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Fossil fuels still account for around 70% of the EU’s energy consumption, leaving it heavily dependent on imports and exposed to price shocks. In 2024 alone, the EU spent more than €375 billion on fossil fuel imports, while fossil fuel companies made €180 billion in taxable profits in the two years following Russia’s war of aggression against Ukraine. The profits of fossil fuel companies in the EU in 2022 exceeded €104 billion, a 45% increase from the previous year. They then fell by 21% in 2023, but remained significant at over €82 billion.
These profits coincided with higher energy prices for households and businesses.
Against this backdrop, a new study commissioned by T&E and CAN Europe shows that taxing fossil fuel company profits can play a key role in financing the energy transition while protecting consumers and workers.
A race to the bottom in corporate taxation
Over recent decades, corporate income tax (CIT) rates and tax bases have declined across most sectors, including downstream fossil fuel industries. Combined with generous exemptions and incentives, this has significantly reduced the effective tax rates paid by fossil fuel companies, even as profitability remained high.
While EU climate policy has focused on carbon pricing and green investment incentives (such as ETS, ETS2 and CBAM), company profits have largely escaped targeted environmental taxation. The 2022 EU solidarity contribution on fossil fuel windfall profits showed that a different approach is possible — but it remains the exception, not the rule.
Profit-based taxes are fairer and safer for consumers
The study finds that taxing fossil fuel profits or capital income is far less likely to be passed on to consumers than energy price increases, as:
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CITs are not a significant driver of energy or electricity prices:
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Only in exceptional cases, such as very low-margin, high-volume markets, price pass-through is likely.
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A legal ban on pass-through, as used in several countries under the solidarity contribution, can further protect households and businesses.
To ensure enforcement, the study recommends establishing a common EU methodology to monitor price pass-through, backed by effective sanctions.
Where energy prices remain high, governments already have tools, proven during the 2022–2023 energy crisis, to protect consumers. Revenues from fossil fuel profit taxes can strengthen these measures and support energy savings and electrification, reducing long-term dependence on fossil fuels from petrostates.
Limited risks for workers with the right safeguards
Some studies suggest that part of a CIT increase can be passed on to workers. However, the fossil fuel sector’s high profit margins make this less likely than in low-margin industries. That said, the phase-out of fossil fuels will inevitably affect workers, regardless of taxation.
The study stresses that strong flanking social measures are essential to ensure a just transition, namely protecting incomes, jobs and working conditions while supporting workers into new, future-proof sectors.
Steering investment away from fossil fuels
Claims that lower corporate taxes are essential for investment and growth are not strongly supported by evidence. In reality, oil and gas companies have continued to invest overwhelmingly in fossil fuel projects, while cutting back on low-carbon investment targets.
A well-designed tax on fossil fuel profits — potentially combined with tax deductions for renewable energy and storage investments — would send a clear signal to investors, discouraging continued fossil fuel expansion and helping redirect capital towards clean energy. This would strengthen Europe’s energy security, economic resilience and climate goals.
Policy recommendations
To ensure fossil fuel taxation is effective, fair and coordinated across Europe, the study outlines the following recommendations:
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1
Introduce a differentiated corporate tax framework for fossil fuel companies, building on the experience of the 2022 EU solidarity contribution, to reverse the long-term decline in effective corporate taxation in the sector.
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2
Prioritise profit-based taxation to complement existing consumption-based carbon pricing when raising revenue from fossil fuels, as the risk of pass-through of taxes on corporate profits and capital income on to consumers are minimal.
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3
Extend and institutionalise taxation of fossil fuel windfall and excess profits, moving beyond one-off or temporary measures towards a more stable and predictable fiscal approach. An EU Regulation would ideally be needed to ensure the coordinated introduction of such a tax in all Member States. This would reduce the scope for aggressive tax planning and tax avoidance (profit shifting) within the EU.
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4
Explicitly prohibit the pass-through of fossil fuel profit taxes to consumers (households and businesses) in the legal design of any new tax. Establish a common EU-level methodology to monitor price pass-through, enabling effective enforcement of pass-through bans and the application of sanctions where violations occur.
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5
Ensure strong flanking measures for workers in the fossil fuel sector, so that the transition encouraged by higher taxation does not affect income, employment or working conditions. These measures include social conditionalities in public aid to companies to incentivise the creation and protection of quality jobs in the EU; a Just Transition Directive to anticipate and manage changes for workers in the fossil fuel industry; and full implementation of the Adequate Minimum Wage Directive target of collective bargaining coverage of 80%, including in new emerging green sectors.
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6
To avoid profit shifting and tax abuses, put an obligation on fossil fuel companies to report their taxes on a public country-by-country reporting basis. The threshold for fossil fuel companies to report on their tax payments should be lower than the current €750 million consolidated group revenue, and made public to all jurisdictions (as opposed to only EU jurisdictions and named harmful tax jurisdictions under the EU country-by-country reporting Directive).
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7
Recycle revenues from fossil fuel profit taxes into the energy transition, including: Support targeted consumer protection measures to guarantee vulnerable households and firms the right to energy, for renewable energy deployment, energy efficiency improvements, and reduction of fossil fuel dependence in heating, cooling, and transport, and for international climate finance.
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8
Use fossil fuel profit taxation as a structural signal to investors, discouraging continued investment in fossil fuel activities while allowing space for incentives that support genuine investments in renewable energy and related storage capacity.
