EU Green Deal: The carbon border adjustment mechanism and the revision of the taxation of energy products and electricity

Prepared by Francesco Pizzo and Federica Panzeri

With the aim to reduce the greenhouse gas emissions, as part of the European Green Deal package, on 14 July 2021 the EU Commission adopted the following acts: 1) proposal for a Regulation establishing a carbon border adjustment mechanism; 2) proposal for a Directive restructuring the Union framework for the taxation of energy products and electricity.

The Carbon Border Adjustment Mechanism (CBAM)

According to the CBAM, the EU importers of certain products will have to purchase, from national authority established for this purpose, certificates (CBAM certificates) corresponding to the carbon price that they would have paid if the imported goods would have been made in the EU. In such a way, the CBAM will ensure equal treatment for products made in EU and for those imported from non-EU countries with the aim to avoid a carbon leakage between EU and non-EU countries.

For a transitional period, the products in scope of the CBAM will be the following: cement, iron, steel, aluminum, fertilizer, and electricity. From 2023 to 2025, importers will have only to declare greenhouse gas emissions embedded in the goods imported, without any payment.

The definitive mechanism will become effective from 2026: the importers then will have to declare, by 31 May of each year, the embedded greenhouse gas emissions with reference to the imports of goods of the previous year. The importers, at the same time, will have to give back to the above-mentioned national authority the CBAM certificates equivalent to the greenhouse gas emissions embedded in those imported products.

The revenues from CBAM will contribute to the EU’s budget as own resources.

The revision of the Directive 2003/96/EC on taxation of energy products and electricity

The Directive 2003/96/EC fixes the minimum excise duty rates for taxation of energy products, used as motor and heating fuels, and electricity. Currently, the minimum rates provided for fuels do not consider the energy content and the environmental impact that they have.

The proposal adopted by the EU Commission introduces a new model of tax rates that will be based on energy content (euro per gigajoule – €/GJ) and environmental performance of fuels and electricity rather than on volume, as currently it happens. In other words, the most polluting fuels will be taxed with highest excise duty rates.

In particular, the minim tax rates, effective from 2023, will be divided in the following categories (the list of products is not exhaustive):

  1. conventional fossil fuels (e.g. gas oil and petrol) will be subject to the minim rate of € 10,75/GJ when used as motor fuel, and € 0,9/GJ when used for heating;
  2. natural gas, LPG, etc.., for a transition period of ten years, will be subject to the minimum rate of € 7,17/GJ when used for motor fuels, and € 0,6/GJ when used for heating. After the transition period, they will be taxed as conventional fossil fuels;
  3. biofuels will be subject to the minimum rate of € 5,38/GJ when used as motor fuel, and € 0,45/GJ when used for heating;
  4. electricity, advanced biofuels, biogas, etc.. will be subject to the minimum rate of € 0,15/GJ.

It is also provided that certain tax exemptions (e.g. fuels used for air and maritime transports) will be phased out to apply to the fossil fuels a minimum tax rate and the enlargement of the taxable base to include products or uses previously excluded from taxation.

Let’s Talk

For a deeper discussion, please contact:

Francesco Pizzo

PwC TLS Avvocati e Commercialisti


Federica Panzeri

PwC TLS Avvocati e Commercialisti