Climate-related taxes are an important policy tool used by the EU and its member states to achieve long-term goals of reducing greenhouse gas (GHG) emissions and limiting global warming in line with the Paris Agreement. These taxes impose charges on goods and services whose production or use generates GHG emissions, with the aim of making polluting activities more expensive. In this way, they encourage businesses and consumers to reduce their carbon footprint. Taxes can be applied directly to emissions or the carbon content of fossil fuels, as well as indirectly through taxation on energy products or motor vehicles.

Policies to mitigate the effects of climate change can take the form of market-based (fiscal) and non-market-based instruments (such as regulations or information measures) that encourage behavioral change and lead to significant transformations in high-carbon sectors.

The climate tax is an environmental tax on activities, goods, or services that have a negative impact on the climate. This type of tax is specifically designed to encourage behavior that leads to a reduction in greenhouse gas (GHG) emissions. Tax categories considered climate-related include:

• Energy taxes – taxes on energy production and on energy products used for both transport and stationary purposes. They also include carbon dioxide (CO₂) taxes, which are levied on the carbon content of fossil fuels. Government revenues from emissions allowance auctions under the EU Emissions Trading Scheme (EU ETS) are considered a subset of CO₂ taxes.

• Transport taxes – taxes related to the ownership and use of motor vehicles, as well as taxes on other transport equipment and related transport services.

Energy taxes

Energy taxes are the main source of environmental tax revenue in the EU, accounting for around three-quarters of total revenue from this type of tax. They are levied on energy products used for both transport and stationary purposes. They also include taxes on the carbon content of fossil fuels (CO₂-related taxes) and revenues from emissions allowance auctions under the EU Emissions Trading System (EU ETS).

According to Eurostat data, energy tax revenues in the EU amounted to €261 billion in 2023. However, compared to other economic indicators, this amount represented only 1.5% of the EU’s gross domestic product (GDP) and 3.8% of total government revenue from taxes and social contributions in the same year. These figures were the lowest recorded since 2008, indicating that energy tax revenues have grown more slowly than GDP and other tax revenues in recent years.

In 2023, businesses contributed just over half of energy tax revenues (53%), while households accounted for 44%.

Between 2017 and 2023, carbon dioxide-related tax revenues in the EU increased significantly, according to recently published Eurostat data. A threefold increase in revenues was reported for this period – from €15 billion to €51 billion. Carbon taxes were levied on the carbon content of fossil fuels, and their share of total energy tax revenues has increased from 6.0% in 2017 to 19.7% in 2023.

In 2023, households contributed  44% in carbon taxes.

Transport taxes

Transport taxes are the second largest source of environmental tax revenue in the EU, accounting for just under 20% of the total. They consist mainly of taxes related to the ownership and use of motor vehicles. In 2023, transport tax revenues in the EU amounted to €64 billion, corresponding to 0.4% of the EU’s gross domestic product (GDP) and 0.9% of total government revenues from taxes and social contributions.

In the same year, households paid two-thirds of transport taxes (67%), while companies paid 32%. Among economic producers, the largest contribution came from companies in the services sector (including wholesale and retail trade), which accounted for 17% of total transport tax revenue. This was followed by companies in the transport and storage sector (6%) and the manufacturing sector (5%).

For further information: Eurostat