European energy bills tax component: Determining the proportions of tax paid within the total cost
Diverse Tax Policies on Energy Bills Across European Countries
Energy bills continue to be a heavy burden for households, particularly low-income families, due to rising prices following Russia's invasion of Ukraine. Despite a recent stabilization of energy costs, taxes still contribute significantly to European households' gas and electricity bills.
According to the Household Energy Price Index (HEPI), compiled by Energie-Control Austria, MEKH, and VaasaETT, taxes make up a substantial portion of energy costs in various European capitals. The average share of total taxes in household electricity prices across EU capitals was 22% in April 2024, comprised of 8% energy taxes and 14% VAT. The tax share varied significantly across cities, with Amsterdam exhibiting a negative tax share of -26%, while Copenhagen had the highest tax share at 49%.
While Amsterdam and Luxembourg City record negative tax shares, some cities, including Copenhagen, Stockholm, Brussels, Berlin, Oslo, Madrid, Helsinki, and Paris, have tax shares exceeding 30%. In contrast, Valletta, Nicosia, Dublin, and several other cities have tax shares of 11% or less.
The disparities in taxation can be attributed to national policies, environmental plans, and varying market structures. For instance, Denmark utilizes high energy taxes to promote the green energy transition, subsidizing renewable energy systems (RES) investment and encouraging energy efficiency, making the country a leader in wind energy.
In Amsterdam, consumers pay the highest taxes on natural gas in Europe, as part of a national climate policy aimed at reducing gas consumption. At the same time, households receive a substantial tax rebate on their electricity bills to incentivize a shift away from gas heating and promote electrification.
It is essential to differentiate between the share of taxes in energy bills and the actual amount paid when comparing cities or countries. For example, even though the tax share for electricity is 21% in both Rome and Budapest, the net cost for consumers varies significantly due to differences in underlying energy prices.
Overall, the share of taxes, VAT, and levies on household energy bills across Europe ranges from substantial positive percentages (up to almost 50% in Denmark) to negative values in countries offering subsidies (like Luxembourg and the Netherlands). Denmark has the highest total taxes on electricity, while countries such as Luxembourg and the Netherlands have the lowest or even negative total taxes due to subsidies.
- Despite differences in taxation across European countries, some nations, like Denmark, implement high energy taxes to fund renewable energy initiatives, positioning themselves as leaders in the green energy sector.
- In Amsterdam, an aspect of national climate policy involves higher taxes on natural gas, aiming to decrease gas consumption, while simultaneously providing substantial tax rebates on electricity bills to encourage a shift towards electrification.
- Interestingly, while Poland and Hungary have high tax shares (20% and 19% respectively) on their household energy bills, their net costs for consumers are less compared to cities like Rome or Budapest due to lower underlying energy prices.
