Green overhaul of Swedish fuel and vehicle taxation

Green overhaul of Swedish fuel and vehicle taxation

11 April 2017

Magnus Nilsson

The Swedish red/green government has announced sweeping reforms of both fuel and vehicle taxation. The proposals have been developed in order to reach a newly adopted target of reducing transport CO2 emissions in Sweden 2005–2030 by 70 per cent.

a/ From 1 July  2018 a CO2 emission-based biofuels mandate will replace the present tax exemption for low blend biofuels. From that date at least 19.3% of the energy content in diesel has to come from biofuels, 2.4 % in petrol. This basically reflects the already existing situation, so in the short term the reform will have hardly any impact on either sales or emissions. The long-term impact might be drastic though, since the intention is to gradually raise the mandate. From 2021 the diesel mandate will be 21.0% and the petrol one 4.2%, and the intention is to reach 40% by 2030. The switch means that the famous Swedish CO2 tax will lose its role as the governing tool within the transport sector. Instead, equal tax rates will apply on the fossil and renewable content of the fuel, signifying a sharp hike for biofuels and a minor cut for fossil fuels. The policy beyond 2021 is unclear as it is strongly dependent on the outcome of the ongoing negotiations on the revision of the EU Renewable Energy Directive.

b/ In parallel, vehicle taxation will change. Since there is no sales or registration tax in Sweden, other tools are used to impact the fuel use in new cars. The annual vehicle tax is already related to the certified CO2 emissions value, but this link will be substantially strengthened from 2018. New vehicles emitting more than 95 g CO2 per km will pay a tax of 77 SEK (~8€) per gram CO2 above 95 g during the first three years after registration. That tax increases to 100 SEK per gram above 140 g CO2 per km. After the three years the tax will go down to 22 SEK per g CO2, which is the level paid by new cars emitting less than 95 g per km. At the other end of the scale new cars with emissions below 60 g CO2 per km will get a one-off bonus of up to 45 000 SEK (zero-emission vehicles) six months after registration.

c/ Just as important is probably that the (new and much higher) vehicle tax on company cars from 2018 will be taxed separately. This will significantly strengthen the incentive for both companies and beneficiaries to select low-emitting, thus low-taxed, cars, and since more than 50 per cent of all new cars (more among the larger, most fuel-consuming models) are sold to companies, this is likely to have a strong impact on the entire fleet.

d/ From 2018 a new test cycle will apply across EU. As a consequence the certified emission figures will go up for basically all models, which will further strengthen the impact of the announced reforms.

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