Working group proposes changes to energy taxation

The working group on energy taxation reform appointed by the Ministry of Finance has completed its report. The reform is part of the sustainable taxation roadmap referred to in the Government Programme.

In regard to the intentions set out in the Government Programme, the working group proposes that

• an increase in heating fuel taxation producing an additional EUR 100 million in tax revenues would begin at the start of 2021 – the increase would concern both the energy content and carbon dioxide elements of the taxation
• the rise for peat would be equivalent to that for other fossil fuels 
• the 0.9 calculation rule for combined heat and power production would be removed
• the industrial electricity tax would be lowered to the EU minimum level and the energy tax rebate for energy-intensive industries would be discontinued (implemented gradually between 2021 and 2024)
•  the energy tax expenditures for mining activities would also be removed from the start of 2021.

Regarding a transfer to category II electricity tax in the case of heat pumps and data centres generating heat for district heating networks, a separate examination of this is continuing and will be completed in the early part of 2021.

Working group also assessed energy taxation reform needs from perspective of Government’s climate objectives

The report provides answers on how the energy tax system could help achieve the Government's ambitious climate objectives. It proposes reform implementation timetables and methods that extend over the longer term and provide predictability.

The working group also proposes the phased removal of tax expenditures on peat and on fossil fuels in agriculture. A further proposal is that, in accordance with the energy tax model, biogas in both transport and heating use would be taxed at the same level as heating fuel, which means that in practice it would be subject only to energy content tax. At the same time, minor and occasional amounts of biogas in small-scale production would be excluded from taxation. The working group considers it justifiable for the tax system to be based on a fuel’s energy content and life cycle emissions. With such a system, it is possible to coordinate economic, energy-efficiency and emission control objectives.

No significant reduction in tax revenue foreseeable in 2020s

Fossil heating fuels will account for a lower proportion of energy tax revenue in the future, but even at present they do not comprise a very significant share of the total. Changes in tax revenue from liquid fuels used in transport will take time, and an increase is projected in the tax base for electricity tax. 

The report also proposes that in future there should be a regular review of energy taxation.

The Government will make decisions on key changes at its budget session in order that the necessary legislative proposals can be included in the Government's 2021 budget proposal for submission to Parliament. 

Expert working group consulted key stakeholders and other parties

Participating in the working group were experts from the Ministry of Finance, the Ministry of Agriculture and Forestry, the Ministry of Economic Affairs and Employment, the Ministry of the Environment and the Finnish Tax Administration. The working group also consulted researchers, various organisations and key stakeholders.

The working group was appointed for the period 18 November 2019 to 1 September 2020.

Inquiries:
Senior Ministerial Adviser Leo Parkkonen, chair of working group, tel. +358 2955 30372, leo.parkkonen(at)vm.fi