Since January 1, 2021, the use of bio-oil as fuel for industrial and district heating in Sweden became subject to both energy- and carbon dioxide tax just like its fossil counterparts. This is despite the fact that bio-oil is renewable and does not negatively affect the climate - it goes against all logic, says the Swedish Bioenergy Association (Svebio).
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Bio-oil is generally used by heating plant operators as a reserve- and peak-load fuel to supplement other biomass fuels such as woodchips, recycled wood, and biogenic waste or residual heat recovery when the thermometer drops below a certain temperature.
Although bio-oil is a minor fuel in terms of share in the overall heating fuel mix, it has a role as part of the decarbonization efforts of energy plants by replacing fossil oil.
Discourages electricity production
Bio-oil also enables electricity production in cogeneration plants even during times of high heat consumption.
Abolishing the tax on bio-oil has a greater effect on biopower production than the government’s proposal to abolish the tax on waste incineration. We are positive that the waste tax is abolished, but the government must also ensure that the bio-oil tax is abolished, said Gustav Melin, CEO of Svebio.
By using bio-oil for peak load heat production, heat plant operators with combined heat and power (CHP) capabilities have the means to run their turbines at full capacity for electricity production throughout the winter.
According to Svebio, several cogeneration plants stopped producing electricity during the coldest days of the 2021/2022 winter season on account of the bio-oil tax.
In general, the potential for increasing biopower production in cogeneration is relatively large, even in the short term. In contrast to new nuclear power or offshore wind power, this is about electricity production that can already increase during the coming winter and within the next two years. In addition to bio-oil for peak load heating in new and existing boilers, you can also invest in coolers to produce electricity during periods of low heat demand, explained Gustav Melin.
Tax exemptions needed for bio-oil
The Swedish government had put in a request to the European Commission (EC) for an extension of the tax exemption for pure and high blend biofuels earlier this year but refrained from putting in a request for a corresponding exemption for bio-oil.
In addition to the tax exemption for biofuels, which is generally extended one year at a time, Sweden has a ten-year tax exemption for biogas.
The background to the tax exemptions is the European Commission’s interpretation of the EU’s state aid rules and energy tax directive.
The affected bio-oils are waste-derived UCOME and rapeseed oil RME (waste-based bio-oils and rapeseed oil). The taxation means that end-users currently pay around 75 percent more for renewable bio-oil than for the corresponding fossil oil.