Energy Taxes and SO2/NOx taxes.
Interactions with feed-in-tariffs for
renewables
Conference on Environmentally Related Taxes
Rome 15 December 2011
Hans Larsen
Danish Taxation on energy products
The Danish taxation on energy products consists of
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An energy tax calculated on basis of the energy content
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A CO2 tax calculated on basis of the CO2 content
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A SO2 tax calulated on basis of the sulphur content in fuels
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A tax on NOx emissions based on emissions of NOx from combustion of fuels
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A para fiscal tax PSO (Public Service Obligations) levied on electricity consumption
Side 2
16-12-2011
Energy tax rates and tax base
Tax rates in 2010. The rates are increased with 1,8 per cent yearly.
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Tax on coal, natural gas and oil for heating: 57,3 DKK/ GJ (7,7 eur/GJ). The uniform tax
rate is converted to metric units for different fuels
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Tax on petrol: 118 DKK/GJ = 3,881DKK/litre (0,52 eur/litre)
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Tax on diesel: 69 DKK/GJ = 2,479 DKK/litre (0,33 eur/litre)
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The tax on coal and bio fuels may be paid directly on basis of the energy content GJ
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Tax on electricity for heating: 666 DKK/MWh (88 eur/MWh) =185 DKK/GJ (net value)
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The electricity tax has been considered as a shadow tax on coal. A fuel tax on 76,4
DKK/GJ fuel (185*0,413 = 76,4 DKK/GJ (gross value)) would increase the electricity
price with 185 DKK/GJ if the thermal efficiency rate of the power plant is 41,3 per cent
and if the tax is shifted over in the price .
Side 3
16-12-2011
Energy tax base
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The energy taxes are paid by the firms producing or importing the different energy
products and electricity
The VAT registered businesses obtain a reimbursement of a share of the tax on fuels
and electricity used in production processes. The energy taxes are reimbursed by
offsetting them against the VAT payment on the VAT declaration. From 1.1.2010 VATregistered business is taxed with 4,5 DKK (0,6 EUR) per GJ fuel and 16 DKK (2 EUR)
per MWh electricity through a reduced reimbursement of the energy taxes. It will be
further increased gradually in 2012 and 2013 where the burden will be 8,6 DKK (1,1
euro) per GJ and 33 DKK (4 EUR) per MWh electricity. Farmers are taxed with reduced
rates and glasshouses are taxed with the minimum rates in the energy taxation
directive. Mineralogical and metallurgical processes are exempted
The energy tax are paid fully by all non-VAT registered sectors, i.g. households, the
financial sector etc.
There is no refund of taxes on energy used for space heating, road transport or
operating of motors
Side 4
16-12-2011
The CO2 tax rate and base
The EU ETS has been mirrored in the CO2 tax system by
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An increase in the CO2 tax in 2008 to the expected permit price 150 DKK/tonne (20
eur/tonne) in the period 2008-12. The rates are increased yearly with 1,8 per cent. The
uniform tax rate is converted to metric units for different fuels similar to the converted
energy tax units. The CO2 tax on coal may be paid directly on basis of GJ content
Introduction of a tax free allowance (lump sum transfer) for energy intensive business
outside the ETS, with a view to mirror the free quotas in the ETS. The tax free
allowances is based on energy consumption in the past (not on actual or future
consumption) laid down in the same way as the free quotas in the ETS.
Exemption of CO2 tax on fuels inside ETS (This was approved by the Commission in
state aid case C 41/2006 in 2009)
Introduction of an input taxation on fuels used in power plants below 20 MW (outside
the ETS)
After the introduction of the EU ETS there was no longer an environmental reason for
the CO2 tax on electricity and it has been abolished in order to avoid double regulation
with quotas and taxes. For fiscal reason it was replaced by a new tax called “energy
saving tax” but at a lower level
Side 5
16-12-2011
Further about the CO2 tax
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The CO2 tax is paid by the firms producing or importing the different energy products
Vat registered business obtain a reimbursement of the lump sum transfer through the
VAT declaration
VAT registered businesses obtain a partial refund of the “energy saving tax” for
electricity used in energy intensive production processes through the VAT declaration.
A further refund can be obtained if voluntary agreements about energy savings are
entered with the Danish Agency of Energy. No agreement refund for CO2 tax on fuels
The CO2 tax and the “energy saving tax” is paid fully by households, non-VAT
registered sectors and for non-energy intensive business use of energy
There is no refund of CO2 tax on fuels and “energy saving tax” on electricity used for
space heating in business, road transport or operating of motors
Side 6
16-12-2011
The SO2 tax
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The tax base is the sulphur content in fuels (coal, mineral oils and natural gas)
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The sulphur content in wood, straw, waste and other sulphur-bearing fuels combusted
in plants with a capacity above 1000 kW
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The rate is 21 DKK (2,8 EUR) per kg sulphur in fuels and 10,5 DKK (1.4 EUR) per kg
sulphur dioxide emitted into the air
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If sulphur dioxide emissions from wood, straw and waste are not measured a tax per
ton is levied. If the biomass and waste is not bought, a tax per GJ is levied
Side 7
16-12-2011
The SO2 tax
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Power plants and industries with large plants , which already meaure the sulphur
dioxide emission, may choose to pay the tax on measured emissions.
