Russia’s invasion of Ukraine has pushed fuel prices to recent highs. To appease drivers at the pump, half of EU Member States (14 of 27 – see our Fuel Duty Tracker) have reacted by cutting fuel taxes. This study analyses the cost of these measures to public finances and explores other ways to raise revenue and help low-income families through the energy crisis.
While this policy approach has a simplistic appeal, it also generates perverse environmental incentives and inequitable social outcomes as the rich use eight times more fuel than the poor and oil companies will adjust their prices to take a share of the tax cut.
It is also an extremely expensive approach, already totalling nearly €9 billion in Member State commitments – an amount that may continue to rise if more Member States announce similar measures or if the temporary reductions are prolonged.
We call on EU member states to:
- Reverse the excise duty cuts, and at the very least declare that the cuts will not be renewed.
- Introduce a tariff on Russian oil imports. This could generate up to €27 billion in revenues.
- Design income support measures (e.g. consumption cheques, reduced labour taxes) focused on low and middle class families that do not incentivise oil use and car driving.
- Support citizens’ efforts to reduce fuel use by cutting public transport fares, making homeworking a right, and reviewing speed limits (e.g. limiting truck speed to 80km/h).
- Coordinate decisions on national fuel taxes to prevent a race to the bottom.
These recommendations provide a more equitable distribution of financial benefits by helping the poor as much as the rich and a more just means of public financing by taxing Russian oil imports. These recommendations would also avoid the perverse environmental and health impacts that arise from subsidising fuel and would move us closer towards a Europe free of Russian oil and free from fossil fuels altogether.