10.6092/issn.2531-6133/16560
Tax law has always been an important tool to promote existing energy policies and investments, and it is understood that new E.U. rules on energy taxation have the potential to accelerate the energy transition process. Both the European Green Deal and Fit for 55 Package have pointed to the revision of the Energy Taxation Directive (E.T.D.) regulating the taxation of energy products and electricity. Besides, the idea of revising the legislation related to energy taxation has been emphasised in the European Climate Law which is binding in its entirety in all E.U. countries. The E.T.D. is an important instrument that has been in force since 2003. However, it is widely accepted that this instrument must be updated in light of the E.U. ’s Climate Change Policy and Sustainable Development Goals (S.D.G.s). Hence, on 13 April 2011, the E.U. Commission published a proposal for a Council Directive amending Directive 2003/96/EC. Should all procedural requirements be met, the revised E.T.D. is expected to enter into force next year; therefore, it is essential to evaluate the key novelties brought by the Revision of the Energy Taxation Directive. This paper aims to provide an analysis of the E.U.’s existing energy taxation policy and recent developments related to the revision of the E.T.D.. To do this: firstly, energy transition, taxation and the link between them will be outlined. Secondly, the European environmental tax policy system and the E.U. general legal framework on energy taxation will be explained by considering the novelties introduced by the E.U.’s Fit for 55 Package and the European Green Deal. Lastly, the E.T.D. and the revised E.T.D. will be comparatively evaluated together with the questions regarding business taxation.
application/pdf
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https://creativecommons.org/licenses/by/4.0
University of Bologna Law Review
European Union
Revision of the Energy Taxation Directive: A Brief Overview of Key Novelties
Text.Serial.Journal
https://bolognalawreview.unibo.it/
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2023-03-10
2023-03-09
2022-11-22
2023-03-10
225-240
UBLR
Merve Ergün
2022
10.6092/issn.2531-6133/16560
225
 University of Camerino
2531-6133
2
European Union
en
240
Revision of the Energy Taxation Directive: A Brief Overview of Key Novelties
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llVOLUME 7                                   llISSUE 2                                       NOTES



                           UNIVERSITY OF BOLOGNA LAW REVIEW
                          https://doi.org/10.6092/issn.2531‐6133/16560

           Received: 17 March 2022 | Accepted: 20 Apr. 2022 | Published: 10 March 2023

                                                  A

Revision of the Energy Taxation Directive: A Brief Overview of
                                       Key Novelties

                                           MERVE ERGUN
Merve Ergün is a PhD candidate in Civil Law & Constitutional Legality at the University of
Camerino (Italy) and a fully qualified lawyer registered with the Izmir Bar Association. She holds
an LLM degree in International Commercial Law with distinction from the UK and LLB and BA
degrees from Turkey. Merve specialises in tax law, renewable energy law and complex
commercial dispute resolution. Thanks to her professional and academic experiences in Turkey,
Austria, Germany, the UK, Belgium and Italy, she is highly experienced in arbitration and familiar
with practical knowledge in interpreting and applying the relevant laws.

 @ merve.ergun@unicam.it.
  ID
       0000-0002-8669-0553


                                             ABSTRACT

Tax law has always been an important tool to promote existing energy policies and investments,
and it is understood that new E.U. rules on energy taxation have the potential to accelerate the
energy transition process.
Both the European Green Deal and Fit for 55 Package have pointed to the revision of the Energy
Taxation Directive (E.T.D.) regulating the taxation of energy products and electricity. Besides, the
idea of revising the legislation related to energy taxation has been emphasised in the European
Climate Law which is binding in its entirety in all E.U. countries.
The E.T.D. is an important instrument that has been in force since 2003. However, it is widely
accepted that this instrument must be updated in light of the E.U. ’s Climate Change Policy and
Sustainable Development Goals (S.D.G.s). Hence, on 13 April 2011, the E.U. Commission published
a proposal for a Council Directive amending Directive 2003/96/EC. Should all procedural
requirements be met, the revised E.T.D. is expected to enter into force; therefore, it is essential to
evaluate the key novelties brought by the Revision of the Energy Taxation Directive.
This paper aims to provide an analysis of the E.U.’s existing energy taxation policy and recent
developments related to the revision of the E.T.D.. To do this: firstly, energy transition, taxation
and the link between them will be outlined. Secondly, the European environmental tax policy
system and the E.U. general legal framework on energy taxation will be explained by considering
the novelties introduced by the E.U.’s Fit for 55 Package and the European Green Deal. Lastly, the
E.T.D. and the revised E.T.D. will be comparatively evaluated together with the questions
regarding business taxation.


                                             KEYWORDS
             Energy Transition; Energy Taxation; Energy Taxation Directive; European Union



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    REVISION OF THE ENERGY TAXATION DIRECTIVE: A BRIEF OVERVIEW OF KEY NOVELTIES


                                                  JEL CODES
                                                 H23, K34, H25



                                            TABLE OF CONTENTS

1. Energy Transition and Taxation . . . . . . . . . . . .          .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   226
2. The Environmental Tax Policy System in the EU . . .             .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   228
3. The EU General Legal Framework on Energy Taxation               .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   231
4. E.T.D. and E.T.S. . . . . . . . . . . . . . . . . . . . . .     .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   234
5. Questions Regarding Business Taxation . . . . . . . .           .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   236
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . .       .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   238




