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Sweden – EHS Candidate for Reform

Reduced CO2 tax rate on diesel used in agriculture

The reduced energy tax rate for diesel fuel used in agriculture aims to lower agricultural fuel costs and increase the production and competitiveness of Sweden’s agricultural sector. Based on policies introduced in 1994 and 2011, Sweden created an energy tax rate on diesel fuel based on the environmental class of a vehicle. Regardless of the environmental class, there is a rebate on the energy tax of 19 cents per litre of fuel for all agricultural vehicles. This reduced energy tax rate primarily benefits people in the agricultural and forestry sectors who use diesel fuel. Consumers of agricultural products also benefit from lower product prices and greater product availability. Countries with similar subsidies include Belgium, Croatia, Czech Republic, France, Germany, Greece, Hungary, Lithuania, Luxembourg, Poland and Spain.

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The budget impact of this subsidy was EUR 63 million in 2019. If this subsidy were to be abolished, diesel fuel prices for farmers would increase by 8.3%, and the demand for fuel would decrease by 1.7%. The environmental impact of the subsidy includes increased air pollution, land use and resource use because the reduced energy tax rate lowers the incentive for fuel efficiency. The removal of this subsidy would reduce CO2 emissions by 14,500 tons per year.

It is unclear how the reduced energy tax rate will be reformed in the future because of economic, environmental, political and social influences. In 2017, an act was introduced to reduce greenhouse gas emissions and help phase out fossil fuel usage by increasing the amount of biofuels added to petrol and diesel. The European Tax Directive proposes removing tax exemptions on fossil fuels, but there will still be the possibility of reduced tax rates for the agricultural sector. While fossil fuel subsidies have been decreasing overall, recent legislative proposals in Sweden have been introduced to help combat the rising fuel price by reducing the energy tax on petrol and diesel. A successful subsidy reform in Sweden could include timing the reform with favourable market conditions, replacing the subsidy with a lump sum compensation payment and funding energy efficiency investments.

More information on the reduced energy tax rate for diesel fuel used in agriculture and other candidates for reform in Sweden and other Member States can be found in the country case studies and factsheets compilation.