(1)

Council Directive 2003/96/EC was adopted in order to ensure the proper functioning of the internal market as regards the taxation of energy products and electricity. In accordance with Article 6 of the Treaty, environmental protection requirements have been integrated into the terms of that Directive, in the light, in particular, of the Kyoto protocol.

(1)

Council Directive 2003/96/EC was adopted in order to ensure the proper functioning of the internal market as regards the taxation of energy products and electricity. In accordance with Article 11 of the Treaty on the Functioning of the European Union (TFEU), environmental protection requirements have been integrated into the terms of that Directive, in the light, in particular, of the Kyoto protocol. It is important that, pursuant to Article 9 TFEU, it is ascertained whether sufficient account is taken of protection of human health, for example in the context of air pollution.

(1a)

In addressing an issue as wide-ranging and crucial as energy taxation in the Union, consideration of climate and environmental policy imperatives, however necessary, is not sufficient. Energy policy and industrial policy aims constitute equally critical challenges for the Union. Furthermore, in order for the internal market to function in an adequate and efficient way in the area of energy, all Union initiatives and legislation relating to this area need to be continuously and carefully coordinated. Not only should amendments to Directive 2003/96/EC be compatible with other energy-related policies, but those policies should also be appropriately adapted to the energy taxation framework. In particular, the existing problems relating to the Union's emission trading scheme under Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community (1) should be dealt with resolutely so that it can function effectively. Any lack of coherence would be detrimental to the fulfilment of the long-term Union objectives of building smart, sustainable and inclusive growth.

(2)

It is necessary to ensure that the internal market continues to function properly in a context of new requirements relating to the limitation of climate change, to the use of renewable energy sources and to energy savings, as endorsed by the Presidency Conclusions of the European Council of 8-9 March 2007 and of 11-12 December 2008.

(2)

It is necessary to ensure that the internal market functions in an optimum manner in a context of new requirements relating to the limitation of climate change, to the use of renewable energy sources and to energy savings, as endorsed by the Presidency Conclusions of the European Council of 8-9 March 2007 and of 11-12 December 2008. Consistent treatment of energy sources under Directive 2003/96/EC should therefore be guaranteed in order to provide a genuine level playing field for energy consumers regardless of the energy source used.

(2a)

Taxation of energy products should be undertaken in a technologically neutral manner in order to allow new technologies to develop.

(3)

Taxation related to CO2 emissions can be a cost-effective means for Member States to achieve the reductions of greenhouse gasses necessary according to Decision 406/2009/EC of the European Parliament and the Council of 23 April 2009 on the effort of Member States to reduce their greenhouse gas emissions to meet the Union's greenhouse gas emission reduction commitments up to 2020 as regards sources not covered by the Union scheme under Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC. In view of the potential role of CO2-related taxation, the proper functioning of the internal market requires common rules on that taxation.

(3)

Taxation relating to CO2 emissions is generally a cost-effective means for Member States to achieve the reductions of greenhouse gasses necessary according to Decision 406/2009/EC of the European Parliament and the Council of 23 April 2009 on the effort of Member States to reduce their greenhouse gas emissions to meet the Union's greenhouse gas emission reduction commitments up to 2020 as regards sources not covered by the Union scheme under Directive 2003/87/EC. In view of the current and potential role of CO2-related taxation, the proper functioning of the internal market requires common rules on that taxation.

(4a)

Energy taxation should not be levied on energy recovery from waste and, in particular, the use of waste as an alternative fuel, since the aim of Directive 2008/98/EC of the European Parliament and the Council of 19 November 2008 on waste (2) is that waste producers and waste holders dispose of waste in the most energy-efficient and resource-friendly manner possible and gives priority to energy recovery over disposal.

(4b)

Member States should also retain the right to apply a level of general energy consumption taxation down to zero on the consumption of energy products and electricity used for agricultural, horticultural and piscicultural works, and in forestry.

(5)

Therefore, provision should be made for energy taxation to consist of two components, CO2-related taxation and general energy consumption taxation. In order for energy taxation to adapt to the operation of the Union scheme under Directive 2003/87/EC Member States should be required to explicitly distinguish between those two components. This would also allow distinct treatment of fuels that are biomass or made from biomass.

