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Energy taxation and its societal effects

Abstract: 

Taxes account for a significant share of the final price of energy products in the EU. Energy taxes provide flexible and cost-effective means for reinforcing the polluter-pays principle and for reaching objectives of the European Green Deal. However, as energy taxation raises the price citizens have to pay for their energy, the poor are at risk to be more burdened by energy price increases than the wealthy. This report provides a detailed overview of energy taxation – the current policy context, household energy prices and the impact of energy taxation on financially disadvantaged citizens. The Energy Taxation Directive (ETD) that is currently under revision is also discussed together with the EU Emission Trading Scheme (ETS) and national carbon taxes as the main instruments used in the EU to reduce the greenhouse gas (GHG) emissions. Furthermore, as the redistribution of the tax revenue is crucial for the success of the energy transition, we explore different ways of using the revenue of energy taxation such as supporting further efforts to cut the GHG emissions or offsetting the burdens on the poor by increasing welfare benefits, re-investing the revenue through special schemes (e.g. renovation subsidies), supporting households with lump-sum transfers and other.