EU member states aim to complete a revision of the Energy Taxation Directive in November after stalling for years, according to Brussels-based officials, but most of the shipping and aviation sectors could be exempted from excise duties for another 10 years.

In 2021, the European Commission proposed ETD reforms that included ending a tax holiday for aviation and marine fuels and setting new excise duties based on a fuel's greenhouse gas emissions intensity as part of the Fit-for-55 climate policy package to cut the bloc's GHG by 55% by the end of this decade.

The revision requires unanimous support from member states and negotiations have been slow. So the Danish government, which currently holds the presidency, has scaled down the reforms in a bid to reach a compromise, some officials told Platts, part of S&P Global Commodity Insights.

An EU official confirmed that, based on the draft being discussed, small aircraft and private leisure boats would face excise duties, but commercial aviation and shipping could continue to be exempted until 2035.

Member states would still be allowed to impose excise duties on energy used in domestic air and maritime traffic and international flows via bilateral agreements before carrying out a review to determine a post-2035 tax regime.

While the draft proposal could provide financial relief to airlines, shipping companies, and fuel suppliers, doubts have arisen over its decarbonization effects, as most jet fuel and bunker use would still not be taxed regardless of their GHG intensity.

Road fuels, which have not been exempted, could be taxed based on their emissions intensity, but the sector generally relies on electricity for decarbonization rather than low-carbon fuel propulsion.

"It's ridiculous, what the proposal is ... we would rather no deal than this deal," said Diane Vitry, aviation director of nonprofit Transport & Environment. "It's still making fossil kerosene artificially cheap, and the alternatives like sustainable aviation fuels ... remain much, much more expensive, which means it's just slowing the transition."

Aviation decarbonization

The potential commercial aviation exemption comes at a time when airlines have been deterred from making cleaner fuel choices by huge cost differentials for SAF. Platts, part of Commodity Insights, assessed SAF (HEFA-SPK) on a CIF basis at Rotterdam at $2,744.25/mt Sept. 9, 285% above jet fuel.

Analysts warn that SAF economics will remain challenging as EU consumption mandates support higher demand while new facilities face cautious investor sentiment, keeping European supplies tight.

Under the terms of ReFuel EU Aviation, 2% of aviation fuel supplied in the EU must be SAF from the start of 2025 until 2030, when it jumps to 6%. The share then grows at intervals to 70% SAF in 2050.

According to recent forecasts from S&P Global Commodity Insights analysts, European SAF consumption is set to grow to 33,000 b/d in 2026, exceeding some 22,000 b/d produced within the bloc and accounting for 45% of world production. The same year, conventional jet fuel is expected to account for the bulk of aviation demand, and is expected to average some 1.6 million b/d.

Negotiation process

According to the EC's initial proposal, which did not cover traffic flows to and from the EU, excise duties of at least Eur10.75/Gigajoule ($12.6/Gj) would be imposed on jet/kerosene and gasoil consumption, Eur7.17/Gj on gas, Eur5.38/Gj on biofuels and biogas, and Eur0.15/Gj on low-carbon fuels for intra-EU trades.

The proposal aimed to reduce the price gap between fossil and green fuels. July's average delivered bunker price for 0.1%-sulfur marine gasoil was $20.16/Gj in Rotterdam for intra-EU trades when the EU Emissions Trading System was taken into consideration, compared with $17.94/Gj for LNG, $37.71/Gj for bio-LNG, and $60.84/Gj for low-carbon methanol, according to Platts calculations.

EU member states could reach a political agreement over the watered-down proposal during a finance ministers' meeting in November. However, European shipowners are pushing for the tax exemption to be extended until 2040 and to cover electricity.

"The current proposal also makes the exemption voluntary for member states for non-international routes," a lobbyist said. "This is a major concern, and we would like to see the exemption being mandatory for both international and non-international traffic."