The forthcoming legislation aims to impose more favorable taxes on electricity compared to gas, reform network fees, and promote widespread adoption of digital tools to monitor energy usage in real time, according to a document obtained by Euronews.
Confronted with rising energy prices, geopolitical tensions, and increasing demands on Europe’s power systems, the European Commission plans to tax electricity more advantageously than natural gas to help reduce costs, as revealed in a document seen by Euronews.
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This initiative responds partially to industry appeals for the EU to lower electricity expenses while advancing the bloc’s electrification of transport, heating, and manufacturing sectors, simultaneously removing fiscal incentives that currently support continued fossil fuel use.
The Commission’s draft proposal comes amid a resurgence of energy price shocks linked to Middle Eastern conflicts and concerns at the Strait of Hormuz, which the Commission estimates have raised EU fossil fuel costs by about €500 million daily.
In energy-demanding industries, governments would gain enhanced flexibility to reduce electricity taxes—potentially down to zero in certain scenarios—to maintain the competitiveness of European manufacturing. This aligns with commitments from Commission President Ursula von der Leyen made before heightened Middle East tensions intensified electricity prices in the EU.
Environmental organizations point out that the Commission seeks to implement this adjustment through electricity market design regulations instead of energy taxation laws, which require unanimous approval from member states. Attempts to revise tax frameworks in 2021 did not achieve consensus.
«To avoid this hurdle, the Commission proposes preserving existing energy taxation rules while embedding a broad electrification principle within electricity market design regulations. Under this method, member states would be obliged to narrow the tax gap between electricity and gas,» stated Climate Action Network Europe in a commentary on the leaked document.
The Italian example
A report published Thursday by the Italian think tank ECCO exposed a notable tax imbalance in Italy favoring fossil fuels over clean energy. Italian households incur electricity taxes and charges up to four times greater than those applied to natural gas.
This disparity is even more pronounced in the business sector, where small and medium enterprises face electricity taxes and surcharges exceeding those on natural gas by more than 20 times. The transport sector is similarly affected, with taxes on electric vehicle charging reaching up to twice the levels imposed on diesel and petrol.
Matteo Leonardi, ECCO’s co-founder and executive director, described the findings as a «striking paradox,» critiquing Italy’s tax structure for disadvantaging technologies essential for progressing the energy transition.
«During a period when energy costs pose major challenges for households and enterprises, investors in electrification are unable to fully capitalize on its economic benefits. This leads to slower investments, diminished competitiveness, and delays in the energy transition,» Leonardi remarked.
Addressing grid expenses
The leaked document highlights that both fluctuating energy prices and the increasing portion of electricity bills attributed to network fees and taxes require urgent attention.
Although consumers often concentrate on electricity rates, the Commission also focuses on the expenses related to maintaining and expanding Europe’s electricity networks—an essential factor for the bloc’s successful energy transition.
The International Energy Agency has cautioned that the infrastructure capacity to connect and transmit electricity is lagging behind the rapid expansion of clean energy technologies such as solar, wind power, electric vehicles, and heat pumps.
According to the Commission’s draft, the combined impact of grid charges and taxes frequently surpasses the cost of the electricity consumed. Network fees composed roughly 24–29% of household electricity bills and 21% of those for businesses, while national taxes and levies added about 24% for households and 16% for firms.
These expenses are projected to increase substantially as the EU invests heavily in electrification and integrates more renewables into the grid. Annual investments in the grid might double to between €75 billion and €100 billion, with total grid costs potentially rising by 60% by 2050, the draft states.
Talks among EU member states are expected to be difficult, as taxation remains under national jurisdiction, and efforts to harmonize tax policies across the bloc will likely encounter opposition. Additionally, governments must weigh the possible reduction in tax revenue against the economic advantages of cutting energy costs.
Sweden has become one of the most vocal EU members opposing the Commission’s power grid proposals. Recently, Stockholm announced the suspension of plans to construct a new power cable to Denmark following the Commission’s suggestion to use revenues from electricity congestion charges to upgrade the bloc’s electricity infrastructure.
The Commission proposes redesigning tariff systems to incentivize both grid operators and consumers to utilize infrastructure more efficiently. Households and businesses could progressively face charges varying by time and location, encouraging electricity consumption when clean energy is plentiful and network congestion is minimal.
Practically, this means electricity users might be encouraged to charge electric vehicles, operate industrial processes, or run heat pumps during periods of abundant solar and wind power generation.
Widespread installation of smart meters—digital devices that automatically record real-time electricity or gas usage—is also vital for consumers to respond effectively to dynamic pricing and benefit from lower-cost electricity, according to the document.
The Commission aims for every member state to ensure at least 50% of customers have smart meters by 2030, increasing coverage to 65% by 2033. It argues that broader deployment will enhance grid visibility and reduce the necessity for costly infrastructure expansions.
The legislative proposal is scheduled for release on 15 July.