EU Rejects Italy's Request for Budget Flexibility on Fossil Fuel Tax Cuts

• The European Commission has published a rulebook outlining national energy measures that can escape EU deficit limits between 2026 and 2028.
• Fossil-fuel tax cuts or subsidies are explicitly excluded from budget flexibility, including income-based support for households and businesses.
• Italy's request for budget flexibility on this issue was rejected by the commission, which may limit the country's ability to implement such measures without breaching EU deficit limits.
• The commission's rulebook sets out a clear framework for national energy measures that can be funded flexibly, including subsidies for renewables and clean tech.

The commission's rulebook sets out which national energy measures can escape EU deficit limits between 2026 and 2028 and which cannot.

The European Commission has published a rulebook outlining the national energy measures that can escape EU deficit limits between 2026 and 2028. The guidance explicitly excludes fossil-fuel tax cuts or subsidies, including income-based support for households and businesses. This decision may limit Italy's ability to implement such measures without breaching EU deficit limits. Italy had requested budget flexibility on this issue, with Prime Minister Giorgia Meloni writing to Commission President Ursula von der Leyen in May that the EU should not prioritize financial flexibility for security and defence over energy. The commission's rulebook sets out which national energy measures can be funded flexibly, including subsidies for renewables, clean tech, home renovations, and industrial decarbonisation technologies.

Under normal budget rules, EU countries are required to keep their deficits below 3 percent of GDP. In March 2025, the EU issued guidance allowing countries to overspend on defence by 1.5 percent of GDP. Later, in June this year, the commission said some of that spending could be redirected for energy measures, up to a total of 0.6 percent until the end of 2028. The redirection of spending for energy measures was announced in response to the energy crisis caused by Iran's closure of the Strait of Hormuz after the US-Israeli attack in late February. The commission has warned that countries seeking to breach the 1.5 percent ceiling for added energy measures may need to make cuts in the future.

The EU's rejection of Italy's request for budget flexibility on fossil fuel tax cuts may limit the country's ability to implement such measures without breaching EU deficit limits. This decision has significant implications for lawyers advising clients in Italy and Greece, who should be aware of the EU's stance on this issue. The commission's rulebook sets out a clear framework for national energy measures that can be funded flexibly, but excludes fossil-fuel tax cuts or subsidies. As the EU continues to navigate the complex calculus of budget flexibility and energy spending rules, it is essential for stakeholders to understand the implications of these decisions.

Lawyers advising clients in Italy and Greece should be aware of the EU's rejection of their request for budget flexibility on fossil fuel tax cuts, which may limit their ability to implement such measures without breaching EU deficit limits.

Source: Original reporting via [Source Not Provided]