      1. ENERGY TRANSITION AND TAXATION

Energy transition1 refers to the change of main energy sources used to sustain
socio-economic activities. However, today, this term particularly points to the global
energy industry’s shift from fossil energy sources to renewable energy sources.2 Due to
the climate emergency, countries are expected to be part of the energy transition and
update their legal frameworks accordingly.                     In this sense, behaviours of energy
consumers play an essential role in the energy transition. Hence, public or private
individuals and companies that engage with environmentally friendly activities should
be supported through tax policies.
          Tax systems are part of legal systems,3 and are centred around the idea of
legitimisation.4 This also means that energy taxation does require a delicate balance
between policy and legitimisation. Since it is not easy to balance factors associated with
these spheres, energy taxation rules tend to remain a part of a domestic legal order
rather than an international one. For instance, because the energy sector is classified as
different from other sectors, neither the rules of the General Agreement on Tariffs and
Trade [hereinafter G.A.T.T.] nor the World Trade Organisation [hereinafter W.T.O.]
specifically address the general rules governing this area.5 It is seen that energy and tax
related issues are treated differently in the EU too.
1
  According to the International Renewable Energy Agency [hereinafter I.Re.N.A.], Energy transition refers
  to “transformation of the global energy sector from fossil-based to zero-carbon by the second half of this
  century.” I.Re.N.A., irena.org/energytransitionenergy transition,https://www.irena.org/energytransition.
2
  Id.
3
  See Tulio Rosembuj, Tax Complexity and the Return of the State, WOLTER KLUWERS ITALIA PROFESSIONALE 975, (2021).
4
  Id.
5
  Energy in W.T.O. Law and Policy, WORLD TRADE ORGANISATION https://www.wto.org/english/res_e/publications
  _e/wtr10_forum_e/wtr10_7may10_e.htm.


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Because of the climate crisis, the international legal order necessitates energy transition;
therefore, even though the W.T.O. law does not clearly cover the energy sector, reducing
CO2 emissions is also considered among the W.T.O.’s priorities.6                          The E.U.’s Climate
Change Law aimed at reducing greenhouse gas emissions and achieving climate
neutrality is another important example in this regard.
           The energy transition can be eased thanks to public procurement or green
taxation. In this way, , clean energies would be promoted and energy transition costs
could be reduced with the help of governments.7 Besides, true financial and fiscal
measures can finance renewable energy technologies.8                                 Governmental policy
instruments, i.e., subsidies or tax benefits, are among the examples in this regard;
therefore, it is believed that state aid rules are of particular importance in the E.U.
energy taxation.9
           It is predicted by some scholars that the energy transition process might not be
sufficient to achieve indicated targets due to the current liberal market conditions and
technological atmosphere.10 This perspective can be true for many countries. However,
by considering the E.U.’s previous reductions in greenhouse gas emissions11 and binding
emission targets,12 it can be argued that climate neutrality is still possible for the E.U. by
2050.
           There are many energy transitions in history and different driving forces behind
them. Such driving forces can be associated with socio-economic and political factors. For
instance, the first major energy transition was the shift from wood to fossil fuels, which
happened after the Industrial Revolution.13 Even though the current energy transition is
heavily relied on technology and innovation, energy transition policies are regarded as
more crucial tools than technology improvements.14 In other words, the current energy
transition is strongly interconnected with governmental policies.15 Hence, it must not
6
   Id.
7
   Report of the U.N. Secretariat of the High-level Dialogue on Energy 2021 on Energy Access Towards the
   Achievement Of SDG 7 and Net-Zero Emissions, 25, (Sept., 2021).
 8
   Id. at 20.
 9
   See Marta Villar Ezcurra, State Aids and Taxation in the Energy Sector: Looking for a New Approach in 1 STATE AIDS,
   TAXATION AND THE ENERGY SECTOR (Marta Villar Ezcurra ed. 2017).
10
   See Jorge Blazquez et al., A Road Map to Navigate the Energy Transition, OXFORD INST. FOR ENERGY STUD., 2019, at
   1.
11
   See, e.g., Amanda M. Rosen, The Wrong Solution at the Right Time: The Failure of the Kyoto Protocol on Climate
   Change, 43 POL. & POL’Y 30 (2015).
12
   Climate Change: What the E.U. is Doing, EUROPEAN COUNCIL, https://www.consilium.europa.eu/en/policies/climate-
   change/#: :text=At%20least%2055%25%20fewer%20greenhouse%20gas%20emissions%20by%202030&text=By
   %202017%2C%20the%20EU%20had,three%20years%20ahead%20of%20schedule.
13
   See, e.g., Barry D. Solomon & Karthik Krishna, The Coming Sustainable Energy Transition: History, Strategies, and
   Outlook, 39 ENERGY POL’Y, 7422 (2011).
14
   Blazquez, supra note 10.
15
   Id.


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     REVISION OF THE ENERGY TAXATION DIRECTIVE: A BRIEF OVERVIEW OF KEY NOVELTIES


be unnoticed that environmental tax policies are of paramount importance for a just and
speedy energy transition.
          From a tax perspective, energy efficiency can be supported either by
implementing new taxes on polluting energy sources or by providing incentives for the
environmentally friendly activities of consumers. Unfortunately, the Organization for
Economic Cooperation and Development [hereinafter O.E.C.D.] statistics show that
polluting energy sources are not taxed enough. In fact, even the developed and emerging
market countries have not taxed seventy percent of the CO2 emissions related to the
energy field.16 In this sense, the data on energy taxes in European countries can be
evaluated comparatively.            When the O.E.C.D.’s 2019 report on taxing energy use is
examined, it is seen that the rates of fuel excise tax (outside road transportation) were
quite common in some Member States. For instance, the Netherlands, Denmark, Italy,
Greece, Lithuania and Norway can be considered the leading countries in this regard.17 It
has been observed that these leading countries also apply effective carbon taxes on
energy use successfully.18




