The two tobacco giants Philip Morris International (PMI, owner of the iconic Marlboro brand) and British American Tobacco (BAT, owner of Lucky Strike) continue to battle for their share of the European market, including the fast-growing market for a variety of smoke-free products. At the same time, these industry giants are allying against the EU’s plans to tighten tax regulations.

Manufacturing and distributing e-cigarettes and heated tobacco products (HTPs) has been incentivized by generous taxation policies in the majority of member states, as well as elsewhere around the world. These so-called next generation products (NGPs), including oral products such as gums and nicotine pouches, are not covered by the current Tobacco Taxation Directive (TTD) of the EU. The directive dates back to 2011, when alternatives to ordinary cigarettes were yet to rise in popularity.

An expanding market

Smokeless products (which heat rather than combust the active substance, whether tobacco or liquid, in e-cigarettes) are still far from leading tobacco consumption. In 2021 they represented just 8 percent of the retail value (almost 100 billion euro) of all smoking products in the EU, according to Tobacco Intelligence statistics. Furthermore, they are also banned in a number of countries outside of Europe.

However, Big Tobacco has increasingly advertised these products as safer substitutes in order to claim tax benefits, maintain low prices and ramp up sales to compensate for the decline of increasingly taxed traditional cigarettes. In Western Europe (the world’s second largest market after Asia-Pacific), cigarettes lost another 0.2 percent in sales value between 2019 and 2020, while NGPs gained over 11 percent, according to Euromonitor statistics.

Europe as a whole represents one third of the global market of both HTPs and e-cigarettes. According to a survey released last February by the European Commission’s Eurobarometer, 57 and 25 percent of respondents said that they switched to e-cigarettes and HTPs respectively, in order to stop or reduce their tobacco consumption. Among these respondents, 37 and 39 percent believed that e-cigarettes and HTPs respectively are less harmful, while 23 and 14 percent considered them cheaper.

In order to avoid NGPs becoming a gateway to cigarette addiction (mainly among young people), the European Commission is considering controlling their circulation (as well as that of raw tobacco, also unregulated) through harmonised fiscal rules. At the same time, the Commission aims to approximate excise duties across product categories and countries. The TTD revision proposal is expected by the end of 2021, as part of the broader EU Beating Cancer Plan that health commissioner Stella Kyriakides announced in February, with the ambition to create a “Tobacco Free Generation” by 2040.

Lobbying for (un)healthier smoking

For many years PMI and BAT, along with their smaller cousin Japan Tobacco International, have fought to maintain the taxation status quo for both e-cigarettes and HTPs. A 2018 report by the European Commission delayed the extension of TTD’s to NGPs. Starting in 2019, other groups (including the European Smoking Tobacco Association as well as the German and French vaping associations) supported Big Tobacco’s claim that NGPs are designed exclusively to help adult smokers quit traditional cigarettes, rather than to attract new customers, and therefore they must remain affordable.

Industry influence is evidenced through the European Commission Health Department’s public records and FOI requests by the NGO Corporate Observatory Europe (CEO), which uncovered meetings and correspondence between lobbyists and taxation decision-makers. Such behind-the-scenes interaction co