The Energy Taxation Directive and the Clean Industrial Deal

| 20 November 2025
Fiscal, Testimonies | Tags: Decarbonization, Energy, Europe, Fossil Fuel Subsidies

Statement before the Subcommittee on Tax Matters of the European Parliament. The recording and the statements of all invited experts are available here.

Thank you for the opportunity to speak today on the Energy Taxation Directive (ETD) and the Clean Industrial Deal (CID). I will start with brief remarks on the ETD and then turn to lessons the CID could draw from global experience with the use of tax incentives in support of industrial strategies.

The Energy Taxation Directive

I welcome the proposal for a revised ETD to raise minimum tax rates on fossil fuels. This is a much-needed overhaul of a Directive that has become outdated. If implemented with strong ambition, the revised ETD will complement the EU Emissions Trading System by reinforcing carbon price signals. That said, attention must be paid to the social impacts of combining the ETD, ETS, and ETS2 from 2028 onwards.

I welcome also the proposed phasing out of fossil fuel subsidies. However, the proposal contains many long transition periods and escape clauses, which will reduce its effectiveness. I urge the European Parliament to set ambitious transition periods and, crucially, define strict limits on escape clauses. European competitiveness requires stability in policy frameworks and a level playing field. The uneven and unpredictable use of escape clauses runs counter to this objective.

Finally, I also welcome the lower minimum tax rates on electricity in the proposal for a revised ETD. Electrification is central to decarbonisation, yet electricity still accounts for only 21% of our final energy use — and barely 2% in transport. Allowing member states to lower electricity taxes would make electricity more affordable and enhance competitiveness, at a time when EU electricity prices remain well above those in other regions.

The Clean Industrial Deal

Let me now turn to the use of tax incentives for the Clean Industrial Deal. Tax incentives are a core pillar of industrial strategies worldwide. They are deployed along the entire value chain of economic activities, including research and development, investment, production and demand. Some of these incentives are made available as tax credits that directly reduce the tax liability of a company. Some of these tax credits are linked to the investments a company makes into a target area, such as building up solar or wind energy capacity, others are linked to ongoing production, such as the production of hydrogen. In other cases, tax incentives come in the form of accelerated depreciation schemes that reduce taxable corporate income and thus lower tax liabilities.

Several EU member states have already introduced tax incentives in support of their industrial strategies— all cleared by the Commission. These initiatives show the political will, at the national level, to move forward. However, in my view, this decentralised approach has serious limits. The EU needs a single, predictable framework for clean tax incentives rather than a patchwork of national schemes negotiated case by case with Brussels. As the Draghi report argues, the current system of state aid approvals favours large, well-resourced governments and firms. In addition, it fragments the single market, and delays investment.

A unified rulebook at the EU level, applicable across member states, would cut red tape, ensure level competition, and align fiscal incentives with EU objectives. This would offer investors the clarity and stability that has underpinned success in other countries.

Tax incentives come at a cost for national budgets, at a time when the fiscal situation of several member states is already under pressure. It is therefore essential to ensure that they are cost-effective and well designed. The Commission proposes a monitoring supported by key performance indicators. This is a good step, but the EU should go further. This should include systematic data collection, ex post assessments of cost-effectiveness and additionality, and a structured dialogue with stakeholders. This will help to ensure that tax incentives deliver measurable progress at a reasonable fiscal cost.

To conclude, today’s debate is critical. The global economy is transforming rapidly and will continue to do so over the coming years. The policies that we are discussing here today are at the core of Europe’s response to these changes. Ensuring that our tax systems are aligned with our strategic objectives in terms of competitiveness, innovation and decarbonisation is vital. If the European Union delivers this, it will not only make further progress on its decarbonisation pathway, but – crucially – also build a cornerstone for its future competitiveness and prosperity.

Thank you.

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