Brussels shuts door on fossil fuel tax breaks in budget flexibility plan

The guidance, published in the EU’s Official Journal on 18 August, clarifies that while governments may breach standard 3 percent GDP deficit limits to fund clean energy transitions, they cannot apply this flexibility to broad household or business energy relief. This restriction directly impacts Rome, which has consistently lobbied for exemptions to sustain its fuel-excise discounts. Prime Minister Giorgia Meloni had previously argued that if the EU permits deficit flexibility for defense, it must extend the same courtesy to energy security.

The framework allows for a total of 0.6 percent of GDP in energy-related spending flexibility until the end of 2028. However, the commission’s criteria are strict: only nationally financed measures decided after 28 February 2026 qualify. This timeline effectively disqualifies the initial wave of emergency subsidies introduced early in the current energy crisis. Italy’s economy minister, Giancarlo Giorgetti, recently confirmed the country will pursue the maximum 0.6 percent allowance for nuclear investment and grid modernization, while opting to fund its ongoing diesel excise discounts through internal ministry budget cuts instead.

Monitoring compliance will prove administratively heavy. Unlike defense spending, which features clear, distinct lines in national accounts, energy measures lack a unified category. Member states must compile and submit requests to the commission twice annually. Final approval for these deficit derogations rests with the EU Council, where finance ministers are expected to evaluate the first round of applications this October.