exercise is done using the exchange rates published in the Official Journal of the European Union on the first working day of October. Member States may maintain the amounts of taxation in force at the time of the annual adjustment only if the conversion of the amounts of the level of taxation expressed in euro would result in an increase of less than 5% or EUR 5, whichever is the lower amount, in the level of taxation expressed in national currency.

The requested period of validity of the derogation is from 18 June 2021 until 17 June 2027, which is in continuity with the current derogation and within the maximum period allowed by Article 19 of the Energy Taxation Directive.

The aim of reducing the tax is to promote the use of shore-side electricity. The use of such electricity is considered to be an environmentally less harmful way to satisfy the electricity needs of vessels lying at berth in ports, compared with the burning of bunker fuels by those vessels. The measure will reduce emissions of air pollutants from vessels lying at berth.

The reduction involves lowering the energy tax applicable to shore-side electricity from the otherwise applicable level of ore 89.2 øre per KWh (rate 2020) to 0.4 øre per KWh.

On the other hand, according to Article 14(1)(c) of the Energy Taxation Directive, Member States have to exempt energy products used to produce electricity –and electricity produced- on board ships at berth in ports. They may also exempt electricity produced on board ships for navigation on inland waterways according to Article 15(1)(f) of the Directive. Denmark confirmed the transposition of that latter optional exemption.

There is however no obligation for vessels to use shore-side electricity.

Taxation of electricity is governed by Directive 2003/96/EC, in particular Article 10.Article 14(1)(c) provides for an obligatory tax exemption for energy products for navigation as well as for electricity produced on board a craft. Articles 5, 15 and 17 provide for the possibility for Member States to apply tax differentiations, including exemptions and reductions, to certain uses of electricity. However, as such, these provisions do not provide for reduced taxation of shore-side electricity.

The measure constitutes State aid and falls within the ambit of the EU legislation on this subject matter, in particular Commission Regulation 651/2014/EU 5 .

Assessment of the measure under Article 19 of Directive 2003/96/EC

Article 19(1), first subparagraph, of the Directive reads as follows:

In addition to the provisions set out in the previous Articles, in particular in Articles 5, 15 and 17, the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce further exemptions or reductions for specific policy considerations.

By means of the tax reduction in question, the Danish authorities pursue the objective to promote an environmentally less harmful way for ships to satisfy their electricity needs while lying at berth in ports and thereby to improve local air quality. The Commission has already recommended the use of shore-side electricity as an alternative to the generation of electricity on board the vessels at berth and thereby recognised its environmental advantages 6 .

The possibility to introduce a favourable tax treatment to shore-side electricity can be envisaged under Article 19 of the Directive since its purpose is to allow Member States to introduce further exemption or reductions for specific policy considerations.

Denmark has requested that the measure applies for the maximum period allowed by article 19(2), i.e. 6 years. In principle, the period of application of the derogation should be long enough in order not to discourage port operators and electricity suppliers from continuing or starting to make the necessary investments in shore-side electricity facilities. This period will provide the legal certainty also to ship operators, which have to plan their investments in on-board equipment.

State aid rules

The reduced tax rate of 0.4 øre per KWh (app. EUR 0.535 per MWh 9 ) envisaged by the Danish authorities was at the time of the submission of the request in accordance with the minimum rate of taxation for electricity for business use as laid down in Directive 2003/96/EC.

The measure thus seems to fall under Article 44 of Commission Regulation 651/2014/EU, which stipulates the conditions under which aid in the form of reductions in environmental taxes under Directive 2003/96/EC can be exempted from the State aid notification requirements. However it cannot be established at this stage whether all the conditions set in this Regulation are fulfilled and the proposal for a Council implementing decision does not prejudge the Member State’s obligation to ensure compliance with State aid rules, in particular, in case of exempted aid, falling under Commission Regulation 651/2014/EU.

