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Environment

Croatia – EHS Candidate for Reform

Excise duty exemptions on diesel used for agricultural, fishing, aquaculture and navigation purposes

Croatia introduced an excise duty exemption on blue-dyed diesel for agriculture, fishing and aquaculture in 2010. Navigation was added to this scheme in 2014. The subsidy aims to lower the production costs for these sectors and boost production levels. Only agricultural holdings registered with the Ministry of Agriculture can use blue-dyed diesel. Fuel quota depends on the size of agricultural land or the number of cattle. The blue diesel in aquaculture is regulated with permits. In fishing, its use is regulated under specific conditions. Similar subsidies exist in Belgium, the Czech Republic, Estonia, Greece, France, Latvia, Lithuania and Slovenia.

Aquaculture
© Lucut Razvan / Unsplash

The subsidy makes the fuel cheaper for those sectors leading to lower production costs and less incentive for energy efficiency. The budget impact of the subsidy was EUR 98.7 million in 2019. The abolishment of the tax exemption would increase the cost of diesel for the relevant sectors by 37.5%, decreasing the demand by 21%.

The environmental impacts caused by the subsidy include increased GHG emissions, air pollution and resource use. The abolishment of the subsidy would decrease CO2 emissions by 125,000 tonnes per year. The highest carbon savings would be achieved in the agricultural sector.

Croatia is not planning to phase out or reform subsidies in these sectors, but the policy and regulatory context encourage the use of renewable energy. This could lead to the reform of fossil fuel subsidies in the near future. Several options could be considered for reform, such as increasing the excise tax rate or using the necessary registrations, permits and fuel cards to progressively reduce the number of beneficiaries. Rising fuel costs could be compensated by funding greener fuel investments in the sectors or using the newly generated tax income to reduce labour costs.

More information on the excise duty exemptions on diesel used for agricultural, fishing, aquaculture and navigation purposes and other candidates for reform in Croatia and other Member States can be found in the country case studies and factsheets compilation.