Proposal for a Council Decision authorising Sweden to differentiate excise duty rates on carbon dioxide neutral fuels in accordance with Article 8(4) of Directive 92/81/EEC
Date: 2002-12-23
Institutions: European Commission
Subjects: Sweden, derogation from EU law, diesel fuel, excise duty, fuel tax, petrol, substitute fuel

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 23.12.2002
COM(2002) 764 final

Proposal for a

COUNCIL DECISION

authorising Sweden to differentiate excise duty rates on carbon dioxide neutral fuels in
accordance with Article 8(4) of Directive 92/81/EEC

(presented by the Commission)

EXPLANATORY MEMORANDUM

1.

1.1.

SUBMISSION OF REQUEST

By letter dated 8 July 2002, the Swedish authorities informed the Commission about
their  wish  to  introduce  a  derogation  allowing  them  to  apply  an  excise  duty  rate
differentiation on carbon dioxide neutral fuels (CO2-neutral fuels) in accordance with
Article 8(4) of Directive 92/81/EEC1.

In order to obtain the information required to evaluate the request, the Commission
requested additional information by letter dated 8 August 2002 to which the Swedish
authorities  replied  on  20  September  2002.  The  reply  of  the  Swedish  authorities
enabled the Commission to finalise its evaluation of the application for a derogation.

1.2.

The  Swedish  excise  duty  on  mineral  oils  is  composed  of  two  elements,  namely  an
energy tax and a carbon dioxide (CO2) tax.

Sweden  currently  applies  different  excise  duty  rates  on  both  petrol  and  diesel
according to environmental standards. For environmental category 12, the energy tax
applicable is SEK 3.16 (€ 0.323) per litre for petrol and SEK 1.32 (€ 0.14) per litre
for  diesel.  Additionally,  the  CO2  tax  share  remains  unchanged  under  the  different
environmental  classes,  and  amounts  to  SEK  1.46  (€  0.16)  for  petrol  and  SEK  1.80
(€ 0.20) for diesel.

Sweden  proposes  to  amend  its  legislation  on  excise  duty  on  mineral  oil  products
(Energy Tax Act 1994:1776) by lowering, or reducing  to zero the CO2-tax  charged
on  petrol  or  diesel  oil,  to  the  extent  to  which  CO2-neutral  fuels  in  mixed  or  pure
form, replace petrol or diesel oil used as motor fuel.

This  measure  is  designed  to  contribute  to  environmental  improvements,  mainly  to
reduce  the  CO2  emissions.  Other  effects  of  replacing  mineral  oil  products,  by
increasing the use of the CO2-neutral fuels produced from renewable energy sources,
are:  the  reduction  of  the  EU  dependence  upon  third  countries,  enforcement  of  the
EU’s own sustainable energy supply, and, a contribution to agriculture policy.

Moreover,  Sweden  intends  to  promote  the  development  of  biofuels  through  pilot
projects.  Under  Article  8(2)  of  Council  Directive  92/81/EEC,  Sweden  may  apply
total  or  partial  exemptions  or  reductions,  under  fiscal  control,  in  the  field  of  pilot
projects  for  the  technological  development  of  more  environmentally  friendly
products, in particular, in relation to fuels from renewable resources.

1

2

3

Directive published in OJ L 316, 31.10.1992, p. 12, as last amended by Directive 94/74/EC (OJ L 365,
31.12.1994, p. 46).
According to the Swedish authorities, the class 1 fuel, for which the lowest rate is applicable, accounted
for nearly 100% of fuels sold in 2001 for both petrol and diesel.
The exchange rate is rounded off to 9.73 SEK for one euro.

2

                                                
The measure is scheduled with effect from 1 January 2003, or a later date determined
by  the  Government  when  approval  has  been  obtained  from  the  EU.  It  will  end  on
31 December 2007.

The  duty  forgone  as  a  result  of  the  excise  duty  reduction  is  estimated  to  be  some
750 million SEK (€ 77 million) per annum.

1.3.

