Carbon quota tax and transaction fee – where do we stand now and what can be expected?
In July 2023, two new payment obligations were introduced in Hungary: the carbon quota tax and the transaction fee. These obligations apply to operators of installations that receive significant free allocation of emission allowances, which in practice typically affects entities in the cement, fertilizer, glass, steel, and chemical industries. The purpose of this newsletter is to provide a brief overview of the current status of the regulation and the expected developments in light of the ongoing infringement and court proceedings.
I. Regulatory Background
The carbon dioxide quota tax and transaction fee essentially concern the requirement that certain industrial actors, who reach a specified amount of carbon dioxide emissions within a given period (and who also receive carbon dioxide quotas), must pay a carbon dioxide quota tax. Furthermore, if these market participants also trade the carbon dioxide quotas they receive, they are additionally obliged to pay a transaction fee on this trading activity.
Following their introduction in July 2023, the regulatory framework of the carbon quota tax and the transaction fee changed relatively quickly. From October 2023, the relevant average emission threshold for determining tax liability increased from the original 10,000 tonnes to 25,000 tonnes, while the tax rate decreased from 40 EUR/tonne to 36 EUR/tonne. At the same time, the transaction fee rate also changed, increasing from 10% to 15%.
A significant development in the regulatory framework is that these obligations were originally included in Government Decree 320/2023 (VII. 17.) on emergency rules applicable to operators receiving significant free allocation of emission allowances. However, in July 2025, the legislator elevated these rules to the level of statutory law. As a result, the relevant rules can now be found in Act L of 2025 on the incorporation into statutory law of certain emergency decrees issued due to the armed conflict in Ukraine.
II. Infringement Proceedings and Proceedings Before the Court of Justice of the EU
In June 2025, the European Commission initiated infringement proceedings against Hungary and called on the country to abolish the burdens imposed on operators receiving free emission allowances under the EU Emissions Trading System (ETS). The Commission’s argument is essentially based on the view that the Hungarian rules are incompatible with the purpose of the EU ETS Directive, as they impose charges on entities receiving a significant amount of free allocation, using annual emissions and free allocation shares as the basis for determining the scope of affected operators.
Infringement proceedings generally consist of three stages:
- Letter of formal notice
- Reasoned opinion
- Referral to the Court of Justice
To the best of our knowledge, no substantial progress has occurred since the letter of formal notice was issued. However, if a Member State fails to act as requested by the Commission and the case is brought before the Court of Justice, the judicial phase may last 1–2 years.
The situation is further affected by a parallel case currently pending before the Court of Justice of the EU, in which the Advocate General delivered an opinion in autumn 2025. In that opinion, the Advocate General concluded that the Hungarian rules establishing the carbon quota tax and the transaction fee are incompatible with EU law. The next step in the judicial process is the Court’s judgment, which—based on past experience—is expected to be issued before the summer. It remains to be seen whether the Court will follow the reasoning and conclusion set out in the Advocate General’s opinion.
III. Possible Next Steps
As the above suggests, a key decision for affected market participants is expected in the near future. Should the Court find the Hungarian regulation to be contrary to EU law, operators may become entitled to reclaim previously paid carbon quota tax and transaction fees—potentially together with interest.
In light of the anticipated decision, it may be advisable for all taxpayers affected by these obligations to review the potential refund options and the procedural steps involved, and to prepare in advance for the Court’s ruling by selecting the appropriate procedural route.
If the possibility of reclaiming previously paid carbon quota tax and transaction fees may be relevant for your organisation, please feel free to contact our experienced specialists, who are happy to provide support on the matters outlined above.
