On December 14, 2022, the European Commission (EC) approved Sweden’s state aid application for continued tax exemption for pure and high-blend biofuels for another four years. Fuels like E85, ED95, biodiesel, and renewable diesel (HVO) that are not subject to the reduction obligation can continue to be tax exempted in Sweden until the end of December 2026, a move that has been welcomed by biofuel stakeholders.
The previous government applied for a ten-year tax exemption, the same as for biomethane aka renewable natural gas (RNG), but ended up with barely half.
The government has been working for an extended state aid approval that extends over a longer period and welcomes the commission´s decision. It will ease Sweden’s continued transition towards more sustainable transport and contribute to reducing the dependence on fossil fuels, said Finance Minister Elisabeth Svantesson.
Approval provides a welcome respite
Nonetheless, still a significantly longer time period than previously. The European Commission’s decision means maintaining incentives for the use of pure- and high-blend biofuels.
As a result, many bus companies, local transport companies, haulage companies, taxi operators, and others can take a breather as they avoid a New Year tax hike and can continue to replace fossil fuels with biofuels.
The approved state aid shows that we can achieve success when government and industry work together in the EU. This is important to learn from and we hope for good cooperation with the new government in future issues relating to agriculture, forestry, biofuels, and climate, not least during the Swedish presidency, commented Alarik Sandrup, Director of Public and Regulatory Affairs at Lantmännen.
However, the question is whether four years is long enough to motivate investment in new biofuel production facilities.
It is good that we finally have received state aid approval, although we would have liked to see it stretch over a longer period than four years. We have worked hard on this for several years and believe that a continued tax reduction of pure- and high-blend biofuels in combination with an ambitious reduction obligation are very important prerequisites for speeding up the domestic production of biofuels and reducing import dependence on fossil energy, Alarik Sandrup said.
Lower emissions than from pure electric cars
The Commission’s approval was also welcomed by the Swedish Bioenergy Association (Svebio) which calls for the removal of the penal taxation, malus, for vehicles that run on these biofuels in order to stimulate further use of pure- and high-blend biofuels.
This gives hundreds of thousands of motorists the opportunity to drive their cars on climate-friendly renewable diesel or ethanol fuel. Overall, it provides a very large reduction in carbon dioxide emissions from the transport sector, said Gustav Melin, CEO of Svebio.
According to Svebio, a diesel-powered vehicle that runs on HVO100 has on a lifecycle basis generates as low or lower emissions than a pure electric vehicle (EV).
Passenger cars that run on E85 generate significantly lower emissions than comparable petrol-powered ones.
The storage, blending, and distribution infrastructure for these renewable biofuels is already in place, and a fiscal burden of proof on motorists can be implemented for malus exemption.
We would have liked to see the Commission’s tax exemption extended to ten years, in the same way as for biomethane. But four years is better than the one-year decisions that were often granted in the past. This provides a certain amount of peace of mind for the companies concerned in the next few years and a better opportunity for the industry to develop. On the other hand, it is an insufficient basis for investments in increased domestic production of biofuels. In order for more production to take place, other steering instruments are needed, said Gustav Melin.
Increase biofuel blending
Svebio highlights that in order for Sweden to meet its 2030 climate goals and new EU targets for the transport sector, the government and parliament must facilitate an increase in biofuel blending in fossil petrol and diesel fuels.
According to Svebio, the government should invite unconditional talks about how biofuel blending can be increased while keeping prices at the pump in check for motorists and companies.
Sweden must continue to be a forerunner within the EU when it comes to climate change in the transport sector.