Environment and climate change policy

The requested measure concerns mainly the EU's environment and climate change policy. To the extent that it will help to reduce the burning of bunker fuels on board the vessels in ports, the measure will contribute to the objective of improving local air quality and reducing noise. In its Article 13, Directive 2008/50/EC on Ambient Air Quality 10 requires Member States to ensure that the levels of several air pollutants are kept below the limit values, target values and other air quality standards established in the Directive are respected. Those obligations require Member States to find solutions to problems such as ship emissions at berth in ports where this is relevant and it is conceivable that in ports where these problems exist the use of shore-side electricity is encouraged as one element of the overall air quality strategy. The use of shore-side electricity is also encouraged under Directive (EU) 2016/802 11 regulating the sulphur content in marine fuels. That would also contribute to comply with nitrogen deposition requirements pursuant to Directive 92/43/EEC on the conservation of natural habitats and of wild fauna and flora. In this regards, the Danish authorities expect that local emissions of air pollutants (NOx, SOx, PM10, PM2.5) from on-board electricity generation on cruise ships could be reduced significantly, and up to 90 %, given that some auxiliary power and back-up power systems cannot be turned off.

Energy policy

The measure is in line with Directive 2014/94/EU on the deployment of alternative fuels infrastructure 12 , which addresses the issue of installing shore-side electricity supply facilities in ports where there is demand for such facilities and the costs are not disproportionate to the benefits, including environmental benefits. It has also been recognised as an objective of common interest for the granting of State aid under Article 107(1) of TFEU 13 .

It has to be recalled at this point that one important reason for the unfavourable competitive position of shore-side electricity lies in the fact that the alternative, i.e. electricity produced on board the vessels while in maritime ports, currently enjoys a full net tax exemption: not only is the bunker fuel burnt for generating the electricity exempt from taxation, which corresponds to the normal situation under Article 14(1)(a) of Directive 2003/96/EC, but also the electricity produced on board the vessels is itself exempt (cf. Article 14(1)(c) of Directive 2003/96/EC). Although the latter exemption could as such be considered difficult to reconcile with the environmental objectives of the Union, it mirrors considerations of practicability. In fact, taxation of the electricity produced on board would require a declaration by the ship owner -often established in a third country- or operator of the amount of electricity consumed. The declaration would furthermore have to determine the share of the electricity consumed in the territorial waters of the Member State where the tax is due. It would create a huge administrative burden for ship-owners to make such declarations for every Member States whose territorial waters are concerned. Under these circumstances, it can be justified not to penalize the less-polluting alternative of shore-side electricity by allowing Denmark to apply a reduced rate of taxation.

Transport policy

The measure is in line with Commission recommendation 2006/339/EC on the promotion of shore-side electricity for use by ships at berth in Union ports 14 and with the Commission Communication Strategic goals and recommendations for the EU's maritime transport policy 15 .

Internal market and fair competition

From the point of view of the internal market and fair competition the measure only reduces the existing tax distortion between two competing sources of electricity for boats at berth, i.e. on board generation and shore-side electricity, caused by the tax exemption for bunker fuels.

The Danish authorities have not observed considerable changes in the ship owners’ choice of ports linked to the availability of shore-side electricity facilities. Presently mainly ferries and fishing vessels make use of the shore-side electricity. In addition, the Danish authorities mention, that cargo ships use shore-side electricity to a certain extent, but especially when they are in port for a longer period of time. The Danish authorities mention, that there are not yet facilities in the Danish ports for large ships, such as cruises or container ship, that use shoreside electricity.

As the scheme will reduce ships' costs, it will affect trade between Member States. The impact is estimated as minimal, however, as passengers' wishes and the destination of cargoes will determine whether ships call in Danish ports.

Furthermore, the Danish authorities consider the scheme as competition-neutral, because access to shore-side electricity will be open to all vessels that meet the above conditions and call in Danish ports regardless of their flag without leading to a more advantageous tax treatment of national economic operators over their competitors from other EU Member States.

The restriction to apply the reduced rate of taxation to supplies of shore-side electricity of at least 380 V to vessels could be regarded as a distortion of the market. However, in practice there is no supply of shore-side electricity of less than 380 Volt to commercial vessels, electricity of this voltage is only supplied to small pleasure crafts.

