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Despite the essential role of environmental taxation for the transition to a greener economy, the share of environmental taxes in total revenues from taxes and social contributions in the European Union decreased. This share fell from 6.0% in 2010 to 4.8% in 2022, which may increase by 2030 as a result of the plans to increase the ambition and scope of EU emissions trading. However, this is relatively uncertain because increased revenues from emission trading schemes may be offset by decreased revenues from energy taxation as future greenhouse gas emissions reductions erode the tax base.
Figure 1. Environmental tax revenues in the EU-27: in absolute numbers and as a share of total tax revenues including social contribution (TSC), 2010-2022
Environmental taxes encourage producers and consumers to pollute less and use resources more sustainably. Making polluters pay is at the core of EU environmental policy . Both the 8th Environment Action Programme and the European Green Deal acknowledge that environmental taxation is crucial for driving the transition to a greener, more sustainable economy.
Despite this, the share of total tax revenue accounted for by environmental taxes fell from 6.0% in 2010 to 4.8% in 2022. This lack of progress is mainly attributed to the social and economic difficulties that countries can face in maintaining or increasing environmental taxes, which can increase the cost of necessary goods such as food and energy.
The decline in environmental tax revenue in 2020 can be attributed to restrictions (e.g. on transport) related to the COVID-19 pandemic. Environmental tax revenue increased again in 2021 to EUR 330 billion, yet dropped in 2022 to EUR 317 billion. In real terms, revenues declined from EUR 284 billion to EUR 260 billion from 2021 to 2022 (2010 prices). This decrease was driven by several factors. For example, 12 EU Member States reduced excise taxes on petrol and diesel due to the increase in energy prices caused by the war in Ukraine.
Energy and transport taxes combined accounted for 96% of total environmental tax revenue in 2022. Energy taxes, including revenue from the EU Emissions Trading System (EU ETS), accounted for 77%, transport taxes for 19%, and pollution and resource tax revenues for 4%. It is uncertain whether environmental taxes will account for a larger share of total tax revenue by 2030.
Changes as part of the Fit for 55 policy package are expected to increase EU ETS revenue, as sectors already covered by the EU ETS will have more ambitious greenhouse gas (GHG) emission reduction targets and new sectors (road transport, heating of buildings, fuel use in certain industrial sectors) will be included in a new EU ETS . However, this revenue is expected to reach a peak and then decline as more stringent GHG emission reduction requirements are introduced and drive down emissions.
Technological breakthroughs in the energy and transport sectors are expected to further drive the EU’s transition to a low-carbon, green economy. The resulting erosion of the environmental tax base will make it difficult to increase environmental tax revenue during the 2030s.
Research and analysis suggest that environmental taxation schemes are more likely to succeed, with minimal negative economic and social impacts, if they are carefully planned and based on widespread consultation. This should be considered when devising environmental taxation strategies for the coming years.
Figure 2. Revenue from environmental taxes as a share (%) of total tax revenue, including social security contributions, by EU Member State, 2010 and 2022
Trends in the share of total tax revenue accounted for by environmental taxes vary across the Member States. Between 2010 and 2022, this share increased in only two Member States (Bulgaria and Greece). The largest increase, from 7.7% to 13%, occurred in Greece. The share declined in the remaining 25 Member States with the largest fall between 2010 and 2022 in Ireland (4.6%) followed by the Netherlands (3.6%). The lowest share was reported for Sweden with 2.9% in 2022.