Production  costs of CO2-neutral  fuels exceed  those of conventional  petrol  or  diesel
oil  to  a  far  higher  extent  than  the  foreseen  CO2-tax  reduction.  Without  the  duty
reduction, its retail price would therefore not be competitive.  The  duty reduction is
intended  to  offset  a  part  of  the  additional  production  costs.  By  removing  this
disparity, it  will enable CO2-neutral fuels to be sold  at a more  competitive  price in
comparison to conventional petrol or diesel.

1.4.

The requested CO2 tax reduction is foreseen for CO2-neutral fuels.

Based  on  the  biological  origin  of  the  carbon  atoms  they  contain,  the  following
products are considered as CO2-neutral fuels:

-  Animal  and  vegetable  fats  and  their  derivatives,  falling  within  CN  codes  1501  to
1518;

- Alcohols, falling within CN codes 2207 20 00 and 2905 11 00, which are denatured
and not of synthetic origin, and similar products;

- Other products produced from biomass.

The  CO2-tax  reduction  will  be  proportional  to  the  biological  origin  of  the  carbon
atoms of the fuel.

Provided  that  the  fuel  concerned  meets  the  above  mentioned  criteria,  the  duty
reduction will  be  granted to any producer  in the Member States, or third countries,
whose  product  is  put  on  the  market  in  Sweden.  The  CO2  tax  reduction  is  granted
automatically, without entailing a system of application and reimbursement.

EVALUATION BY THE COMMISSION

Under Article 8(4) of Council Directive 92/81/EEC, the Council, acting unanimously
on a proposal from the Commission, may authorise any Member State to introduce
further exemptions or reductions of excise duties for specific policy considerations.

The Swedish authorities have informed the Commission about their wish to introduce
a derogation allowing them to differentiate excise duty rates on CO2-neutral fuels, in
accordance with Article 8(4) of Directive 92/81/EEC4.

As required by Directive 92/81/EEC, the other Member States have been informed of
Sweden’s request.

1.5.

2.

2.1.

4

Directive published in OJ L 316, 31.10.1992, p. 12, as last amended by Directive 94/74/EC (OJ L 365,
31.12.1994, p. 46).

3

                                                
2.2.

Exemptions requested under Article 8(4) of Directive 92/81/EEC must be examined
in terms of their compliance with Community policies.

For  several  years  the  EU  has  followed  a  policy  of  CO2  emission  reduction,  one
milestone  of  this  was  the  recent  signature  of  the  Kyoto  protocol  by  the  European
Union5.

The Communication from the Commission to the Council, the European Parliament
and  the  Economic  and  Social  Committee  on  Tax  policy  in  the  European  Union  –
Priorities for the years ahead6, as well as the 6th Environmental Action Programme7,
present  fiscal  measures  as  one  of  the  instruments  for  better  incorporation  of
environmental aspects into Community policy areas.

The tax reduction requested by the Swedish authorities is therefore in line with the:

– 

– 

Community's environmental policy of CO2 emission reduction, and

Community’s energy policy to ensure its own sustainable energy supply.

The Commission notes that the effective total excise duty rates (see following table)
for  fuels  produced  from  100  %  CO2-neutral  origin  are,  in  the  case  of  a  petrol
equivalent  biofuel,  higher  than  the  applicable  Community  minimum  rate.  For  pure
biodiesel, the tax level may go below the relevant Community minimum rate, down
to 140 € /  1000  litres. However, the  political  compromise  reached  on  the  proposed
Council  Directive  amending  Directive  92/81/EEC  concerning  biofuels8,  allows  a
total  exemption  from  mineral  oil  excise  duties  under  certain  conditions.  These
conditions are met in the present case.