      2. THE ENVIRONMENTAL TAX POLICY SYSTEM IN THE EU

The European Union, together with its twenty-seven Member States, is amongst the
world’s top emitters. On a sectoral basis, the primary source of CO2 emissions in the E.U.
stems from the energy sector. Hence, the E.U.’s environmental taxation policy, which is a
catalyst for energy transition, should be explained briefly.
          Given the E.U. history, the very first concerns regarding taxation were about the
removal of custom duties rather than environmental taxation.19 Nevertheless, in the
early 1970s, environmental protection was referred as a guarantee and a prerequisite for
the development of economic activities in the European Economic Community.20



16
   Taxes on Polluting Fuels Are too Low to Encourage a Shift to Low-Carbon Alternatives, O.E.C.D.
   https://www.oecd.org/tax/taxes-on-polluting-fuels-are-too-low-to-encourage-a-shift-to-low-carbon-
   alternatives.htm.
17
   O.E.C.D, TAXING ENERGY USE 2019: USING TAXES FOR CLIMATE ACTION (2019), https://www.oecd-
   ilibrary.org/docserver/058ca239-en.pdf?expires=1667485866&id=id&accname=ocid71015720&checksum=F61
   93F68E0D8C4D385C517712BEB5EEF.
18
   Id.
19
   See, e.g., Alice Pirlot, Exploring the Impact of E.U. Law on Energy and Environmental Taxation 1 (Saïd Business
   School, Working Paper, Paper No. 19/13, 2019).
20
   See Id. at 19.


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Further, both the “polluter pays” principle and the nexus between environmental
protection and taxation were highlighted by the Commission in 1972.21
           The polluter pays principle was first introduced by the O.E.C.D. in 1972.22 With
the Single European Act [hereinafter S.E.A.], this principle has become a guiding
principle for the E.U.’s Environmental Actions as well.23 More importantly, the S.E.A. has
brought the integration clause24 which necessitates an E.U. level integration regarding
environmental protection requirements.25 The integration clause is included in Article
11 of the Treaty on the Functioning of the European Union [hereinafter T.F.E.U.] which
states, “Environmental protection requirements must be integrated into the definition
and implementation of the Union’s policies and activities, in particular with a view to
promoting sustainable development”.26
           The first political discussions regarding the environmental taxation in the E.U.
can be traced back to the 1990s.27                   In spite of the Commission’s efforts, previous
harmonisation attempts in direct taxation fields failed in the beginning. Thus, the
current approach has been preferred by the Commission since 1990.28 Even though the
Directive on the taxation of mineral oils was adopted by the E.U. in the 1990s,29 Member
States could not agree on an E.U.-level CO2 tax which was proposed by the Commission.30
Even today, CO2 taxation is not the case at the Union level. Yet, following the Paris
Climate Change Agreement, the main goal in the E.U. is now reducing emissions at
certain levels with the help of environmental tax reforms31 and different market based
instruments, such as tradable permits and quotas, producer responsibility schemes,
tariffs and environmental taxes.32



21
   See Id. at 19.
22
   See European Court of Auditors, Special Report 12/2021, The Polluter Pays Principle: Inconsistent Application
   Across EU Environmental Policies and Actions, at 6 (July 5, 2021).
23
   See Consolidated Version of the Treaty on the Functioning of the European Union art. 191(2), May 9, 2008,
   2008 O.J. (C 115) [hereinafter TFEU].
24
   See TFEU art. 11.
25
   See Pirlot, supra note 19 at 2.
26
   TFEU art 11.
27
   See Charalambos Louca, Environmental Tax Policy Reforms in the European Union, in HANDBOOK OF RESEARCH ON
   POLICIES AND PRACTICES FOR SUSTAINABLE ECONOMIC GROWTH AND REGIONAL DEVELOPMENT 318 (George M. Korres
   et al. eds., I.G.I. Global, U.S.A. 2017).
28
   See Georg Kofler, EU Power to Tax: Competences in the Area of Direct Taxation, in RESEARCH HANDBOOK ON EUROPEAN
   UNION TAXATION LAW 13 (Christiana HJI Panayi et al. eds., Edward Elgar Publishing Ltd., U.K. 2020).
29
   See Council Directive 92/82, on the approximation of the rates of excise duties on mineral oils, 1992 O. J. (L
   316), 19 (EC).
30
   See Pirlot, supra note 19 at 2.
31
   See Marta Villar Ezcurra et al., State Aids and Taxation in the Energy Sector: Looking for a New Approach, in STATE
   AIDS, TAXATION AND THE ENERGY SECTOR (Thomson Reuters Aranzadi ed., 2017).
32
   See European Environmental Agency [EEA], Environmental Taxation and EU Environmental Policies, at 5, EEA
   Report No.17/2016 (Aug. 22, 2016), Publications Office of the European Union .


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     REVISION OF THE ENERGY TAXATION DIRECTIVE: A BRIEF OVERVIEW OF KEY NOVELTIES


