How to think about electricity tax cuts: Electrification and fiscal impacts in selected EU member states

Alongside its Electrification Action Plan, the European Commission proposed that member states tax electricity no more heavily than gas. This paper assesses how cutting electricity taxes to that level, or to the EU minimum, affects bills, electrification incentives and public budgets. Only about a third of EU member states tax electricity more than gas, so the Commission's proposed parity rule would only affect these countries. An in-depth analysis of seven member states shows that the effects of a cut vary widely. Electricity taxes account for around 0.5 to 14 percent of electricity prices for a typical family household in the sample, so a cut noticeably lowers bills only where that share is high. Relief goes mainly to households and smaller businesses that do not yet benefit from exemptions. It strengthens electrification incentives only where the electricity-to-gas price ratio is also high. For the public budget, revenue losses dominate at first, but electrification can improve the fiscal balance over time through lower exposure to fossil fuel price shocks and avoided climate damages. Targeted cuts can deliver electrification benefits at a lower fiscal cost than a general cut and are already possible, but legal reforms to simplify their use would be desirable.