Hungary: the tax on beneficiaries of free allowances ruled contrary to the EU ETS Directive (CJEU)

The tax on CO2 emission allowances imposed in 2023 by Hungary on operators benefiting from large allocations of greenhouse gas emission allowances free of charge, is deemed contrary to the ETS Directive by the Court of Justice of the EU, in a ruling handed down on 16/04/2026.

Because of the war in Ukraine, Hungary imposed a tax of €36 per tonne of annual emissions, which was contested by Nitrogénművek, a company active in the fertiliser production sector.

According to the Court, this national regulation "neutralises the compensatory effect of the CO2 emission allowances allocated free of charge"

It also points out that the allocation of free emission allowances "is intended to prevent a loss of competitiveness on the part of the Union's industries and 'carbon leakage'", i.e. the relocation of production.

The Court added that "in order to minimise distortions of competition, the rules on the allocation of free allowances are fully harmonised at EU level on a sectoral basis. Member States may adopt measures of a fiscal nature likely to influence the economic implications of allowances"…