The European Commission’s early taxation policy is based on the Communication of 1
October 1997,33 which highlights the need for greater tax coordination within the E.U.34
It can be argued that several achievements in the direct and indirect taxation fields have
been recorded after the publication of this communication, forming the basis for debates
on the E.U.’s current taxation policy.35
           The European Commission’s Communication, published on 10 October 2001,
namely “Tax policy in the European Union - Priorities for the years ahead”,36 explains
the Union’s current tax policy and objectives by focusing on the actualisation of a
competitive market. This communication is important as it indicates that harmonisation
is not necessary for each field of taxation, and it clarifies that Member States are free to
choose their own tax system as long as they respect E.U. Rules. Harmful tax competition
and the elimination of the tax obstacles to operation of internal market are among the
other important headlines. Besides, it is seen that tax problems of private individuals
and businesses have been at the forefront of this Communication.37 As indicated in the
Communication, harmonisation of direct taxation is neither necessary nor desirable, while
it is crucial to achieve a high degree of harmonisation in indirect taxation.38 Yet, it should
be noted that areas affecting the establishment or functioning of the internal market can
be excluded from this perspective.39 In other words, by virtue of the T.F.E.U. Article 115
(ex Article 94), the approximation of laws, in the areas that fall within the scope of direct
taxation and affect the internal market directly, is also possible. It should be noted that
this general competence can exclusively be exercised, provided that unanimity in the
Council is achieved.40
           Even though tax remains the sole responsibility of each Member State in the
E.U., national governments are asked to consider internal market rules while collecting
taxes.41      To be more precise, Article 110 of the T.F.E.U. particularly addresses the
protection of competitive market conditions against internal discriminatory taxation.42
33
   Communication from the Commission to the Council - Towards tax co-ordination in the European Union - A package to
   tackle harmful tax competition, COM(1997) 495 (Oct. 1, 1997).
34
    Id. para. 3 -11.
35
   See Communication from the Commission to the Council, the European Parliament and the Economic and Social
   Committee. Tax policy in the European Union - Priorities for the Years Ahead, COM (2001) 260 final (Oct. 10, 2001) -
   introduction.
36
   Communication from the Commission to the Council, the European Parliament and the Economic and Social Committee.
   Tax policy in the European Union - Priorities for the Years Ahead, , COM (2001) 260 final (Oct. 10, 2001).
37
   See Taxation: Commission outlines its priorities ) , https://ec.europa.eu/commission/presscorner/detail/en/IP
   _01_737 (Last visited May 23, 2001).
38
   Id. at 36.
39
   See Id.
40
   Kofler, supra note 28.
41
   Taxation,       EUROPEAN      UNION,        https://european-union.europa.eu/priorities-and-actions/actions-
   topic/taxation_en (Last visited Nov. 1st, 2022).
42
   See TFEU, ch.2, arts. 110-113.


                                                         230
2023]                          UNIVERSITY OF BOLOGNA LAW REVIEW                                [Vol. 7:2


In order to facilitate competitive market conditions and operation of the internal
market, Article 113 of the T.F.E.U. provides that indirect tax rules need to be harmonised
because such taxes have the potential to hinder the free movement of goods or
services.43 For instance, while personal income taxation is not regarded as crucial for the
operation of the internal market, it is widely accepted that the functioning of the
internal market is linked with the Value Added Tax [hereinafter V.A.T.] and energy
taxation.44 In any case, Article 352 of the T.F.E.U. allows the European Council to take any
action to protect the operation of the common market, and such actions can be
tax-related as taxation is not excluded under this provision.45
          There is a legal discussion as to whether Article 116 of T.F.E.U., which does not
require unanimity in the Council, could be used as a legal basis for the harmonisation of
direct taxation.46       Some scholars also argue that the Union has a fairly limited
competence allowing the positive harmonisation of direct tax matters under certain
conditions.47 These conditions refer to the matters that are affecting the realisation of
the internal market and require unanimous harmonisation actions and the application of
the subsidiarity principle.48 Yet, due to the principle of conferral, it is widely accepted
that the European Union is not competent in direct tax matters.49 The principle of
conferral, also known as the “principle of attribution of powers”, is codified under
Article 5(2) of the T.E.U., and according to this, if a competence is not explicitly
conferred on the E.U. by the E.U. Treaties, it remains with the Member States.50




      3. THE EU GENERAL LEGAL FRAMEWORK ON ENERGY TAXATION

In terms of indirect taxation, the Council Directive 2003/96/EC51 , regulating energy
taxation at the Union level, can be considered one of the most important achievements.52
This directive covers the taxation of energy products, including coal, gas and
43
   See,     e.g.,    Commission Tax Strategy (Frequently Asked Question),          EUROPEAN COMMISSION
   https://ec.europa.eu/commission/presscorner/detail/en/MEMO_01_193 (Last Visited May 23rd, 2001).
44
   See CHRISTIANA HJI PANAYI ET AL., RESEARCH HANDBOOK ON EUROPEAN UNION TAXATION LAW - EU POWER TO TAX 13
   (Edward Elgar Publishing Ltd, 2020).
45
   See MARJAANA HEELMINEN, EU TAX LAW DIRECT TAXATION 4 (IBFD, 2021).
46
   See Panayi et al., supra note 44, at 17.
47
   See Heelminen, supra note 45.
48
   Id.
49
   See CHRISTIANA HJI PANAYI, EUROPEAN UNION-CORPORATE TAX LAW 3 (Cambridge Tax Law Series, 2013).
50
   See TFEU art 5 (2).
51
   Council Directive 2003/96, Restructuring the Community Framework for the Taxation of Energy Products
   and Electricity, 2003 O.J. (L283) 51(EC).
52
   Id. at article 4 (2).


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     REVISION OF THE ENERGY TAXATION DIRECTIVE: A BRIEF OVERVIEW OF KEY NOVELTIES


electricity.53 However, because the thermal power of a nuclear reactor is not within the
scope of the term of energy products,54 the E.T.D. is not applicable for nuclear heat.55
           Because energy taxation is connected with many other areas, tax harmonisation
is not sufficient to achieve efficient results on its own.                        Therefore, the legislation
governing energy prices, efficiency and security should be coordinated to support tax
harmonisation.56 In this sense, the General Block Exemption Regulation [hereinafter
G.B.E.R.],57 the Energy and Environmental Aid Guidelines [hereinafteR E.E.A.G.].58 and the
Energy Efficiency Directive are noteworthy to mention.
           Both the G.B.E.R. and the E.E.A.G. are relevant to the state aid rules. While the
G.B.E.R. regulates the state aid categories that are in conformity with Articles 107 and 108
of the T.F.E.U.,59 the revised E.E.A.G., which has been in force since 2014, includes rules for
Member States to support energy projects associated with environmental protection.60
The E.E.A.G. has been revised to keep up with the European Green Deal and 2050 targets.61
Also, Directive 2012/27/EU on energy efficiency, setting rules and obligations to achieve
energy efficiency targets, has been amended by the Directive 2018/2002/EU. Thus, a non-
binding E.U. energy efficiency target (minimum 32.5 % efficiency improvements by 2030)
has been brought forward.62
           European Climate Law that is binding for all Member States is a remarkable
development for the energy transition and taxation in the E.U.63 As is known, this law