(5)

Therefore, provision should be made for energy taxation to consist of two components, CO2-related taxation and general energy consumption taxation. In order for energy taxation to adapt to the operation of the Union scheme under Directive 2003/87/EC Member States should be required to explicitly distinguish between those two components. This would also allow distinct treatment of fuels that are biomass or made from biomass in view of the advantages they offer as a source of renewable energy that is cheap and almost greenhouse-gas neutral, provided that they meet the sustainability criteria laid down in Article 17 of Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources (3) . The Commission should submit a report to the European Parliament and the Council examining whether, in addition to CO2 emissions, emissions of other harmful gases should be taken into account with the aim of protecting public health.

(6)

Each of those components should be calculated on the basis of objective criteria, allowing for equal treatment of different energy sources. For the purposes of CO2-related taxation, reference should be made to CO2-emissions caused by the use of each energy product concerned, using the reference CO2 emission factors set out in Commission Decision 2007/589/EC of 18 July 2007 establishing guidelines for the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council. For the purposes of general energy consumption taxation, reference should be made to the energy content of the various energy products and of electricity as referred to in Directive 2006/32/EC of the European Parliament and of the Council of 5 April 2006 on energy end-use efficiency and energy services and repealing Council Directive 93/76/EEC. In this context, account should be taken of the environmental advantages of biomass or products made of biomass. These products should be taxed on the basis of the CO2 emission factors specified in Decision 2007/589/EC for biomass or products made of biomass and of their energy content as specified in Annex III to Directive 2009/28/EC. Biofuels andbioliquids defined in Article 2(h) and (i) of Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources are by far the most important category concerned. Since the environmental advantages of these products vary, depending on whether they comply with the sustainability criteria laid down in Article 17 of that Directive, the specific reference values for biomass and products made of biomass should only apply where these criteria are met.

(6)

Each of those components should be calculated on the basis of objective criteria, allowing for equal treatment of different energy sources. For the purposes of CO2-related taxation, reference should be made to CO2-emissions caused by the use of each energy product concerned, using the reference CO2 emission factors set out in Commission Decision 2007/589/EC of 18 July 2007 establishing guidelines for the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC. For the purposes of general energy consumption taxation, reference should be made to the energy content of the various energy products and of electricity as referred to in Directive 2006/32/EC of the European Parliament and of the Council of 5 April 2006 on energy end-use efficiency and energy services. In this context, account should be taken of the environmental advantages of biomass or products made of biomass. These products should be taxed on the basis of the CO2 emission factors specified in Decision 2007/589/EC for biomass or products made of biomass and of their energy content as specified in Annex III to Directive 2009/28/EC. Biofuels and bioliquids defined in Article 2(h) and (i) of Directive 2009/28/EC are by far the most important category concerned. Since the environmental advantages of these products vary, depending on whether they comply with the sustainability criteria laid down in Article 17 of that Directive, the specific reference values for biomass and products made of biomass should only apply where these criteria are met. As soon as sustainability criteria for biomass products other than biofuels and bioliquids are laid down pursuant to Directive 2009/28/EC, those specific reference values should be applied to biomass products other than biofuels and bioliquids only if they comply with the new sustainability criteria.

(7)

CO2-related taxation should be adapted to the operation of Directive 2003/87/EC so as to complement it effectively. That taxation should apply to all uses, including those for purposes other than heating, of energy products causing CO2 emissions in installations within the meaning of that Directive, provided that the installation concerned is not subject to the emission trading scheme under that Directive. However, since the cumulative application of both instruments would not allow emission reductions beyond those attained, overall, through the emission trading scheme alone, but would merely increase the total cost of these reductions, CO2 related taxation should not apply to consumption in installations subject to the Union scheme.

(7)

CO2-related taxation should be adapted to the operation of Directive 2003/87/EC so as to complement it effectively. That taxation should apply to all uses, including those for purposes other than heating, of energy products causing CO2 emissions in installations within the meaning of that Directive, provided that the installation concerned is not subject to the emission trading scheme under that Directive. However, since the cumulative application of both instruments would not allow emission reductions beyond those attained, overall, through the emission trading scheme alone, but would merely increase the total cost of these reductions, CO2- related taxation must not apply to direct or indirect consumption in installations subject to the Union scheme. A double burden in the form of double taxation and double regulation would lead to distortions of competition and must be ruled out.

(8)

In the interest of fiscal neutrality, the same minimum levels of taxation should apply for each component of energy taxation, to all energy products put to a given use. Where equal minimum levels of taxation are thus prescribed, Member States should, also for reason of fiscal neutrality, ensure equal levels of national taxation on all products concerned. Where needed, transitional periods for the purposes of equalising those levels should be foreseen.

