Excise duty on natural gas: recent judgements of the Spanish Supreme Court
The Spanish Supreme Court has declared in several recent judgments published from December 2025 onwards that natural gas used in cogeneration is exempt from excise duties regarding the provisions of Article 14.1 a) of Directive 2003/96, and that the suppression of the exemption by the Spanish government during the period 1 January 2013- 7 October 2018 was not linked to environmental reasons, not being consequently legally valid.
These rulings complete the doctrine maintained by the Spanish Supreme Court on the use of biogas to produce electricity, a matter on which the Court had already declared, starting with its judgment of 23 March 2021 (number 1132/2021), that the exemption regulated in Article 14.1(a) of Directive 2003/96 and relating to the production of electricity was directly applicable, and that the Spanish State could not invoke the exception provided for in that article to tax the product for environmental reasons, since biogas was not a fossil fuel. This doctrine was based on the judgment of 7 March 2018, Case C-31/17, Cristal Union, of the Court of Justice of the European Union.
In the case of natural gas intended for cogeneration, the Spanish Supreme Court, having regard to the mentioned judgment of the Court of Justice and supplementing it with the judgment of the same Court of 22 June 2023, case C-833/21, Endesa, concludes that this product, provided it is intended for cogeneration, must also be exempt by direct application of article 14.1 a) of Directive 2023/96, a rule that takes precedence over the national one, since such a system of electricity and heat production has environmental benefits, contrary to what was alleged by the Spanish government, which could not argue the elimination of the exemption for this reason.
While it is true that natural gas, unlike biogas, is a fossil fuel, the Supreme Court, in reaching its conclusions, takes into account that in this case, the product is used in an activity—the cogeneration of electricity and heat—whose main purpose is energy efficiency. In this regard, it points out that while conventional power plants have low efficiency because the generated heat is wasted, cogeneration systems recover the heat that is normally lost in electricity generation to produce useful thermal energy. Therefore, cogeneration is more efficient than conventional electricity generation and produces lower greenhouse gas emissions.
Considering that the natural gas used in cogeneration has environmental benefits, the Spanish Supreme Court follows the interpretation given by the Court of Justice of the EU in its judgment of 22 June 2023, Endesa, regarding the concept of “environmental reasons,” which Member States may invoke to avoid applying the tax exemption established in Article 14 of Directive 2003/96. In this respect, the Court of Justice refers to the two possibilities for considering the existence of “environmental reasons”: First, that the revenue derived from the tax is directly linked to the achievement of a specific objective, in this case, environmental policy. Second, even if the first condition is not met, the tax is designed, with regard to its structure and, in particular, its object or the tax rate, in such a way as to influence taxpayers' behavior by significantly taxing the products in question in order to discourage their consumption.
In view of the above, the Supreme Court concludes that in the case under analysis, the tax revenue is not earmarked for an environmental purpose, and that the structure of the special tax is general in nature, without the different tax rates applied corresponding to a clearly environmental objective.
This criterion of the Supreme Court, which has been reiterated in recent judgments published in December 2025 and January 2026, is of great importance as it obliges lower courts to apply it in all pending litigation on the same matter.