53
   See, e.g., Ezcurra et al., supra note 9.
54
   Council Directive 2003/96, Restructuring the Community Framework for the Taxation of Energy Products
   and Electricity, Art 2, 2003 O.J. (L283) 51(EC). For more information see Art 2 O.J. of the E.T.D., < https://eur-
   lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32003L0096:en:HTML#d1e337-51-1> (Last visited Aug.
   8, 2022).
55
   See Case C-606/13, OKG AB v. Skatteverket, 2015 E.C.R. VII - 636.
56
   See Ezcurra et al., supra note 9.
57
   See Commission Regulation 651/2014 of June.17, 2014, Declaring Certain Categories of Aid Compatible with
   the Internal Market in Application of Articles 107 and 108 of the Treaty (Text with E.E.A. relevance), 2014
   O.J. (L 187) 1–78.
58
   Energy and Environmental State aid guidelines.                        See COMMUNICATION FROM THE
   COMMISSION- Guidelines on State aid for environmental protection and energy 2014-2020
   (2014/C        200/01),        https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52014XC0628(01),
   https://ec.europa.eu/commission/presscorner/detail/en/ip2 12 784
59
   See Competition Policy,           EUROPEAN COMMISSION,        https://competition-policy.ec.europa.eu/public-
   consultations/2021-gber_en (last visited August 8, 2022).
60
   See European Commission Press Release IP/21/6982, State aid: Commission endorses the new
   Guidelines on State aid for Climate, Environmental protection and Energy (Dec.                         21, 2021),
   https://ec.europa.eu/commission/presscorner/detail/en/ip_21_2784 (Last visited Aug. 8, 2022).
61
   See CHATERINE BANET, STATE AID GUIDELINES FOR ENVIRONMENTAL PROTECTION AND ENERGY (EEAG): REVIEW
   PROCESS, POSSIBLE CHANGES AND OPPORTUNITIES (2020). https://cerre.eu/publications/state-aid-guidelines-
   energy-eeag/> accessed 8 August 2022.
62
   See International Energy Agency (I..E.A.): E.U. Directive 20orientamento.bologna@er-go.it18/2002
   on Energy Efficiency <https://www.iea.org/policies/13353-eu-directive-20182002-on-energy-efficiency>
   accessed 8 August 2022.
63
   See Regulation 2021/1119 of the European Parliament and of the Council of June. 30, 2021, Establishing
   the Framework for Achieving Climate Neutrality and Amending Regulations (EC) No 401/2009 and (EU)
   2018/1999 (‘European Climate Law’), 2021 O.J. (L 243) 1–17.
                                                        232
2023]                            UNIVERSITY OF BOLOGNA LAW REVIEW                                    [Vol. 7:2


has been adopted by virtue of Article 192(1) of the T.F.E.U. and is in the form of a
Regulation.64 In the preamble of this Climate Change Law, taxation has been mentioned
twice clearly: in Paragraphs 26 and 37. Even though preambles or recitals are not binding
as articles, they may take supplementary normative roles and consequently affect
judicial interpretations.65          Paragraph 37 of European Climate Law relates that the
Commission would explore methods of benefiting from the E.U. tax system to promote
the European Green Deal.              In this sense, Regulation 2020/852/EU of the European
Parliament and of the Council would be taken into account.66
          In Paragraph 26, it is highlighted that relevant climate change and energy
taxation legislations would be revised.67 Having said that, the E.U.’s newly introduced Fit
for 55 Package and the European Green Deal68 include revision of the E.T.D.69 According
to the Commission, the E.T.D. no longer meets the E.U. ’s environmental objectives as this
directive facilitates and promotes the use of fossil fuels.70 .
          In addition to the revision of the E.T.D., implementing environmental taxes at
the Union level could reduce energy usage and improve energy efficiency as well.
Environmental taxes, also called “green taxes”, refer to the taxes relating to energy,
transportation, pollution and resources.71 Such taxes, for sure, are crucial tools in order
to reduce the amount of CO2 and for the success of environmental policies. However, as
of today, environmental taxes are not applied at the Union level because the adoption of
fiscal measures requires the unanimous agreement of the Member States.72 Moreover,
due to complex procedures, this method cannot be actualised at the Union level in the
short term. Yet, there are different methods developed in order to achieve E.U. climate
targets under the European Green Deal; among them, the E.U. Emissions Trading System
[hereinafter E.T.S.], set up in 2005, is worth mentioning because participation in this
system is mandatory for some companies.73                      This system mainly measures carbon

