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Finland – EHS Candidate for Reform

Reduced energy tax rate for light fuel oil used in mobile machinery

The goal of reduced energy tax rate for light fuel oil used in mobile machinery is to reduce production costs in several sectors that use mobile machinery, such as tractors, cranes and forest machinery. The fuel used in mobile machinery is taxed at the same rate as heating fuel, which is taxed less than transport fuel because it is considered a basic need product. Before 2011, the tax rate was calculated based on the energy content of the fuel and compared to the tax rate on gasoline. After 2011, a new benchmark for the tax rate is calculated based on energy content, CO2 emission and local emissions of pollutants. In 2020, the fuel for mobile machinery and heating was taxed at EUR 25 cents per litre compared to EUR 80 cents per litre for regular diesel. The subsidy benefits the agricultural, forestry, construction, municipal and other industries that use mobile machinery, as well as companies producing the machines. Other countries with a similar subsidy include Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Lithuania, Luxembourg, Poland, Portugal, Slovenia, Spain and Sweden.

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The budget impact of the subsidy was EUR 472 million in 2019. If the subsidy were to be abolished, the price for mobile machinery would be the same price as diesel fuel for transport. There would be a price increase of 39% and a 22% decrease in demand. 

The lower tax rate of fuel used in mobile machinery increases the demand for fuel and reduces the incentive for fuel-efficiency. The environmental impact of industries using mobile machinery includes greenhouse gas emissions, increased land use, soil and water pollution and issues surrounding chemical use. CO2 emissions would decrease by 22% if the subsidy were removed.

This subsidy has been reformed in 2011 when a new benchmark based on energy content and emissions was established. Finland is working on mapping and reducing environmentally harmful subsidies and aims to be carbon neutral by 2035. Farming groups are developing an interest in producing their own fuels too. These factors are likely to drive reform for this subsidy in the future, and the tax rate on fuel for mobile machinery will likely increase. It is also suggested to create a third rate of light fuel taxation that falls between transport and heating for mobile machinery, but this poses administrative challenges. Other reform options include providing compensation for companies affected by a potential reform and supporting investments in energy-efficient technologies and processes.

More information on the reduced energy tax rate for light fuel oil used in mobile machinery and other candidates for reform in Finland and other Member States can be found in the country case studies and factsheets compilation.