Iran war sparks EU proposal to reduce tax on electricity and encourage green transition

Published on 16/04/2026 - 7:02 GMT+2

Electricity taxes could be slashed under a new EU proposal to offset the impact of the Iran war on energy prices.

A draft European Commission proposal, due to be published on 22 April, outlines measures to curb energy bills, news agency Reuters reports.

It is also expected to include plans for reducing the EU’s fossil fuel dependency to better shield member states from energy shocks.

“We are paying a very high price for our over-dependency on fossil fuels,” European Commission President Ursula von der Leyen said this week, as oil prices once again rose above $100 a barrel.

European natural gas prices are up more than 70 per cent since the start of the conflict, with the Strait of Hormuz – through which around 20 per cent of global oil flows – effectively closed.

Because wholesale electricity prices across Europe are still largely determined by the cost of gas-fired power, the surge in gas prices since the start of the conflict has fed directly into electricity bills.

“The grim reality for our continent is fossil fuel energy will remain the most expensive option in years to come,” said von der Leyen.

The gap between electricity and fossil fuel prices

Currently, taxes on electricity are far higher than on fossil fuels in most European countries, despite the climate impact of oil and gas.

According to Eurostat, the average EU household electricity price stood at around €0.29 per kWh in early 2025, while household gas prices averaged just €0.11 per kWh – meaning electricity cost roughly two and a half times more per unit. Last year, almost 28 per cent of the average European consumer’s electricity bill went on taxes and levies.

This gap is not accidental. In part, electricity taxes are high as governments use them to fund renewable energy and environmental policies. Historically, lower gas prices also aimed to keep fossil fuel-dependent heating and transport affordable.

But with these sectors becoming increasingly electrified, critics say it is actively discouraging the switch to cleaner energy.

Lower electricity taxes are key to the green transition

The European Commission has argued that lowering electricity taxes is key to encouraging a shift from fossil fuels. Yet EU rules on electricity taxes haven't changed since 2003, and attempts to amend them have repeatedly stalled. In November 2025, a tax reform proposal failed to gain the required unanimous support of member states.

From next month, the Commission will reportedly propose legal changes to EU taxation rules to make tax on electricity lower than that of oil and gas.

To make up for shortfalls if these changes come into force, experts have called for a windfall tax on fossil fuel profits, which have surged since the onset of the Iran war.

This is something the European Commission has already signalled support for – and such a tax was temporarily introduced to combat the energy crisis caused by Russia’s invasion of Ukraine.

The upcoming proposal is set to build on and accelerate the EU’s Affordable Energy Action Plan, which aims to encourage electrification by lowering taxes, while expanding renewables and improving grids.

The Commission is reportedly planning to propose a binding electrification target before summer.