Energy taxation reform is stalling

European Commission proposals to reform energy taxation in favor of greener options remain unclear despite Hungary's proposal to keep the exemption for airlines and shipping, reports Euronews. As it aims to reach zero carbon emissions by 2050, the European Commission entered this delicate area in 2021 when it proposed updating the decades-old rules on electricity and fuel charges.

In September, Hungary proposed scrapping plans to tax aviation and shipping fuel - effectively keeping the long-standing exemption the Commission had hoped to end. Budapest's idea was branded "absurd" by environmental groups, and the European Commissioner in charge of climate policy, Wopke Hoekstra, highlighted the inconsistency of imposing around 50% tax on car petrol and none on jet fuel.

Countries such as Italy, Greece and Cyprus appear concerned about the impact on competitiveness if the EU raises taxes.

"The specific proposal could cause problems for tourism by increasing the costs of aviation and water navigation," Greek Finance Minister Kostis Hatsidakis said, noting that the rules would not apply to competing non-EU destinations such as Turkey or North Africa.

EU tax legislation requires unanimity among the 27 member states.

The law is outdated

"The existing law, unchanged since 2003 by now, was clearly out of date. If one sector does less, other sectors have to do more - there is an element of fairness here," Hoekstra believes.

International transport is exempt from fuel tax under long-standing global treaties, but the EU had hoped to raise taxes at least for intra-bloc travel. The aviation sector, meanwhile, claims it is already paying for pollution through Brussels' emissions trading scheme. The issue is also extremely difficult after a period of rising inflation linked to high energy prices.

A green tax on petrol and diesel sparked France's yellow vest protests in 2018, and a planned increase in electricity tax was one of several unpopular measures that led to the fall of French Prime Minister Michel Barnier's government this month.

Chairing his last summit before handing over the EU Council presidency to Poland in January, Hungarian Finance Minister Mihaly Varga admitted he had failed to deal with the controversial case.

"Work on the energy taxation directive files must continue. In general, we are moving in the right direction," Varga pointed out.