Concerning competition between ports, it can be expected that any potential impact on trade between Member States, which could result if vessels alter their routes because of the possibility to consume shore-side electricity at a reduced tax rate, will be negligible. In a situation where, as stated above, the use of shore-side electricity is, at least in the short term, unlikely to become more economic than on-board generation in spite of the tax reduction, this tax reduction for shore-side electricity is also unlikely to significantly distort competition between ports by inducing vessels to change their itinerary according to the availability of this option.

The timeframe for which it is proposed to prolong the authorization to apply a reduced tax rate, unless there will be significant changes in the current framework and situation, makes it unlikely that the analysis conducted in the preceding paragraphs will change before the date of expiry of the measure.

Article 19 of Council Directive 2003/96/EC.

The field of indirect taxation covered by Article 113 of TFEU is not in itself within the exclusive competence of the European Union within the meaning of Article 3 of TFEU.

However, pursuant to Article 19 of Directive 2003/96/EC, the Council has been granted an exclusive competence, as a matter of secondary law, to authorise a Member State to introduce further exemptions or reductions within the meaning of that provision. Member States cannot therefore substitute themselves for the Council. As a result, the principle of subsidiarity is not applicable to the present implementing decision. In any event, since this act is not a draft legislative act, it should not be transmitted to national Parliaments pursuant to Protocol No 2 to the Treaties for review of compliance with the subsidiarity principle.

The proposal respects the principle of proportionality. The tax reduction does not exceed what is necessary to attain the objective in question.

The instrument proposed is a Council implementing decision. Article 19 of Directive 2003/96/EC makes provision for this type of measure only.

The measure does not require the evaluation of existing legislation.

This proposal is based on a request made by Denmark and concerns only this Member State.

There was no need for external expertise.

This proposal concerns an authorisation for an individual Member State upon its own request and does not require an impact assessment.

The information provided by Denmark suggests that the measure will have a limited impact on tax revenues. In more detail, an estimation of the tax expenditures from the measure, according to the Danish authorities, a loss of DKK 15 million per year is expected for the coming years.

For historic reasons a great number of the commercial ports in Denmark have provided shore-side electricity for vessels. The Danish authorities have observed that in the last few years, several ports have installed and are planning to install facilities for bigger vessels, such as ferries sailing in regular international and national routes. It is also the case for cruise ships in international traffic. Also, some Danish ports have established mobile shore power plants for cargo ships. Ferries and cruise ships require new infrastructure installations to provide enough power.

Denmark authorities estimate the measure to have a significant positive impact on the achievement of its environmental goals and in particular the improvement of air quality in accordance with Directive 2008/50/EC on ambient air quality and cleaner air for Europe. The use of shore-side electricity has led to emission reductions of sulphur dioxide, nitric oxides, particulate matter and carbon oxides. The full potential of the measure has not been reached since costly equipment is needed both on quays and on the ships.

The measure does not provide for a simplification. It is the result of the request made by Denmark and concerns only this Member State.

The measure has no bearing on fundamental rights.

The measure does not impose any financial or administrative burden on the Union. The proposal therefore has no impact on the budget of the Union.

An implementation plan is not necessary. This proposal concerns an authorisation for a tax reduction for an individual Member State upon its own request. It is provided for a limited period until 17 June 2027. The applicable tax rate will have to be in accordance with the minimum level of taxation set by the Energy Taxation Directive. The measure can be evaluated in case of a request for a renewal after the validity period has expired.

The proposal does not require explanatory documents on the transposition.

Article 1 stipulates that Denmark will be allowed to apply a reduced rate of electricity taxation to electricity directly supplied to vessels, other than private pleasure craft, berthed in Danish ports (‘shore-side electricity’). The tax rate must be in line with the minimum level of taxation for electricity for business use set by the Directive. It will not be possible to supply electricity at a reduced rate to private pleasure craft as defined in Article 14(1)(c), second subparagraph of Directive 2003/96/EC.

Article 2 stipulates that the authorisation requested is granted with effect from 18 June 2021, in continuity with the current Council Implementing Decision 2015/993/EU, until 17 June 2027, within the maximum period of 6 years allowed by the Directive, as requested by Denmark.