Sustainability and green taxes

Local Contact

15 Dec 2025
Subject Tax updates
Categories Tax

Overview:

Finance Ministers disagree on revision of Energy Taxation Directive

  • On Thursday 13 November, EU Finance Ministers debated on the proposed revision of the Energy Taxation Directive (ETD), a key element of the "Fit for 55" package during their Ecofin meeting. No agreement was reached. 
  • On 14 July 2021 a proposal for a recast was originally published. In the meantime, several presidency compromise texts have been published. This week, the Danish Presidency published a draft, dated 10 November 2025.
  • The recast seeks to align energy taxation with climate objectives by taxing energy products based on energy content and environmental performance, phasing out exemptions for fossil fuels, and incentivizing renewables.
  • Key sticking points include: 
    • Treatment of natural gas, with several Member States requesting extended transitional periods.
    • Indexation of minimum tax rates to inflation, which some countries oppose due to concerns over price volatility.
    • Exemptions for aviation and maritime fuels, with strong resistance from island and tourism-dependent economies.
    • Classification and taxation of hydrogen and emerging technologies.
  • Several ministers suggested that the current approach may be “too ambitious” and indicated that a political reset or fresh start could be necessary if consensus cannot be achieved soon. The debate was dominated by domestic interest.
  • The Danish Presidency concluded that the hard reality is that if concerns of some Member States will be accommodated, the support of other Member States will be lost. Furthermore, the Danish Presidency stated “that it is difficult to see a way forward for this file”.
  • The Commission reiterated that the ETD revision is central to achieving EU climate targets and warned against diluting ambition. Commissioner Hoekstra concluded that the Presidency is right and with its conclusion that “we are going to continue to have this file on the table”.

What does it mean

  • The debate confirms that the ETD revision remains highly political and fragmented, with unanimity proving elusive after four years of negotiations.
  • Member States’ positions reflect domestic priorities over EU-wide objectives, making compromise difficult and raising the risk of a political reset or re-scoping of the proposal.
  • For clients, this means: 
    • It seems safe to expect that the framework of European Energy Taxation will not change any time soon. Member States will remain bound to the current scope of implementation options.
    • A full recast may likely be labelled as “too ambitious”. With the agreement to disagree, it would be sensible for Member States to start discussing on specific issues instead of the whole Directive.

Council of the European Union confirms position on 2040 climate target and propose ETS2 postponement 

  • On Wednesday 5th November, the Council of the EU has reached a position on amending the European climate law (ECL) to introduce a binding target to reduce net greenhouse gas emissions by 90% by 2040 compared to 1990. This follows the European Commission's February 2024 publication "Europe’s 2040 climate target" and subsequent proposals for a climate reduction target that aligns with the European Council’s strategic guidance. The 2040 target provides an intermediate target bridging the EU’s 2030 and 2050 climate goals. 
  • The Council proposed a post 2030 climate target framework to enable the conditions for a just climate transition, emphasizing energy efficiency, innovation, biodiversity, and competitiveness. Alongside which the Council proposes the introduction of biennial reviews to track progress, technological advances and global competitiveness. As part of which a review of the status of net removals in relation to 2040 targets has been proposed, to consider new challenges and opportunities in EU industrial competitiveness and changes to energy prices. 
  • The Council’s position on the intermediate 2040 climate target also highlighted flexibility for Member States to achieve the required reduction through the potential to use: 
    • Up to 5% of 1990 EU net emissions, from 2036 onwards of high-quality international carbon credits to contribute toward the 2040 target. Including a pilot period for the period 2031-2035;
    • domestic permanent carbon removals under the EU emissions trading system (ETS) to compensate for residual hard-to-abate emissions;
    • enhanced sectoral flexibility, simplification and cost efficiency to compensate should one sector fall short of the 2040 target.
  • Additionally, the Council proposes postponing the implementation of the second emissions trading system (ETS2) for buildings and road transport by a year to 2028, for a smooth transition to implementation for Member States.

What does it mean

  • The Council’s agree position will be taken forward to upcoming negotiations once the European Parliament adopts its position, with a view to agreeing on the final text of the amendment.
  • Client teams should monitor the developments to the European climate law particularly in regard to potential changes in energy pricing and carbon trading requirements and timelines.

European Commission announces the Sustainable Transport Investment plan mobilizing €2.9bn in incentives to support sectoral decarbonisation

  • On Wednesday 5th November, the European Commission announced the Sustainable Transport Investment plan (STIP), focusing on accelerating the adoption of renewable and low-carbon fuels in the aviation and maritime sectors. 
  • To meet the EU sustainable fuel targets under the RefuelEU Aviation and FuelEU Maritime Regulations, Europe needs to produce around 20 million tons of sustainable fuels. At the same time sustainable fuels currently cost up to 10 times more than conventional fuels. As such the STIP aims to mobilize €2.9bn by the end of 2027 through EU funding programs such as the Innovation Fund, Horizon Europe, and InvestEU, with additional pilot projects as part of the eSAF Early Movers Coalition and mechanisms to connect fuel producers with buyers and de-risk investments. There is an emphasis on regulatory simplification including assessing options to develop a single monitoring, reporting and verification (MRV) system covering both the ETS Maritime and FuelEU Maritime, enhanced market coordination, and possible further tax incentives to support the transition.

What does it mean

  • Client teams should be aware of and help clients navigate the funding opportunities and support available to these sectors. 
  • Client teams should be aware of the upcoming Industrial Maritime Strategy.

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