Proposal to increase the reduction obligation is a welcome first step!
Recently, the Swedish Government presented its proposal to increase the reduction obligation from having sharply reduced it at the end of last year. The reduction obligation is the single most important legislative tool for reducing emissions within the transport sector through an increased proportion of biofuels blended in diesel and gasoline.
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Reduction obligation increase to ten percent
On August 27, 2024, the Minister for Energy, Business and Industry and Deputy Prime Minister Ebba Busch; Minister for Finance, Elisabeth Svantesson; Minister for Climate and the Environment Romina Pourmokhtari; and the Sweden Democrats’ environmental policy spokesperson Martin Kinnunen announced a proposal to increase the reduction obligation for both petrol and diesel by four percentage points to ten percent. The new reduction obligation is proposed to take effect from July 1, 2025.
– The Government’s proposal means a smaller – but welcome – change, says Anna Törner, CEO of the Swedish Bioenergy Association (Svebio) but requests clarification about the coming years for how the reduction obligation will develop towards the important goal of 2030.
Reduce emissions by approximately two million tonnes
According to the proposal, the tax on petrol would be reduced by SEK 0.75 per litre, while the tax on diesel would increase by SEK 0.11 per litre. The energy tax would also not be indexed on January 1, 2026. The cost to the state budget is estimated to be SEK 3.7 billion for 2025 and SEK 5 billion for 2026. There would be no tax increases during the rest of the term.
The Government’s calculations estimate that the new reduction obligation should reduce fossil carbon dioxide emissions by about two million tonnes by 2030, i.e. 500,000 tonnes per annum to 2030. According to the Government, Sweden would thereby meet the EU’s climate goals while households and companies would be compensated for the cost effect through the tax cut on petrol. The proposal also includes the provision to count electricity from public charging stations in the emission reduction as per the EU Renewable Energy Directive (RED III).
The reduction obligation has been the most important steering tool adopted in the Riksdag (Swedish Parliament) for Sweden to reach the climate goal and which stipulates that domestic transport, excluding aviation, must reduce emissions by at least 70 percent compared to 2010 by 2030. It is also the EU’s statutory climate goal for Sweden. However, the Government’s radical reduction of the reduction obligation at the beginning of this year meant that fossil carbon dioxide emissions were estimated to increase by at least four million tonnes per annum until 2030.
– It is also positive that the Government is going ahead with its proposal to set up a policy review. The reduction obligation is an important component but cannot solve everything. Therefore, a policy review is needed that can generate long-term proposals, explains Anna Törner, CEO at Svebio.
Impact on other sectors
Furthermore, the Government’s announcement is to some extent positive for the forestry industry, and heat and power utilities, even if the increased tax on diesel increases transport costs somewhat.
– High emissions from the transport sector risks increasing the demands for other measures, such as increasing the forest’s absorption of carbon dioxide to an even greater degree, which might mean reduced removals and thus access to biofuel to meet the EU’s climate goals, says Johnny Kjellström, Director of Public Affairs at Svebio.
– Agricultural and food production could also be threatened by costly climate measures if fossil emissions from the transport sector do not decrease as there is a risk that agriculture will be used to compensate for the higher emissions from transport, continues Johnny Kjellström.
Need for stability and a long-term perspective
Hopefully, the proposal will lead to an increase in investments in Swedish biofuel production. Uncertainty factors, such as constantly changing policies, inhibit the willingness of companies to invest.
Industry must get long-term policy and predictability. We need clear information about future policy instruments, e.g. how it will be with the tax exemption for clean biofuels and the reduction obligation after 2026. It is also important that the Government works to reintroduce the tax exemption for biogas.
For more information, contact Anna Törner, CEO, Svebio, tel. +46 70 298 69 36 or Johnny Kjellström, Director of Public Affairs, Svebio, tel. +46 72 148 28 70.