Coordinating energy taxes with the EU emission trading system

The regulatory framework that governs the production and consumption of energy in the European Union is based on Council Directive (EC) 2003/96 which deals with the taxation of energy products,1 and Council Directive (EC) 2003/87 which establishes a scheme for greenhouse gas emissions trading within the Community.2 The simultaneous application of these Directives raises potential problems both for the energy sector and energy-intensive industry. The cumulative implementation of both instruments was made politically feasible by the absence of an effective energy taxation regime for energy-intensive companies. The stringent implementation of these regulatory regimes is, however, giving rise to emerging problems. The potential regulatory overlap should be addressed through general guidelines. However, the Community environmental state aid guidelines (2001/C 37/03) do not specifically address this problem. At the time these guidelines (hereinafter ‘Community Guidelines’) were adopted (2001), the Emission Trading Directive (EC) 2003/86 had not yet been adopted. Consequently, they do not contain explicit provisions for a state aid assessment of tax exemptions specifically given to installations within the trading scheme.