(11)

It should be ensured that the minimum levels of taxation preserve their intended effects. Since CO2-related taxation complements the operation of Directive 2003/87/EC, the market price of the emission allowances should be closely monitored in the periodic review of the Directive, incumbent on the Commission. The minimum levels of general energy consumption taxation should at regular intervals be automatically aligned to take into account the evolution of their real value in order to preserve the current level of rate harmonisation; to reduce the volatility stemming from energy and food prices, this alignment should be made on the basis of the changes in the Union-wide harmonised index of consumer prices excluding energy and unprocessed food as published by Eurostat .

(11)

It should be ensured that the minimum levels of taxation preserve their intended effects. To that end, the minimum levels of general energy consumption taxation should be examined at regular intervals .

(11a)

Given the complex nature of the requirements which the two components of the new system, namely energy taxation and CO2-related taxation, are intended to meet, clear rules, which, in the interests of all consumers, are transparent and readily understandable, should be laid down at all levels in order to guarantee that the system can be properly administered.

(12)

In the field of motor fuels, the more favourable minimum level of taxation applicable to gas oil, a product originally put to business use for the most part and thus traditionally taxed at a lower level, creates a distortive effect with regard to petrol, its main competing fuel. Article 7 of Directive 2003/96/EC therefore provides for the first steps of a gradual alignment to the minimum level of taxation applicable to petrol. It is necessary to complete this alignment and gradually move to a situation where gas oil and petrol are taxed at an equal level.

(12a)

Implementing the new tax structure will involve increasing the rate of taxation of gas oil to bring it into line with that for petrol. This may call into question both the decision taken by the Union automobile industry to focus on clean, energy-efficient conventional combustion engines and the achievement of the Union's CO2 emissions reduction targets, since the CO2 limit values set can be achieved only if a sufficient number of vehicles on the road are powered by gas oil. Appropriate flexible measures should be taken in order to ensure that the competitivenessof the automobile sector and the success of the CO2 emissions reduction strategy in that sector are not endangered. Sales taxes, registration taxes and annual road use taxes should be harmonised and, as a matter of principle, set solely on the basis of a vehicle's CO2 emissions.

(14)

There is a need to limit the potential cost impact of CO2-related taxation on the sectors or sub-sectors deemed to be exposed to a significant risk of carbon leakage in the meaning of Article 10a(13) of Directive 2003/87/EC . Accordingly, it is appropriate to provide for corresponding transitional measures which, however, should also preserve the environmental effectiveness of CO2-related taxation.

(14)

There is a need to limit the potential cost impact of the new tax structure on the sectors or sub-sectors deemed to be exposed to a significant risk of carbon leakage. Accordingly, it is appropriate to provide for corresponding measures which, however, should also preserve the environmental effectiveness of CO2-related taxation.

(14a)

Any restructuring of energy taxation should ensure that sectors not subject to the emission trading scheme under Directive 2003/87/EC are not penalised in relation to sectors that are covered by that scheme.

(15)

Article 5 of Directive 2003/96/EC permits the application of differentiated rates of taxation in certain cases. However, in order to ensure the consistency of the CO2 price signal, the possibility for Member States to differentiate national rates should be restricted to general energy consumption taxation. Moreover, the possibility to apply a lower level of taxation to motor fuel used by taxis is no longer compatible with the objective of policies promoting alternative fuels and energy carriers and the use of cleaner vehicles in urban transport and should thus be removed.

(15)

Article 5 of Directive 2003/96/EC permits the application of differentiated rates of taxation in certain cases. However, in order to ensure the consistency of the CO2 price signal, the possibility for Member States to differentiate national rates should be restricted to general energy consumption taxation. Moreover, the possibility to apply a lower level of taxation to oil-derived motor fuel used by taxis is no longer compatible with the objective of policies promoting alternative fuels and energy carriers and the use of cleaner vehicles in urban transport and should thus be removed.

(16a)

Since the introduction of electric and hybrid vehicles is key to easing dependence on non-renewable fuels in the transport sector, Member States should be able, for a limited period of time, to apply an exemption or reduction in the level of taxation to electricity utilised to charge such vehicles.

(17)

Exemption or reductions to the benefit of households and charitable organisations may form part of social measures defined by Member States . The possibility to apply such exemptions or reductions should, for reasons of equal treatment between energy sources, be extended to all energy products used as heating fuel and electricity. In order to ensure that their impact on the internal market remains limited, such exemptions and reductions should be applied only to non-business activities.

