Sweden has minimal fossil-energy resources and relies on imported oil and natural gas. At the same time, the country possesses important supplies of renewable energy, mainly in the form of biomass and hydropower. The use of petrol and diesel in Sweden has decreased by more than 25% over the past fifteen years. Non-fossil energy sources, including nuclear power, contribute two-thirds of the country’s total energy supply (TES), the highest share of any OECD country after Iceland, making electricity generation nearly CO2-free. Energy intensity — measured as the amount of energy consumed per unit of GDP — is relatively high due to the presence of a large energy-intensive industry sector, the country’s temperate to sub-arctic climate, and its sparse population.
OECD Inventory of Support Measures for Fossil Fuels: Country Notes
Sweden
Energy resources and market structure
Source: IEA (2022), "World energy statistics", IEA World Energy Statistics and Balances (database).
The Swedish oil market, although fully open to competition, is dominated by the Saudi-owned company, Preem, which owns two of the country’s five refineries, with its refining capacity capable of processing around 90% of the country’s crude oil supplies in 2018. By comparison, the natural gas market is characterised by a small number of companies covering both the wholesale and retail market with the country’s gas supply entirely imported from Denmark through a single pipeline, the Baltic Gas Interconnector. The private company Swedegas AB is the Transmission System Operator (TSO) which owns and operates the transmission grid and the Skallen gas storage facility, the only existing gas storage facility in Sweden. Nonetheless, the most significant storage facilities for the country’s natural gas supply lies overseas at the Stenlille storage facility near Copenhagen in Denmark.
Sweden takes a free-market approach to energy policy, which puts an emphasis on competition in ensuring efficient energy supply within a policy framework that aims to encourage renewable-energy sources. Customers have approximately 120 suppliers to choose from. The country also participates in the first cross-border electricity market in Europe, the Nord Pool. Vattenfall (state-owned), Fortum (majority-owned by the Finnish State), and Uniper (majority-owned by Fortum), three companies which also own nuclear power plants in Sweden, generate most of the power in Sweden while Vattenfall Eldistribution AB (state-owned), Ellevio AB and E.ON Energidistribution AB account for most of the distribution assets and retail sales. Following liberalisation of the electricity market in 1996, more than half of electricity consumers have switched suppliers, a rate well above the average for the rest of the European Union.
Owing to its temperate climate, district heating forms a significant part of the energy market in Sweden. The sector has experienced a vigorous shift towards low-carbon fuels in the last decade. Figures in 2019 indicate that biofuels and wastes accounted for 89% of the total district heating production in the country while fossil fuels a mere 3.8% (of which 43.2% is from oil in 2020).
Energy prices and taxes
All energy prices are freely determined by the market in Sweden, except for electricity and gas network tariffs, which are regulated ex-ante by the Energy Markets Inspectorate (EI).
Energy products are subject to energy, CO2 and sulphur taxes. Most tax expenditures regarding energy and CO2 taxes are phased out. The energy tax varies according to whether the fuel is used for heating or in transport and for transport, the energy tax rate is lower for diesel than for petrol. In the case of electricity, the tax rate varies for what purpose the electricity is used (manufacturing industry or household/service sectors) and whether the use occurs in the northern parts of the country. Specific cases of tax reliefs exist. There is also a levy on pollutive NOX emissions from certain stationary energy installations.
Figure 2. Total tax rebates and support for fossil fuels in Sweden
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Recent developments and trends in support
The Swedish government has put substantial effort into phasing out fossil-fuel support throughout the last decade. The most significant support measure is the reduced energy tax rate for motor vehicles using diesel as fuel. However, it is worthy to note that while diesel-run motor vehicles benefit from a reduced energy tax rate, a higher vehicle tax rate apply specifically for diesel cars in Sweden. Changes in CO2 tax rates for automotive diesel and gasoline (the benchmark rate against which preferential diesel rates are evaluated) in July 2018 and January 2019 resulted to increasing amounts of revenue foregone, with decreased consumption in 2020 due to pandemic mobility restrictions registering minimal impact.
COVID-19 has brought a major upheaval in the fossil fuel markets with record falls in oil prices and slump in energy consumption brought by pandemic mobility restrictions. In the wake of the pandemic, the Swedish administration has been designing economic recovery programmes consistent with positive climate action (i.e., none will cause significant damage to the environment). Recent developments have seen several measures granting preferential treatment to the industrial sector being revoked or ended. With the country’s ambitious target to achieve zero net emissions by 2045, the Green Transition national strategy plan has been launched, earmarking investments in sustainable transport, improvements in energy efficiency of buildings and investments in new technologies to reduce GHG emissions, with a focus on emission reductions, negative emissions and adaptation measures.
For instance, in 2022, the government set aside SEK 550 million to support regional electrification pilots for the electrification of heavy transport. The plan envisions the extension of charging infrastructures and filling stations for hydrogen, to turn transport into a climate-smart sector. The aim is to facilitate electric transport throughout the country, in a rapid, coordinated and efficient way. The support covers 100% of the investment costs for the electrification of regional distribution chains.
Throughout the year 2023, the administration enacted a reduction of the tax on petrol and diesel by the equivalent of one krona per litre at the refuelling stations to support households and businesses facing high energy costs with an estimated cost of SEK 6.73 billion, the tax reduction is also applicable on agricultural diesel with a cost of SEK 380 million. In order to overcome the current energy crisis and improve the competitiveness of electricity-intensive companies, the Swedish government allocated around SEK 2.4 billion to offset electricity costs. Eligible companies receive support for electricity costs that exceed one and a half times their average price in 2021 based on 70% of 2021's consumption. The companies receive compensation for 50% the eligible costs, up to a ceiling of EUR 2 million. Only companies with the support estimated to at least SEK 50,000 can participate.