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The suppliers of coal, oil and natural gas collect and pay the tax on goods delivered for
consumption
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Business, which limit their emissions through desulphurisation or by binding of sulphur
in other materials, may get a reimbursement of the sulphur cleaned away
Side 8
16-12-2011
NOx tax
The tax rate and the tax base
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From 1 January 2010 the tax rate is 5 DKK (0,67 eur/kg)per kg NOx emitted to the air
and is increased yearly to 5,5 DKK (0,74 eur/kg) in 2015
All emissions from non-mobile equipment from Danish territory inclusive off shore
activities in the North Sea are covered by the tax. Renewables are also covered
Larger emitters shall meter their emissions while smaller emitters may meter voluntarily
Smaller emitters who choose not to meter shall pay a tax on consumption of the fuels
based on a standard emission. This standard rate will depend on typical or average
emissions from typical uses of the different fuels. If companies do not meter but install
NOX reducing equipment (I.e. catalysts) they will get a refund corresponding to the
expected effect on NOx emissions. Other, which are not obliged to meter, pay tax on
the fuel consumption
Emitters with extremely high emissions per GJ may get a reduction of the tax (a
deduction of 0,18 kg NOx per GJ fuel if the emissions has been more than 0,5 kg
NOx/GJ in 2006).
The government has proposed an increase in the NOx tax rate to 25 DKK/kg (3,3
euro/kg)
Side 9
16-12-2011
PSO (Public Service Obligations)
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PSO contribution is a para fiscal tax, which is levied on the gross electricity
consumption
The revenue is earmarked to finance different subsidy schemes in order to promote
renewables
Subsidies to windturbines
Subsidies to decentral CHP plants (fired with natural gas, wood, straw and waste)
The PSO contribution varies according to the market price on electricity so that the
subsidy is reduced when the maket price increases. The PSO contribution is set for a
three months period according to the expenses. An average is about 110 DKK/MWh
(14,7 euro/MWh)
Connections to the grid is also financed
Research and development in environmental electricity generation
Side 10
16-12-2011
Taxes on fuels
Overall the taxes on fuels are
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Energy taxes: 57,3 DKK/GJ
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CO2 taxes: 155 DKK/t CO2 equal to about 11 DKK/GJ
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NOx taxes:5 DKK/kg NOx equal to a typical level of 0,2-0,3 DKK/GJ
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SO2 taxes:10,5 DKK/kg SO2 which in average is about 0,1 DKK/GJ
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Renewable energy is in general exempted from energy taxes (exempt waste with
hydrocarbons and certain bio oils)
Side 11
16-12-2011
Taxes on energy and the interaction with
feed –in- tariffs for renewables
Heating fuels
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The high energy tax and the CO2 tax on conventional fuels favour use of renewables
like wood, straw and waste for heating, which can be sold at the same price as heat
from taxed fuels
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The high energy tax may give rise to distorsion between heat from taxed fuels and
renewables.Therefore an output tax on heat from incineration of waste was introduced
in 1998 in order to neutralize increased taxes on coal, natural gas and oil. From 2010
waste with hydrocarbon used as a fuel is taxed at the same level as conventional fuels
on basis of the energy content in the waste (wood and straw in whole loads are still
exempted) and is treated as other taxes on energy products. The CO2 content from
plastic is also taxed
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It favours also production of heat on CHP plants
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Waste heat from industrial processes delivered to district heating systems is also
favoured because of reduced taxation on fuels for industrial processes
Side 12
16-12-2011
Further interaction
Energy tax on electricity
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The electricity tax is an output tax on all electricity delivered to the consumers and fuels
are exempted. Renewable electricity delivered to the grid is also taxed
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The renewable electricity producers will not get a higher price on electricity than the
market price even if they do not have a similar conversion loss as fuel fired electricity
producers have. They can be compensated through direct subsidies, which has been
granted to smaller decentral CHP plants
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The subsidies has been market orientated and will be reduced if the market price goes
up and and is abolished at a given level
Side 13
16-12-2011
CO2, SO2 and NOx taxes and the
interaction on renewable electricity
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Since the introduction of the EU ETS system the quota price on CO2 emissions has the
same effect as an input tax on electricity generation. It increases the marginal cost on
electricity generation and will be shifted over in the electricity price because the CO2
scheme cover all EU electricity generation
This price increase will favour renewable electricity generation
A CO2 tax on fuels in smaller power plants outside the EU ETS will favour renewable
electricity generation over electricity generation based on fuels.
The SO2 and NOx taxes have a similar effect as a fuel tax and increase the marginal
costs of electricity generation. But since it is relative cheap to remove SO2 and NOx the
marginal effect is smaller than one should expect.
It is very expensive to remove CO2 why the marginal effect on the cost is much greater
than from the NOx and SO2 tax
Side 14
16-12-2011
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Environmental impacts
Index 1990 = 100
Index 1990 = 100
SO2
Nox
Real GDP
Side 15
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
0
1998
0
1997
50
1996
50
1995
100
1994
100
1993
150
1992
150
1991
200
1990
200
CO2
16-12-2011
Environmental impacts
Side 16
16-12-2011
Thank you for your attention