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Greece – EHS Candidate for Reform

Excise tax exemption on the use of natural gas

The tax exemption aims to support the use of natural gas as engine fuel in the transport sector. A zero-excise tax rate is applied to natural gas compared to the standard tax rate of 42 cents per MWh. The subsidy makes natural gas cheaper and reduces the incentive to use gas more efficiently. It also lowers production costs in benefiting sectors. Similar subsidies exist in Belgium, Bulgaria, Czech Republic, Finland, France, Germany, Hungary, Ireland, Lithuania, Luxembourg, Poland, Spain and Sweden.

The budget impact of the subsidy was EUR 2.2 million in 2020. If the tax exemption were abolished, the price of natural gas in the transport sector would increase by 13.6%, causing a decrease in demand by 2.7%.

© Markus Winkler / Unsplash

Depending on the alternative, the use of more gas can lead to higher or lower environmental impacts like CO2 emissions, air pollution and resource use. For example, if the alternative is less polluting or natural gas is used more efficiently, abolishing the subsidy would decrease the CO2 emissions by 2.7% or 1,268 tonnes per year. But if the user chooses a more polluting alternative, it may cause even more emissions.

The subsidy was first introduced in 2001 and has not undergone significant reform. The 2021 Recovery and Resilience Plan of Greece confirms that the Greek government aims to phase out the use of fossil fuels, which represent 97% of energy use in the transport sector. In the previous year, Greece specified in its “Strategic directions of the National Recovery and Resilience Plan” that it plans to make investments that allow the green transition by substituting fossil fuel products through the expansion of natural gas grids. Greece’s strategy to increase its natural gas use to phase out the use of coal for energy appears to stand in the way of phasing out this subsidy, particularly considering the low share of energy from renewable sources in Greece. There is an opportunity to phase out this subsidy as renewable energies become more mainstream and utilised in the country. Also, Greece’s investment in natural gas as a fuel is a strategy for the medium term to cover the baseload demand. A newly constructed gas infrastructure can later be used for the production of hydrogen energy and low carbon and renewable gases in the future.

More information on the excise tax exemption on the use of natural gas and other candidates for reform in Greece and other Member States can be found in the country case studies and factsheets compilation.