The European Union is currently facing a tense situation in the energy sector and plans to introduce a series of temporary measures to support industry and households. However, EU authorities do not want to compromise on their environmental principles, so all proposals are sparking heated debates about the bloc’s competitiveness and the additional costs incurred by individual governments. A number of changes concern energy taxation, the Carbon Border Adjustment Mechanism (CBAM), and the Emissions Trading System (ETS).
Politico reported on this series of changes.
Tax breaks for clean energy
As early as May, the European Commission is set to present a draft law that would lower tax rates on electricity compared to fossil fuels.
This legislative initiative aligns with the EU’s “green” strategy, under which it aims to increase the share of electricity from renewable energy sources (solar, wind, and hydropower) and nuclear energy.
“This is already the second fossil fuel crisis within just a few years. We need to increase the volume of domestic, affordable, and reliable energy. Our goal is very clear – to switch electricity production to renewable energy sources and nuclear power,” said President of the European Commission Ursula von der Leyen.
Due to the blockade of the Strait of Hormuz, the EU’s spending on fossil fuel imports has surged sharply, reaching over €22 billion in just 44 days of conflict in the Middle East.
One official told reporters that granting a preferential tax regime for electricity will help lower prices in the long term and attract further investment in renewables.
No compensation for emissions costs under EU ETS
In response to rising energy prices, the European Commission plans to propose temporary measures to EU member state governments to support industry. First and foremost, this is about providing subsidies to offset the cost of generating energy from natural gas. However, the draft proposal clearly states that such measures will be considered separately for each specific case, will be short-term, and will have strictly defined parameters.
However, the European Commission strictly prohibits one change – granting subsidies to cover payments for emissions under the European Emissions Trading System (EU ETS).
“Subsidies should only compensate for certain increases in gas prices and should not cover ETS costs, thus preserving ETS obligations and incentives,” the EU executive body wrote in its proposal.
This concerns the mandatory purchase of permits for emissions of every tonne of carbon dioxide. The debate around the EU ETS has intensified since the outbreak of war in Iran. As a result, the EU authorities are forced to look for solutions to support industry without undermining their own climate policies and incentives for the green transition.
No exceptions for CBAM
The European Parliament intends to block the controversial European Commission proposal to amend the Carbon Border Adjustment Mechanism (CBAM). The matter concerns attempts to formalize exemptions from the carbon levy for certain goods and even sectors.
Mohammed Chahim, co-leader of the European Parliament's work on CBAM, proposes to exclude this provision.
“Regulatory stability is crucial for attracting investment in the clean transition, and the recently introduced Article 27a risks undermining the resilience and predictability of the CBAM, as it could allow exemptions from the scope to become subject to the interests of specific sectors,” the report states.
Some businesses perceived the European Commission’s proposal as discriminatory. In their view, exempting certain imported goods from the CBAM would deal a blow to competing domestic producers, who pay high carbon emission charges under the EU ETS system.
EcoPolitic earlier reported that Cyprus, holding the presidency of the EU Council, proposed exempting certain goods from the Carbon Border Adjustment Mechanism (CBAM) in the event of global crises. The maximum duration of such customs relief was to be two years.
