Reforming the EU Energy Tax Directive: Assessing the Options (CESifo)

This CESifo working paper by Ian Parry (IMF) and Herman Vollebergh (PBL) assesses options to reform the EU Energy Tax Directive (ETD). The efficiency case for raising some of the fuel tax minima under the Directive appears nuanced. Some fuels are under-taxed (e.g. road diesel, natural gas), while others may be adequately taxed already (e.g. gasoline). Reform proposals would increase minima for road diesel and natural gas while leaving minima for gasoline unchanged.  This is a step in the right direction however there are potentially much larger benefits from extending tax minima to fuels (in particular coal) covered under the EU Emissions Trading System (ETS) if the cap is tightened. Two-speed systems may help increase political acceptability of such proposals (with lower minima for low-income countries) while sacrificing little in terms of climate benefits.