(17)

Exemptions or reductions benefiting households and charitable organisations prevent a correct price signal from being given, thereby taking away an important incentive to reduce energy bills and energy use . The possibility in Directive 2003/96/EC to apply such exemptions or reductions should therefore , after a long phase-out period, be removed. In Member States where this affects energy prices, low-income households and charitable organisations should be compensated via solid and comprehensive social measures.

(18)

In the case of liquefied petroleum gas (LPG) and natural gas used as propellants, advantages in the form of lower minimum levels of general energy consumption taxation or the possibility to exempt those energy products from taxation are no longer justified, in particular in the light of the need to increase the market share of renewable energy sources and should therefore be removed in the medium term .

(18)

In the case of liquefied petroleum gas (LPG) and natural gas used as propellants, advantages in the form of lower minimum levels of general energy consumption taxation or the possibility to exempt those energy products from taxation are not justified in the long term and should therefore be removed , in particular in the light of the need to enable renewable fuels to increase their market share. However, since LPG and natural gas have a less harmful environmental impact than other fossil fuels and since their distribution infrastructure could be beneficial in the introduction of renewable alternatives, the advantages should be phased out step by step .

(20)

Article 15(3) of Directive 2003/96/EC allows Member States to apply to agricultural, horticultural and piscicultural works as well as to forestry not only the provisions generally applicable to business uses but also a level of taxation down to zero. An examination of that option has revealed that as far as general energy consumption taxation is concerned its maintenance would be contrary to the Union's wider policy objectives unless it is linked to a counterpart ensuring advances in the field of energy efficiency. As regards CO2 related taxation the treatment of the sectors concerned should be aligned to the rules applying to industrial sectors.

(20)

Article 15(3) of Directive 2003/96/EC allows Member States to apply to agricultural, horticultural and piscicultural works as well as to forestry not only the provisions generally applicable to business uses but also a level of taxation down to zero , with the goal of ensuring the economic viability of these sectors which are already being hampered by demanding social, plant-health and environmental requirements that are not sufficiently compensated for by the market . Despite this, an examination of that option has revealed that as far as general energy consumption taxation is concerned its maintenance would be contrary to the Union's wider policy objectives unless it is linked to a counterpart ensuring advances in the field of energy efficiency. Such advances in energy efficiency should form part of a sufficiently long cycle and be subject to public planning and monitoring by public bodies. Member States should provide technical guidance to the operators in these sectors if additional energy efficiency requirements relating to reduced tax rates are applied. As regards CO2- related taxation, the treatment of the sectors concerned should take into account the specific carbon capture and storage capacities and the risk of carbon leakage for each of the sectors and sub-sectors concerned, as well as the possible impact on their productivity and viability. The sectors producing biomass with high carbon sequestration potentialshould be exempted. It is essential that in regions subject to an exceptional capacity to produce energy from renewable sources, energy independence of their agricultural and breeding livestock activities are encouraged.

(21)

The general rules introduced by this Directive take account of the specificities of fuels that are biomass or made of biomass complying with the sustainability criteria laid down in Article 17 of Directive 2009/28/EC with regard both to their contribution to the CO2-balance and to their lower energy content per quantitative unit, as compared to some of the competing fossil fuels. Consequently, the provisions in Directive 2003/96/EC authorising reductions or exemptions for those fuels should be removed in the medium term. For the interim period, it should be ensured that the application of these provisions is made consistent with the general rules introduced by this Directive. Biofuels and bioliquids defined in Article 2(h) and (i) of Directive 2009/28/EC should therefore only benefit from additional tax advantages applied by Member States if they fulfil the sustainability criteria laid down in Article 17 of this Directive.

(21)

The general rules introduced by this Directive take account of the specificities of fuels that are biomass or made of biomass complying with the sustainability criteria laid down in Article 17 of Directive 2009/28/EC with regard both to their contribution to the CO2-balance and to their lower energy content per quantitative unit, as compared to some of the competing fossil fuels. Consequently, the provisions in Directive 2003/96/EC authorising reductions or exemptions for those fuels should be removed in the medium term. For the interim period, it should be ensured that the application of these provisions is made consistent with the general rules introduced by this Directive. Biofuels and bioliquids defined in Article 2(h) and (i) of Directive 2009/28/EC should therefore only benefit from additional tax advantages applied by Member States if they fulfil the sustainability criteria laid down in Article 17 of that Directive. That article implies that the sustainability criteria will be made more restrictive in 2017 and 2018. In order to fulfil the criteria, the greenhouse gas emission saving will from 1 January 2017 have to be at least 50 %. From 1 January 2018 the saving will have to be at least 60 % for products made in installations in which production started on or after 1 January 2017. As soon as sustainability criteria for biomass products other than biofuels and bioliquids are laid down pursuant to Directive 2009/28/EC, such products should benefit from additional tax advantages only if they comply with those new criteria.