64
   Id.
65
   See generally 19th Quality of Legislation Seminar “EU Legislative Drafting: Views from those applying EU law
   in the Member States” European Commission Service Juridique - Quality of Legislation Team Brussels,
   3 July 2014 (Charlemagne Building) Complexity of EU law in the domestic implementing process
   <https://ec.europa.eu/dgs/legal_service/seminars/20140703_baratta_speech.pdf> accessed 4 July 2022.
66
   See Regulation 2021/1119 of the European Parliament and of the Council of June. 30, 2021, supra note 63.
67
   Id.
68
   But see Proposal for a Council Directive to Restructure the Union Framework for the Taxation of Energy
   Products and Electricity (Recast), COM (2021) 563 final (July 14, 2021).
69
   See, e.g., Council Directive 2003/96, 2003 O.J. (L 283) 51–70.
70
    See, e.g., Briefing of the Revision of the Energy Taxation Directive: Fit for 55 Package, (Jan. 19, 2022)
   https://www.europarl.europa.eu/thinktank/it/document/EPRS_BRI(2022)698883.
71
   See Green Taxation – in Support of a more Sustainable Future, EUROPEAN COMMISSION,
   https://ec.europa.eu/taxation_customs/green-taxation-0_en.(last visit 10 August 2022).
72
   See Jaume Freire-González & Ignasi Puig-Ventosa, Reformulating Taxes for an Energy Transition, 78 ENERGY ECON.
   312 (2019).
73
   See E.U. Emissions Trading System (E.U. E.T.S.), EUROPEAN COMMISSION, https://ec.europa.eu/clima/eu-
   action/eu-emissions-trading-system-eu-ets_en.
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emissions by following the polluter pays principle.74 The main areas covered by the
E.T.S. are industrial activities, electricity generation and intra- European flights.75




      4. E.T.D. AND E.T.S.

The European Union’s climate change policy depends on energy transition which can be
put into practice by means of individual components, such as pricing, targets or rules.76
In this sense, the revision of the E.T.D. and E.T.S. is an important step towards a greener
Europe. It is important to notice that the current E.T.D. is in force and will be in force till
the revision takes place. As is known, unlike decisions and regulations, directives must
be implemented into national laws.77 Since the E.T.D. and its revision have been designed
in the form of a “directive”, Member States would be asked to achieve the goals set out
in this directive by meeting the deadline given.78 By virtue of the Commission’s proposal,
the deadline given for this is 31 December 2022.79
          When it comes to the Council’s voting system, some areas - including the
harmonisation of national legislation on indirect taxation- are classified as sensitive
matters.80       It is unfortunate that the proposal is subject to the special legislative
procedure, requiring the Council to decide by unanimity.81 Between 2011 and 2015,
previous revision attempts for the E.T.D. failed due to this requirement.82 Hence, a major



74
   See E.U. Emission Trading System (E.U. E.T.S.), FLORENCE SCHOOL OF REGULATION, https://fsr.eui.eu/eu-emission-
   trading-system-eu-ets (last visited February 19th 2021).
75
   See Taxing Energy Use 2019 : Using Taxes for Climate Action (Executive Summary), O.E.C.D. ILIBRARY,
   https://www.oecd-ilibrary.org/sites/058ca239-en/index.html?itemId=/content/publication/058ca239-en.
76
   See KLoek Helderman , Barbara Bell, Warwick Ryan&Christopher Morgan, Energy Taxation Directive,
   KPMG(2021).
77
   See, e.g., Types of Legislation,EUROPEAN UNIONhttps://european-union.europa.eu/institutions-law-
   budget/law/types-legislation_en.
78
   See, e.g., Applying EU Law, EUROPEAN COMMISSION, https://ec.europa.eu/info/law/law-making-
   process/applying-eu-law_en#: :text=Regulations%20and%20decisions%20become%20automatically,and%
   20takes%20action%20if%20not.
79
   See generally Revision of the ETD, Proposal for a Council Directive amending Council Directive 2003/96
   restructuring the Community framework for the taxation of energy products and electricity, 23, art. 4 para
   3, COM(2021) 563 final (Jul. 14, 2021)(EC).
80
   See Voting System (Unanimity), COUNCIL OF EUROPE, https://www.consilium.europa.eu/en/council-eu/voting-
   system/unanimity/.
81
   See Proposal for a Council Directive amending Council Directive 2003/96 restructuring the Community
   framework for the taxation of energy products and electricity, 23, art. 4 para 3, COM(2021) 563 final (Jul.
   14, 2021) (EC).
82
   Tim Gore, The revision of the Energy Taxation Directive Could Underpin a Fair and Green Tax Reform in Europe,
   HEINRICH BOLL STIFTUNG (Sept. 13, 2021) https://eu.boell.org/en/2021/09/13/revision-energy-taxation-
   directive-could-underpin-fair-and-green-tax-reform-europe.


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challenge is to achieve a unanimous agreement on a revised text. Until this process is
completed, the E.T.D. will continue to operate in the E.U.
             Even though the special legislative procedure is set out in Article 113 of the
T.F.E.U., there is no clear description thereof.83 Yet, both Articles 113 and 192 of the
T.F.E.U. refer to the special legislative procedure for the harmonisation of tax related
issues. To be more precise, the legal basis for the Commission’s proposal is Article 192,
Paragraph 2 of the T.F.E.U. However , unlike the revision of the E.T.D., it is possible to
follow the ordinary legislative procedure for the revision of the E.T.S. Directive.84




83
   Legislative Procedures, EUR-LEX, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=LEGISSUM%3Aai0016
   (accessed Feb. 9, 2022).
84
   See Sabine Schlacke, Helen Wentzien, Eva-Maria Thierjung, Miriam Köster, Implementing
   the EU Climate Law via the “Fit for 55” Package 1, OXFORD OPEN ENERGY ioab003 (2022),
   https://academic.oup.com/ooenergy/article/doi/10.1093/ooenergy/oiab002/6501634.
85
   See, e.g., Directive 2003/96 of the Council of 27 October 2003 on the Restructuring the Community framework
     for the taxation of energy products and electricity, 2003 O.J. (L283) 51.
86
      See, e.g., Proposal for a Council Directive amending Council Directive 2003/96, Restructuring the Community
   framework for the taxation of energy products and electricity, COM (2011) 169 final (Apr. 13, 2011).
87
   See Helderman et al., supra note 76.
88
   Id.
89
   Id.
90
   See Schlacke et al., supra note 84
91
   See Helderman et al., supra note 76.
92
   Id.
93
   See generally Proposal for a Council Directive amending Council Directive 2003/96, Restructuring the
     Community framework for the taxation of energy products and electricity, at 38, COM(2011) 169 final (
     Apr.13, 2011).


