In its judgment of 16 October 2025 (C‑391/23), the EU Court of Justice has ruled on a tax of 80% on the income from the sale of electricity above a legally fixed price. The Court found that the imposition of the tax on producers of electricity from renewable sources, and the exemption for producers of electricity from fossil fuels, was not contrary to Directive 2019/944 (“Electricity Directive”) and the climate-neutrality objective enshrined in Regulation 2021/1119 (“European Climate Law”).
Facts of the case
The case concerns a dispute in which Brăila Winds, a Romanian company producing electricity from wind power sources, contested the imposition of an income tax of 80% on its income resulting from the difference between the average monthly selling price of its electricity and a legally set threshold during the winter of 2021-2022. Producers of electricity from fossil fuels and from biomass, however, were (partly) exempt from this tax. Over this period, Brăila Winds paid over 2,3 million EUR in taxes.
The case ended up before the Bucharest Court of Appeal, which referred prejudicial questions to the Court of Justice on the compatibility of the tax with State aid rules, Free Movement principles, the Electricity Directive and the European objective of achieving climate neutrality by 2050.
Findings of the Court of Justice
With regard to the admissibility of the prejudicial questions on State aid and the Free Movement Principles
The Court finds that the referring court has not provided the information necessary to give a useful answer to the question whether the exemption for producers of electricity from fossil fuels confers a selective advantage to these undertakings, and thus would give rise to State aid. Therefore, the first question is found inadmissible.
In similar vein, the Court finds the prejudicial question whether the income tax restricts the freedom of establishment (Article 49 TFEU) and the freedom to provide services (Article 56 TFEU) inadmissible. According to the Court, the fact that the parent company of Brăila Winds is established in France, is not sufficient to justify a prejudicial question on the restriction of its free movement as the referring court has not explained how the tax would impact that company that is not party to the proceedings. Moreover, the income tax applies without distinction to Romanian undertakings and to those of other Member States, leading to the finding of the Court that the dispute must be regarded as a situation which is confined in all respects within a single Member State.
With regard to the compatibility with the Electricity Directive
The Court of Appeal asked the Court whether the income tax could be regarded as a measure equivalent to the fixing of the selling price of electricity that would be contrary to the Electricity Directive. On the outset, the Court recalls that the Electricity Directive is aimed at the creation of a competitive market for electricity, with affordable and transparent energy prices and costs for consumers. The income tax, however, has a budgetary objective and is not intended to regulate the supply of electricity or to ensure the protection of consumers or that of free competition. The Court further deems the possible effect on selling prices of the tax to be remote and uncertain, since the tax is limited to reducing the profits which producers may derive from their sales. Therefore, the Electricity Directive does not preclude a measure such as the income tax at issue.
With regard to the compatibility with general environmental principles and the European Climate Law
First, the Court recalls that, in as far as the Court of Appeal refers to the European objectives to achieve climate neutrality by 2050 in the Green Deal, the Green Deal is a communication which has no binding effect. Therefore, the Court analyses whether the imposition of an income tax on producers of energy from renewable sources of which producers of electricity from fossil fuels are exempt, should be considered contrary to general environmental objectives of the EU enshrined in Article 191(2) TFEU and the European Climate Law.
Subsequently, the Court finds that principles such as “the polluter pays” and the precautionary principle found in Article 191(2) are directed to the EU legislature and cannot be relied on by individuals in a situation that is not covered by EU legislation that puts these principle in practice. Therefore, these environmental objectives are not applicable to the dispute.
Finally, the Court confirms that the European Climate Law set out a binding climate-neutrality objective at EU level and imposes on Member States to establish an overall strategy and take the necessary measures in order to achieve the objective. A specific measure, however, such as the income tax and the exemption at issue, must be assessed in the light of all circumstances of the situation of which it forms part and of all measures taken by the Member State aimed at the achievement of the climate-neutrality objective at EU level.
Having regard to the fact that the income tax is limited in time and does not appear to be capable of having a significant effect on greenhouse gas emission, according to the Court, the legislation does not appear capable in itself of having a decisive influence on the achievement of the climate-neutrality objective at EU level.
Final remarks
In the judgment at issue, the Court clarified the scope of the climate-neutrality objective assigned collectively to the EU and the Member States. Although there is no doubt that climate neutrality must be achieved by 2050, the Court holds that the European Climate Law does not preclude the adoption of certain measures that run counter to this objective.
Indeed, the obligation to collectively achieve climate neutrality at EU level requires an overall strategy. A single measure that may adversely affect the objective is therefore not automatically regarded as a make-or-break measure, leaving leeway to Member States. Yet, it does not seem correct to consider the judgment at issue as a principle approval of national (tax) measures that favour or “spare” fossil fuel producers. On the contrary, the Court made clear that the European Climate Law did not preclude the tax exemption due to the limited duration and the limited effect on greenhouse gas emissions of this specific income tax.