Energy taxation based on energy content and emissions
The Government proposes structural changes to energy taxes on fuel for transport and heat and power plants. Taxation will take account of the energy content, carbon dioxide emissions and emissions into the local environment that have adverse health effects.
Taxes on fuel for heat and power plants and energy taxes on electricity will be raised in connection with structural reforms, to help offset the tax revenue losses incurred by the abolition of the national pension contribution for employers. Tax adjustments for natural gas will take place in stages up to 2015, after which levies on natural gas would be lower than those for coal. A low, ascending energy tax for peat would be introduced in stages by 2015.
Carbon dioxide levies for fossil fuels used in combined electricity and heat production would be lowered by 50%. This is to avoid overlapping carbon dioxide steering and to improve competitiveness in combined electricity and heat production relative to separate heat production.
An energy content duty would be levied on fossil fuels and biofuels based on energy content, which would reduce the tax on ethanol. Among all transport fuels, this would lower levies on bioethanol. The weight of levies on carbon dioxide would be raised from their present level. Carbon dioxide reductions obtained using biofuels compared with fossil fuels would be taken into account in the carbon dioxide duties, providing an advantage for CO2 efficient biofuels. Biogas used for transport and heating would remain tax-exempt.
The changes in the taxation of fuel for transport would be made as neutrally as possible in terms of yield. The Government proposes no changes to the level of taxes on petrol. The proposed 8-cent tax increase in diesel from the beginning of 2012 would be taken into account by lowering taxes collected on the basis of driving power applied to passenger cars and lorries. Adjustments to driving power taxation for gas and electric passenger cars would be introduced later.
A system of quality gradation is proposed for transport fuels that create fewer emissions into the local environment that are harmful to health than other fuels. In the category of transport fuels the system would apply to XTL diesel. In the case of natural gas and biogas, the emission benefits to the local environment would be taken into account in terms of a lower level of taxes on driving power.
Sulphur-free light fuel oil used in heating and machinery would be taxed less than fuel that has sulphur in it. Lighter taxation of petrol used in small utility engines such as chain saws and lawnmowers aims to reduce the harmful effect on health of the exhaust emissions of small utility engines.
The energy tax refunds for agriculture would be raised to offset the rise in taxation in agriculture. In the same context, duties related to fuel refunds granted to greenhouse growers would be handed over from the customs authorities to the tax administration, where all other agricultural refunds are handled.
The energy tax for tall oil, levied as an excise duty, would be raised to correspond to that levied on heavy fuel oil.
Tax procedures for natural gas would be harmonised with other excise duties, so that taxes would be levied at the point when the gas is distributed for consumptionfrom the natural gas transmission network, replacing the existing import taxes.
Micro power stations would be fully exempt from levies on electricity.
Curbing climate change and enhancing environmental governance
The purpose in higher energy taxes and structural changes to the tax bases is to curb climate change and enhance environmental governance. The aim in raising the taxes is to encourage more energy saving and better energy efficiency. The tax increase in fossil fuels and peat will improve the competitive stance of renewable energy and promote its use. The tax structure would be objective, neutral in technical terms and would foster fuels and technological solutions that create fewer emissions.
Once all the changes have been introduced, it is estimated that central government tax revenue will grow by EUR 898 million annually. The amount of tax subsidies would increase in the same context by EUR 139 million, so that the changes would bring about EUR 759 million more tax receipts to central government in net terms.
The aim is to bring the legislation into force from the beginning of 2011. The tax increase in diesel oil would become effective from the beginning of 2012. The adjustments in levies on driving power would take full effect in the course of 2012 and 2013.
The proposal is connected to the budget proposal for 2011. Several of the proposed changes will require approval from the EU Commission in connection with State aid before they can be applied.
Inquiries: Mr Leo Parkkonen, Ministerial Adviser, tel. 358 9 160 33148 and Ms Merja Sandell, Senior Government Adviser, tel. 358 9 160 33061