Fuel
category

Community minimum
(per 1000 l) 9

Energy tax
(per 1000 l)

CO2-tax
(per 1000 l)

Unleaded
petrol

Gas oil
(Diesel)

287 €

245 €

 320 € 10

SEK 3160

 140 €

0 €

SEK 0

0 €

SEK 1320

SEK 0

Minimum level of
taxation for the
equivalent biofuel
(per 1000 l)

 320 €

SEK 3160

 140 €

SEK 1320

5

6

7

8

9

10

Council decision of 25 April 2002 concerning the approval, on behalf of the European Community, of
the  Kyoto  Protocol  to  the  UN  Framework  Convention  on  climate  Change  and  the  joint  fulfilment  of
commitments thereunder (OJ L 130/1 of 15.5.2002).
COM(2001) 260 final.
COM (2001) 547 final.
Proposal  for  a  Council  Directive  amending  Directive  92/81/EEC  with  regard  to  the  possibility  of
applying  a  reduced  rate  of  excise  duty  on  certain  mineral  oils  containing  biofuels  and  on  biofuels,
COM(2001) 547 final, OJ C 103 E, 30.04.2002, p. 217– 220.
In  accordance  with  Directive  92/82/EEC,  OJ  L  316,  31.10.1992,  p.  19,  as  last  amended  by  Directive
94/74/EC (OJ L 365, 31.12.1994, p. 46).
The exchange rate is rounded off to SEK 9.73 for one euro.

4

                                                
The  Swedish  government  will  keep  control  of  prices  so  that  there  will  be  no
overcompensation  in  favour  of  CO2-neutral  fuels  in  comparison  with  equivalent
fossil fuels.

As regards the State aid rules, a decision on the compatibility of the proposal will be
adopted  by  the  Commission  as  soon  as  the  Council  has  authorised  Sweden  to
introduce this measure.

3.

DECISION

The Commission proposes that, under Article 8(4) of Council Directive 92/81/EEC,
the Council authorises Sweden to apply until 31 December 2007 differentiated excise
duty  rates  on  CO2-neutral  fuels  in  accordance  with  Article  8(4)  of  Directive
92/81/EEC.

The effective  excise  duty  rate applicable to CO2-neutral fuels substituting  unleaded
petrol shall not be lower than EUR 320 per 1000 litres.

The effective excise duty rate applicable to CO2-neutral fuels substituting diesel shall
not be lower than EUR 140 per 1000 litres.

Based  on  a  regular  review  by  the  Swedish  authorities,  the  reduction  in  excise  duty
shall  be  adjusted  to  avoid  over-compensating  for  the  extra  costs  involved  in  the
manufacturing of CO2-neutral fuels.

5

Proposal for a

COUNCIL DECISION

authorising Sweden to differentiate excise duty rates on carbon dioxide neutral fuels in
accordance with Article 8(4) of Directive 92/81/EEC

(Only the Swedish text is authentic)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Directive 92/81/EEC of 19 October 1992 on the harmonisation of
the structures of excise duties on mineral oils11, and in particular Article 8(4) thereof,

Having regard to the proposal from the Commission,

Whereas:

(1)

(2)

(3)

In  accordance  with  Article  8(4)  of  Directive  92/81/EEC  Sweden  has  requested
authorisation to apply a differentiated rate of CO2-tax to carbon dioxide neutral fuels
(CO2-neutral fuels).The other Member States have been duly notified.

The  development  of  renewable  energies,  and  biofuels  in  particular,  has  been
encouraged  in  the  Community  since  1985.  On  7  November  200112,  the  Commission
adopted  an  action  plan,  and  two  proposals  for  directives  on  encouraging  the  use  of
substitute  fuels  in  the  transport  sector,  starting  with  regulatory  and  tax  measures
designed to promote biofuels. The derogation requested by the Swedish authorities is
therefore in line with the Community's policy of developing the biofuel sector, in the
interests of protecting the environment, and ensuring security of energy supply.

In Sweden, the total excise duty on mineral oil products is composed of two elements,
the energy tax and the CO2-tax. According to the Swedish authorities the CO2-tax rate
could  be  reduced  to  zero  to  the  extent  that  CO2-neutral  fuels  in  mixed  or  pure  form
replace  conventional  mineral  oil  products  in  petrol  or  diesel.  The  CO2-tax  reduction
should be proportional to the biological origin of the carbon atoms of the fuel.