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     REVISION OF THE ENERGY TAXATION DIRECTIVE: A BRIEF OVERVIEW OF KEY NOVELTIES


 Another important point is that if the E.T.D. is revised, carbon tax would be applied in
 the E.U. countries too. For instance, Italy’s current energy taxation is in conformity with
 the E.U. Energy Taxation Directive,94 regulating minimum rates of energy taxation.95 In
 this sense, electricity consumption taxes and excise duties are the main taxes on energy
 use in Italy.96 As an active participant of the E.U. E.T.S. system, Italy imposes fuel excise
 levies on the road sector too.97 On the other hand, even if Italy is among the top countries
 regulating the aforementioned “green taxes” on energy use, there is no explicit carbon
 tax applied in the country.98 This can, for sure, change if the E.T.D. is revised.
           Some scholars argue that electricity generation from fossil fuels should be taxed,
 while electricity generation from renewable energy should remain untaxed.99 Thus,
 consumers opting for electricity generated via renewable energy sources could pay less
 tax, and the transition would gain momentum.100 This perspective is similar to the
 Pigouvian role of the tax system.101 The revised E.T.D. includes reduced tax rates for
 electricity generated from renewable energy sources.102




       5. QUESTIONS REGARDING BUSINESS TAXATION

 Successful Pigouvian taxes change the behaviour of taxpayers. As is known, mostly energy
 areas are taxed for consumption and production; therefore, rules as to energy taxation
 have effects on behaviour of energy consumers and producers.103 For example, because
 the consumption tax increases the price of electricity, consumers may try to reduce their
 consumption; this also applies to the businesses which are consumers of energy. However,
 due to the existing tax burden on taxpayers, the introduction of new environmental taxes
 is not welcomed by taxpayers; therefore, there is no widespread use of environmental
 taxes in the E.U. yet.104

94
    See, e.g., Council Directive 2003/96, 2003 O.J. (L 283) (EC).
95
    See O.E.C.D., supra note 75.
 96
    Id.
 97
    Id.
 98
    Taxing Energy Use 2019, O.E.C.D. https://www.oecd.org/tax/taxing-energy-use-efde7a25-en.htm.
 99
    See Freire-González & Ventosa, supra note 72.
100
    Id.
101
    Also known as Taxe de Pigouvian. According to the information provided by the O.E.C.D.,this term
    refers to “the tax levied on an agent causing an environmental externality (environmental damage)
    as an incentive to avert or mitigate such damage.” Glossary of Statistical Terms (Pigouvian Tax), O.E.C.D.,
    https://stats.oecd.org/glossary/detail.asp?ID=2065 (Last visited Nov. 20, 2001).
102
    See Miroslava Kostova Karaboytcheva, “Briefing- EU Legislation in Progress Revision of the Energy Taxation
    Directive: Fit for 55 package” (2022).
103
    See Freire-González & Ventosa, supra note 72.
104
    See Louca Charalambos, Environmental Tax Policy Reforms in the European Union, in 27 HANDBOOK OF RESEARCH ON
    POLICIES AND PRACTICES FOR SUSTAINABLE ECONOMIC GROWTH AND REGIONAL DEVELOPMENT 318 (2017).
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 2023]                             UNIVERSITY OF BOLOGNA LAW REVIEW                                      [Vol. 7:2


 Compliance by taxpayers ensures the operation of the system; however, non-compliance
 is also possible via exclusions that affect the most vulnerable taxpayers.105 Therefore, at
 first glance, minimising tax exclusions may seem to be a sustainable and just way.
 However, it should be noted that businesses, as important energy consumers and
 probable actors of energy projects, play an essential role in the energy transition. Hence,
 businesses that engage with environmentally friendly activities should be supported
 through tax incentives. These tax incentives used by Member States to support clean
 energies must be in conformity with Article 107(1) of the T.F.E.U., the fundamental
 freedoms, the E.T.D., the G.B.E.R.,106 the E.E.A.G.,107 and any other E.U. level energy
 related specific provisions.108 In fact, pursuant to established E.U.-case law practice, if
 there is no harmonisation of tax provisions in a particular field, Member States are
 enabled to provide tax advantages in this field.109
            Even though eco-friendly or sustainable business terms are used in our daily lives,
 these terms mostly are not defined by existing laws. Yet, broadly speaking, businesses
 that are preventing pollution, reducing the amount of waste they produce, purchasing
 or producing renewable energy, adopting sustainable business travel policies etc. can be
 considered eco-friendly or sustainable.110
            It is important to draw attention to the impact of taxation on businesses. As it is
 known, businesses investing in renewable energy projects can be encouraged through
 various routes, such as tax allowances, income tax deductions, tax credits, differentiated
 V.A.T., tax exemptions, public funds and accelerated or free depreciation and many other
 incentive regimes.111 This support can also be actualised by promoting sustainable
 business practices.          For example, some small businesses and cooperatives can be
 considered as prosumers by virtue of the Renewable Energy Directive [hereinafter
 R.E.D.I.I.].112
105
    See Tulio Rosembuj, Tax Complexity and the Return of the State, RASSEGNA TRIBUTARIA WOLTERS KLUWER ITALIA
    S.R.L. (October 1, 2021), https://onefiscale.wolterskluwer.it/document/tax-complexity-and-the-return-of-
    the-state/10AR0000285244ART1?searchId=735509404&pathId=773a0938a7cd8&offset=3&contentModule
    Context=all.
106
    See generally General Block Exemption Regulation - Council Regulation No 994/98 of May 7, 1998, on the
    application of Articles 92 and 93 of the Treaty establishing the European Community to certain categories
    of horizontal State aid, 1998 O.J. (L142) 1 (EC), amended by Council Regulation No 733/2013 of July 22, 2013.
107
    E.E.A.G.
108
    See Ezcurra et al., supra note 9.
109
    Id.
110
    See Georgia Makridou,             Why Should Business Embrace Sustainability?                     Lessons from
    the World’s Most Sustainable Energy Companies,                  ESCP IMPACT PAPER No 2021-33-EN,
    https://academ.escpeurope.eu/pub/IP%20202133EN.pdf.
111
    See Silvia Rezessy, & Paolo Bertoldi, Financing Energy Efficiency: Forging the Link Between Financing and Project
    Implementation (Report prepared by the Joint Research Centre of the European Commission) (2010).
112
    See generally Directive (EU) 2018/2001, of the European Parliament and of the Council of 11 December 2018
    on the promotion of the use of energy from renewable sources, 2018 O.J. (L328) 82.
    See JENS LOWITZSCH, ENERGY TRANSITION: FINANCING CONSUMER CO-OWNERSHIP IN RENEWABLES (Jens Lowitzsch
    ed. 2019).
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      REVISION OF THE ENERGY TAXATION DIRECTIVE: A BRIEF OVERVIEW OF KEY NOVELTIES


