Environmental Taxation

Jenil Gemavat

1. Introduction

The European Union’s energy taxation framework has long struggled with fragmentation and legal unpredictability, undermining the principle of tax certainty - a core requirement for a functional single market. The original Energy Taxation Directive (2003/96/EC) failed to deliver consistent tax predictability due to three systemic flaws: (1) volume-based taxation that ignored energy efficiency, creating arbitrary rate disparities; (2) open-ended derogations enabling 47 distinct national regimes; and (3) enforcement gaps that prolonged disputes (averaging 4.7 years by 2020). This erosion of tax certainty distorted competition, increased compliance costs by € 9.1bn annually, and hindered climate objectives.

The Fit for 55 revisions (2023) represent a critical effort to restore tax certainty through structural innovations. By shifting to energy-content taxation (Article 4), the new directive aligns rates with actual energy efficiency, reducing compliance costs by € 5.3bn/year and replacing arbitrary volume-based calculations. Fixed transition periods (Article 21) eliminate indefinite exemptions while a new dispute resolution mechanism addresses enforcement del...