The fiscal cost of support measures for fossil fuels in Sweden was estimated at SEK 41.39 billion in 2022 (Table 1). Sixty-five per cent (65%) was directed at end user beneficiaries, as opposed to 35% directed to firms. Support was mainly given out in the form of tax expenditures (SEK 41.38 billion) accounting for 100% of the total fiscal cost of support measures. Direct transfers amounted to SEK 0.01 billion.
The fiscal cost of support measures for fossil fuels has increased by 240% since 2017. Since last year, tax expenditures have increased by 164%, from SEK 16.19 billion to SEK 41.38 billion and direct transfers decreased by 5%, remaining at SEK 0.01 billion. All growth rate percentages above are expressed in terms of nominal national currency amounts.
Table 1 Fiscal cost of support measures for fossil fuels (in billions of national currency)
|
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|---|---|---|---|---|---|---|
|
Tax expenditures |
12.167 |
11.357 |
16.055 |
15.384 |
16.192 |
41.383 |
|
Direct transfers |
0.000 |
0.003 |
0.000 |
0.005 |
0.007 |
0.007 |
|
Total |
12.167 |
11.360 |
16.055 |
15.389 |
16.199 |
41.390 |
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
Table 2. Selected support measures for fossil fuels with a large fiscal cost (in billions of national currency)
|
Measures associated with large fiscal cost in 2022 |
2022 |
2017 |
Variation since 2017 |
|
|---|---|---|---|---|
|
Tax expenditures |
|
|||
|
Reduced Energy Tax Rate on Heating Fuels for Industrial Consumers |
13.740 |
0.630 |
13.110 |
|
|
Reduced Energy Tax Rate for Diesel used in Motor Vehicles |
12.630 |
7.870 |
4.760 |
|
|
Reduced tax on gasoline and diesel |
6.300 |
(Started 2022) |
6.300 |
|
|
Direct transfers |
||||
|
Petroleum RD&D Funding |
0.005 |
0.0005 |
0.005 |
|
|
Coal RD&D Funding |
0.002 |
0.000 |
0.002 |
|
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports).
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 3. Description of selected support measures for fossil fuels
|
Reduced Energy Tax Rate on Heating Fuels for Industrial Consumers |
Since 2011, industrial consumers, both within and outside of EU ETS, are granted a 70% reduction in the standard energy-tax rate on heating fuels. This reduction replaced a full energy-tax exemption for fossil fuels used for heating in manufacturing processes. From July 2021, exemption from the energy tax for fuels will be allowed by 35% and from 1 January 2022, the reduction will be abolished. The benchmark against which this tax expenditure is calculated is the standard energy-tax rate on heating fuels. The annual amounts reported in the tax-expenditure reports are allocated to, heating oil, LPG, natural gas and coal using the IEA’s Energy Balances for the manufacturing sector. |
|
Reduced Energy Tax Rate for Diesel used in Motor Vehicles |
The energy-tax rate on diesel (SEK 0.251 per kWh in 2020) is lower than the official benchmark for transport fuels, which is the energy-tax rate on gasoline in environmental class 1 (SEK 0.461 per kWh in 2020). The benchmark against which this tax expenditure is calculated is the energy-tax rate on gasoline in environmental class 1. The tax expenditure is the difference between the rates: SEK 0.21 per kWh. This measure was formerly called Reduced Energy Tax Rate for Diesel used in Transport. |
|
Reduced tax on gasoline and diesel |
The parliament approved the proposal Prop. 2021/22:84 to modify the Energy Tax Act. The Swedish government reduced the excise tax on gasoline and diesel to SEK 1.05 per litre of fuel from May to September 2022. This measure is expected to benefit transport services companies (which account for 18% of gasoline and 73% of diesel consumption) and households. |
|
Petroleum RD&D Funding |
Governmental support to Research, Development and Demonstration (RD&D) in the Oil and Gas sectors. This measure contains the numbers submitted to the IEA in the RD&D questionnaire, and allocates the overall amount crude oil, NGL, fully or partly processed from refining crude oil, similar liquid hydro carbons and organic chemicals, natural gas varieties according to the Swedish indigenous production data as reported in the IEA Energy Balance. The IEA RD&D questionnaire uses data reported by the Energy Analysis Department, Swedish Energy Agency. |
|
Coal RD&D Funding |
Governmental support to Research, Development and Demonstration (RD&D) in the coal sector. This measure contains the numbers submitted to the IEA in the RD&D questionnaire, and allocates the overall amount to bituminous coal, coking coal and lignite according to the Swedish indigenous production data as reported in the IEA Energy Balance. The IEA RD&D questionnaire uses data reported by the Energy Analysis Department, Swedish Energy Agency. |
|
Gas price support for households derived from price hike due to Russia’s war of aggression against Ukraine |
The government has offered resources to offset the rise in the price of natural gas resulting from Russia’s war of aggression against Ukraine. Proposition 2022/23:52, approved on 26 January 2023, allocated an additional SEK 150,000,000 to the 2023 budget to generate compensation for households that suffered from the rise in fuel prices between October 2021 and September 2022. Similarly In this way, the regulation authorizes the transfer of these resources through the Norwegian Energy Agency, to the gas grid companies, including their administrative expenses, so that they reduce the bills to 27 000 households that have registered a consumption of gas at a price above SEK 0.79 per kWH. This measure assumes a main impact in the west of the country, connected to the European gas network, and in the south, when the source of energy is gas. |
Data sources
Note on the Methodology
Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.
The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.