 Unlike the R.E.D.I.I., the revision of the E.T.D. introduces new rules to the detriment of
 Small and Medium-sized Enterprises [S.M.E.s] which are operating in the transportation
 sector. In fact, the revision of the E.T.D. includes the harmonisation of the tax levels for
 petrol and diesel used in the transportation sector, and this would neither promote the
 use of diesel nor distinguish diesel from the oil.113 It is well-known that the use of diesel
 causes a clear increase in nitrogen oxide (NO) and nitrogen dioxide (NO2)
 emissions leading to health problems for humans.114 Hence, the E.U.’s new strategy can
 be justified under health concerns. Besides, in the revision of the E.T.D., taxation of the
 non-commercial and commercial diesel consumption is treated in the same way, and it is
 believed by some scholars that this would result in certain anti-competitive situations or
 concern some countries which provide tax incentives for fuel-based manufacturing.115




       CONCLUSION

 The effect of governmental policies on the current energy transition is quite visible.
 Hence, the environmental tax policy, the European Green Deal and the Fit for 55 Package
 are of particular importance for energy taxation. Broadly speaking, other than the E.T.D.,
 the harmonisation of energy taxation is not yet a reality at the E.U. level.116 The reasons
 behind this is that energy and taxation fields tend to remain part of national legal orders
 because they are seen as integral parts of sovereignty. In the E.U., on the other hand,
 some energy related areas are in the scope of shared competences by virtue of Article
 194 (1) of the T.F.E.U..117 Also, in addition to environmental taxes, other market-based
 instruments are combined together to achieve environmental targets and increase
 efficiency.118 As a result, it is not always possible to classify all energy taxes as direct,
 indirect or environmental taxes.119 Hence, the E.U. energy taxation rules are quite
 complex.

113
    See Gerhand Huemer, Revision of the Energy Taxation Directive, SME UNITED (Jan.                    18, 2022),
    https://www.smeunited.eu/admin/storage/smeunited/20220118-etdreview-pp-final.pdf.
114
    See Charles W. Schmidt, Beyond a One-Time Scandal: Europe’s Onging Diesel Pollution Problem, 124 ENV’T HEALTH
    PERSPECT A19-A29 (2016).
115
    See Huemer, supra note 113.
116
    See Ezcurra et al., supra note 9.
117
    See TFEU art. 194 (1): “In the context of the establishment and functioning of the internal market and with
    regard for the need to preserve and improve the environment, Union policy on energy shall aim, in a spirit of
    solidarity between Member States, to: (a) ensure the functioning of the energy market; (b) ensure security
    of energy supply in the Union; (c) promote energy efficiency and energy saving and the development of new
    and renewable forms of energy; and (d) promote the interconnection of energy networks.”
118
    See, e.g., Ezcurra et al., supra note 9.
119
    Id.


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 2023]                           UNIVERSITY OF BOLOGNA LAW REVIEW                                  [Vol. 7:2


 The E.T.D., as its very name signifies, draws from the E.U.’s legal framework for the taxation
 of energy products and electricity. However, this legal instrument is not in conformity
 with the E.U.’s carbon neutrality goals and the polluter pays principle which has been
 promoted thanks to the European Green Deal. In other words, the E.U. tax system may
 require a more proactive Pigouvian role so that taxation can be used as a tool to limit the
 use of energy sources that have adverse effects on society and the environment.120 Yet, it
 should be noted that it remains contentious whether the implementation of the revised
 E.T.D. and E.T.S.-2 would be possible by the deadlines given.121 Besides, given the previous
 revision attempts that failed due to lack of consensus, the special legislative procedure
 can be an important barrier to the revision of E.T.D..




120
    See Climate Change: What the EU Is Doing, EUROPEAN COUNCIL , https://www.consilium.europa.eu/en/policies/climate-
    change/#: :text=At%20least%2055%25%20fewer%20greenhouse%20gas%20emissions%20by%202030&text=By%202
    017%2C%20the%20EU%20had,three%20years%20ahead%20of%20schedule (last reviewed October 21, 2022).
121
    See CéCILE BROKELIND AND SERVAAS VAN THIEL, TAX SUSTAINABILITY IN AN EU AND INTERNATIONAL CONTEXT (2020).


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