Europe's Electricity Costs Triple Gas Due to Taxation Disparity

The European Commission has unveiled its Electrification Action Plan, marking a crucial step towards bolstering the continent's energy independence and achieving its climate objectives. The plan highlights that a primary reason electricity is often three times more expensive than natural gas is the disproportionately high taxes and levies imposed on electricity. The Commission asserts that this taxation imbalance represents a significant barrier to electrification in energy-intensive sectors such as industry, transport, and buildings.

The Electrification Action Plan, announced by the European Commission on July 17, 2026, sets forth a vision to transform Europe into the "first electro-powered continent." The ambitious plan aims to increase the EU's electrification rate from the current 23% to an indicative 46% by 2040. To achieve this, it proposes empowering Member States to reduce network charges on electricity bills and lower taxes for specific consumer groups, particularly energy-intensive businesses. According to Eurelectric's 2023 data, electricity in Europe was taxed approximately 1.4 times more per unit of energy than natural gas. Analysis from Strategic Perspectives for the first half of 2025 indicates this ratio averages twice as high across the EU, soaring up to 14 times in some countries like Croatia. In major economies such as Germany and Italy, electricity taxes are reportedly three to five times higher than those on natural gas.

This tax disparity discourages consumers and businesses from transitioning to cleaner alternatives like heat pumps, electric vehicles, and electrified industrial processes. The Commission emphasizes that narrowing this price gap is key to making electricity more affordable, reducing overall energy system costs, and lessening reliance on fossil fuels. The plan also includes measures to lower the upfront costs of electrification technologies, such as faster deployment of smart meters, social leasing schemes, and leveraging EU Emissions Trading System (ETS) financial instruments, including the Social Climate Fund and the Industrial Decarbonisation Bank.

Accelerated electrification stands to deliver substantial benefits to the EU economy. The Commission projects potential annual savings of up to €260 billion on fossil fuel import bills by 2040. This would enhance Europe's energy security and resilience, while simultaneously offering lower energy prices for households and businesses and boosting overall competitiveness. With 70% of the EU's electricity now generated from domestic clean energy sources, increased electrification will further insulate Europe from volatile global commodity market fluctuations.

However, reforming the Energy Taxation Directive (ETD) presents significant political challenges, as it requires unanimous approval from all 27 Member States. Despite this, the plan encourages Member States to address the tax imbalance between electricity and natural gas. Energy Commissioner Dan Jørgensen stated that taxing electricity less than gas is a straightforward measure to reduce electricity bills. Analysts observe that Member States with lower electricity-to-gas price ratios already demonstrate up to three times higher heat pump sales, underscoring the critical role of tax reforms in achieving electrification goals.

Moving forward, the European Commission's proposals will be debated in the European Parliament and Council. The success of the plan hinges on Member States' willingness to harmonize tax regulations and their commitment to reducing fossil fuel dependency. These reforms have the potential to accelerate Europe's energy transition, fostering a more sustainable, secure, and competitive energy future. Reducing electricity costs, particularly for energy-intensive industries and households, will enhance the economic appeal of the green transition and play a pivotal role in achieving the EU's 2040 targets.