CO2 pricing ensures that the costs of GHG emissions are borne by the polluters – producers and consumers. In this way, important incentives are provided for the development of clean energy. To accelerate the transition from fossil fuels to sustainable renewable alternatives, such as eFuels, an appropriate price is essential. The main instruments regulating CO2 pricing in the European Union are the Energy Tax Directive (ETD) and the Emissions Trading Scheme (ETS).
The eFuel Alliance welcomes the revision of the ETD as an important step towards reducing CO2 emissions and achieving Europe's ambitious climate targets. However, it would be better to levy a tax based on the CO2 emissions of the energy sources and not, as proposed by the EU Commission, on their energy content. This would allow the carbon footprint of energy carriers to better reflected in the ETD and clearly distinguish renewable from fossil fuels. On a positive note, we strongly support the proposed alignment of tax rates for electricity and fuels. This will ensure fair competition and a level playing field between the different mobility options. The low minimum tax rates for eFuels and the clear distinction between them and the tax rates for fossil fuels are positive. Such a tax distinction between renewable and conventional fossil fuels is essential to achieve a steering effect away from fossil fuels, incentivize large-scale production of renewables and accelerate their price competitiveness with their fossil counterparts.
We also welcome the revision of the ETS and its extension to transport and buildings as an technology-open and market-based policy. Although electrolysis of hydrogen is normally outside the scope of the ETS, the proposal provides free allowances for the production of hydrogen by electrolysis plants instead of on the basis of natural gas. This is an important signal for defossilization, as these free allowances can be sold to compensate for the higher operating and investment costs compared to hydrogen production from fossil fuels. However, the current ETS proposal needs further clarification with respect to eFuels: while biomass, which meets the sustainability and GHG reduction criteria of the Renewable Energy Directive, will be subject to a zero-emission factor for stationary plants and aviation, renewable fuels such as eFuels are excluded although they meet the same requirements of the Renewable Energy Directive (RED) sustainability and GHG criteria.
- The ten-year tax break for hydrogen and eFuels proposed by the EU Commission should be applied across sectors.
- The free certificate allocation threshold in the ETS for electrolysers producing green hydrogen needs to be amended from 25 tons to 2.5 tons per day to include smaller and decentral hydrogen production.
- Policy makers should be clear and set a zero-emission definition for all renewable fuels that are in line with the RED for all ETS sectors.