(28)

Every five years and for the first time by the end of 2015, the Commission should report to the Council on the application of this Directive, examining in particular the minimum level of CO2-related taxation in the light of the evolution of the market price in the EU of the emission allowances, the impact of innovation and technological developments and the justification for the tax exemptions and reductions laid down in this Directive, including for fuel used for the purpose of air and maritime navigation. The list of sectors orsub-sectors deemed to be exposed to a significant risk of carbon leakage shall be the subject of regular review , in particular taking into account the availability of emerging evidence.

(28)

Every three years and for the first time by the end of 2015, the Commission should report to the European Parliament and the Council on the application of this Directive, examining in particular the minimum levels of general energy consumption taxation in order to ensure that they preserve their intended effects, the minimum level of CO2-related taxation in the light of the evolution of the market price in the EU of the emission allowances, the impact of innovation and technological developments, the impact on harmful orpotentially harmful emissions other than CO2 , the justification for the tax exemptions and reductions laid down in this Directive, including for fuel used for the purpose of air and maritime navigation , as well as developments in the use of biogas, natural gas and LGP in road transport . That report should include an overview of existing taxation provisions contained in bilateral air service agreements . The report should also examine the impact on the setting of industrial policy priorities in the European car industry. A list of sectors or sub-sectors deemed to be exposed to a significant risk of carbon leakage shall be drawn up and regularly reviewed , in particular taking into account the availability of emerging evidence.

(aa)

electricity used to pump water for irrigation;

—

dual use of energy products

—

energy-intensive industry and dual use of energy products

—

—

for the following uses: local public passenger transport (excluding taxis), waste collection, armed forces and public administrations, disabled people, ambulances;

—

for the following uses: local public passenger transport (excluding taxis), waste collection, armed forces and public administrations, disabled people, ambulances , fire engines and police vehicles ;

(a)

the carriage of goods for hire or reward, or on own account, by motor vehicles or articulated vehicle combinations intended exclusively for the carriage of goods by road […];

(b)

the carriage of passengers, whether by regular or occasional service, by a motor vehicle […].

(e)

until 31 December 2020 , electricity directly provided to vessels berthed in ports.

(e)

until 31 December 2025 , electricity directly provided to vessels berthed in sea and inland ports.

(-i)

the following point is inserted:

'(ba)

until 1 January 2023, electricity used to charge electric and hybrid vehicles for road transport;'

(h)

energy products used as heating fuel and electricity if used by households and/or by organisations recognised as charitable by the Member State concerned. In the case of such charitable organisations, Member States shall confine the exemption or reduction to use for the purpose of non-business activities. Where mixed use takes place, taxation shall apply in proportion to each type of use. If a use is insignificant, it may be treated as nil;

(h)

until 1 January 2025, energy products used as heating fuel and electricity if used by households and/or by organisations recognised as charitable by the Member State concerned. In the case of such charitable organisations, Member States shall confine the exemption or reduction to use for the purpose of non-business activities. Where mixed use takes place, taxation shall apply in proportion to each type of use. If a use is insignificant, it may be treated as nil;

(i)

Until1 January 2023, natural gas and LPG used as propellants;

(i)

until1 January 2023, natural gas , biogas, and LPG used as propellants and LPG used as fuel . From 1 January 2023 until 1 January 2030, Member States may apply a reduction of up to 50 % of the minimum levels of taxation for those fuels.

(ia)

the following subparagraph is inserted after the first subparagraph:

(i)

the minimum levels of general energy consumption taxation in order to ensure that they preserve their intended effects;

(ii)

the CO2 price developments relating to the emission trading scheme under Directive 2003/87/EC;

(iii)

the impact of innovation and technological developments, in particular as regards energy efficiency ;

(iv)

the use of electricity in transport ;

(v)

the justification for the exemptions and reductions, including for fuel used for the purpose of air and maritime navigation, laid down in this Directive ;

(vi)

the impact of this Directive on the setting of industrial policy priorities in the Union car industry, inter alia in relation to clean, energy-efficient conventional internal combustion engines and the Union's CO2 reduction targets in the car sector;

(vii)

developments in the use of biogas, natural gas and LPG in road transport; and

(viii)

whether harmful or potentially harmful emissions other than of CO2 should also be taken into account.