Environmental taxation in the European Union

In her political guidelines for the Commission’s new five-year term, Ursula von der Leyen proposed a “European Green Deal”. This initiative, intended to make Europe “the first climate-neutral continent by 2050”, includes proposals in favour of environmental tax reform. It is not the first time that the European Union has shown interest in green tax measures. However, European Union law has not always had a positive impact on the development of environmental taxation.

This paper explores how EU law has shaped and continues to shape the development of environmental tax measures, including environmental taxes and environmentally-driven taxes and tax incentives, both at the level of the EU and at the level of the Member States. 

First, at the EU level, the paper shows that the EU’s institutional framework has inhibited the harmonisation of environmentally-driven taxes, since different proposals to better align energy taxation to climate objectives failed due to a lack of unanimity among Member States. Consequently, the energy taxation directive remains largely disconnected from the EU’s climate policy, including the EU Emissions Trading Scheme. 

Second, the paper argues that EU substantive law has had an ambiguous impact on Member States’ environmental tax policy. On the one hand, EU substantive law has been interpreted by the EU Court of Justice in a way that encourages Member States to adopt environmental tax measures that are environmentally-driven and structured accordingly. Indeed, the environmental purpose of Member States’ tax measures seems to play a positive role in the assessment of their compatibility with EU law, including State Aid provisions, the fundamental freedoms and the energy taxation directive. On the other hand, in some instances, EU law strictly limits Member States’ ability to adopt environmentally-driven tax measures. Moreover, EU secondary law disregards the purpose of environmental taxes when classifying them for statistical purposes. 

The broad picture that emerges from the analysis of existing legislation, case-law, and literature highlights that the EU has not yet been able to align its energy tax policy to its climate ambitions. The last section of the paper makes suggestions that could improve the consistency of environmental tax policy at both EU and Member State levels. 


Alice Pirlot, “Exploring the Impact of EU Law on Environmental Taxation”, in C. HJI Panayi, W. Haslehner, E. Traversa (eds.), Research Handbook in European Union Taxation Law, 2020, Edward Elgar Publishing, pp. 359-388.