(4)

Based  on  the  biological  origin  of  the  carbon  atoms  they  contain,  the  following
products are considered as CO2-neutral fuels:

11

12

OJ L 316, 31.10.1992, p. 12. Directive as last amended by Directive 94/74/EC (OJ L 365, 31.12.1994,
p. 46).
COM(2001) 547 final, 7.11.2001

6

                                                
– 

– 

Animal and vegetable fats and their derivatives, falling within CN codes 1501
to 1518;

Alcohols,  falling  within  CN  codes  2207  20  00  and  2905  11  00,  which  are
denatured and not of synthetic origin, and similar products;

– 

Other products produced from bio-mass.

(5)

(6)

(7)

(8)

(9)

The differentiated rate should apply to CO2-neutral fuels at the point of production or
import.  The  CO2 tax exemption should  be  granted  automatically,  without  entailing  a
system of application and reimbursement

The  provisions  of  this  Decision  shall  be  without  prejudice  to  the  application  of
Article 27(1)(a)  and  (b)  of  Council  Directive  92/83/EEC  of  19  October  1992  on  the
harmonisation of the structures of excise duties on alcohol and alcoholic beverages13,
as regards the compulsory exemption of denatured alcohol and the arrangements for its
distribution,  in  view  of  the  fact  that  the  present  tax  arrangements  should  be  applied
solely  to  the  specific  case  of  denatured  alcohol  used  as  a  fuel  or  fuel  additive  in
accordance with Article 2(3) of Directive 92/81/EEC.

Production costs of CO2-neutral fuels exceed those of conventional fuel, and its retail
price  would  therefore  not  be  competitive  without  the  CO2-tax  reduction.  The  excise
duty  reduction  is  intended  to  partly  offset  the  additional  production  costs  of  CO2-
neutral fuels in comparison with fossil fuels. In order to avoid overcompensation the
Swedish  government  should  therefore  regularly  review  the  production  costs  of  CO2-
neutral fuels.

The accorded authorisation should apply for a period of five years.

The  Commission  regularly  reviews  reductions  and  exemptions  to  check  that  they  do
not  distort  competition,  or  hinder  the  operation  of  the  internal  market,  and  are  not
incompatible with Community policy on competition,  protection of the  environment,
health protection, energy, and transport.

HAS ADOPTED THIS DECISION:

Sweden is hereby authorised to apply a differentiated rate of carbon dioxide tax (CO2 tax) on
carbon dioxide neutral fuels (CO2-neutral fuels).

Article 1

Based on the biological origin of the carbon atoms they contain, the following products shall
be considered as CO2-neutral fuels:

Article 2

13

OJ L 316, 31.10.1992, p. 21.

7

                                                
(a) Animal and vegetable fats and their derivatives, falling within CN codes 1501

to 1518;

(b) Alcohols,  falling  within  CN  codes  2207  20  00  and  2905  11  00,  which  are

denatured and not of synthetic origin, and similar products;

(c) Other products produced from biomass.

"Biomass"  shall  mean  the  biodegradable  fraction  of  products,  waste  and  residues  from
agriculture (including vegetal and animal substances), forestry and related industries, as well
as the biodegradable fraction of industrial and municipal waste.

The CO2-tax reduction shall be proportional to the biological origin of the carbon atoms of the
fuel.

Article 3

Article 4

The  effective  excise  duty  rate  applicable  to  CO2-neutral  fuels  substituting  unleaded  petrol
shall not be lower than EUR 320 per 1000 litres.

The effective excise duty rate applicable to CO2-neutral fuels substituting diesel shall not be
lower than EUR 140 per 1000 litres.

Article 5

Based on  a  regular  review  by  the  Swedish  authorities,  the  reduction  in  excise  duty  shall  be
adjusted to take account of changes in the price of raw materials to avoid over-compensating
for the extra costs involved in the manufacturing of CO2-neutral fuels.

This Decision shall expire on 31 December 2007.

Article 6

Article 7

This Decision is addressed to the Kingdom of Sweden.

Done at Brussels,

For the Council
The President

8