EU rules for the taxation of energy products and electricity

KEY POINTS

• Energy products are taxed only when used as motor fuel or for heating.
• The legislation introduces minimum levels of tax on motor fuels, heating fuels and electricity applicable from 1 January 2004.
• Energy products used for heating, in agriculture, stationary motors and machinery for construction and public works can be taxed at lower levels than fuel for cars.
• Governments may apply a lower rate of duty on commercial diesel (when used by road hauliers or for passenger transport) than on diesel for non-commercial use.
• The directive allows tax exemptions and reductions in particular for environmental and health policy reasons. Governments may exempt from taxation renewable energy sources such as biofuels or fuels and electricity used to transport goods and passengers by train, metro, tram or trolleybus.
• The legislation allows for reduced taxes for energy-intensive firms — those that have made the greatest effort to reduce consumption. EU countries which had difficulty implementing the new measures were given transitional arrangements before applying the legislation (Belgium, Germany, Ireland, Greece, Spain, France, Italy, Luxembourg, the Netherlands, Austria and Portugal).
• Similar temporary exemptions and transitional periods were granted to the countries that joined the EU in 2004 and 2007.
• The legislation does not apply to some energy-intensive sectors (e.g. in metallurgy) or to energy products which have a dual use, i.e. they are used both for heating and for another purpose (e.g. for the production of certain chemicals).