As a landlocked country producing no fossil fuels, Switzerland relies heavily on hydroelectricity and nuclear power to meet the bulk of its electricity needs. Compared with its neighbouring countries, Switzerland has a relatively high share of hydroelectricity. The government has announced that nuclear power, which accounted for nearly 22.5% of the total energy supply (TES) in 2021, will gradually be phased out with Swiss voters backing the proposal in a May 2017 referendum. In the wake of this electoral decision, the Mühleberg nuclear power plant went off-line in December 2019, marking the first of five Swiss nuclear power reactors to be decommissioned. Due to the scarcity of fossil-fuel production and the overhaul of the country’s policy towards nuclear power, imports of types of energy products account for over a half of the country’s total primary energy supply in 2021.
OECD Inventory of Support Measures for Fossil Fuels: Country Notes
Switzerland
Energy resources and market structure
Source: IEA (2022), "World energy statistics", IEA World Energy Statistics and Balances (database).
Oil products are by far the largest energy source in Switzerland and all its crude oil is imported – around 39% comes from Nigeria, followed by 32% from the US, and 25% from Libya. The latter is then transformed in the only remaining refinery that has an output covering around 25% of total domestic demand for petroleum products in 2022, down from around 46% in 2011, when multiple refineries were still in operation. Finished petroleum products are imported almost exclusively from other European countries – first and foremost from Germany. The retail market on the other hand is fully liberalised. As for natural gas, transmission and distribution remain vertically integrated for the most part despite the law allowing for open third-party access to the high-pressure grid. Local natural-gas suppliers can connect to the grid but must comply with fees set by the operator (Swiss Gas Industry Association). Disputes over high-pressure grid access and tariffs are subject to the remit of the SFOE, the Swiss Federal Office of Energy.
Fossil fuels contribute very little to electricity generation in Switzerland since hydroelectric and nuclear power can cover up to 97% of the country’s electricity needs, depending on hydrological conditions. Competition was introduced for large customers with the 2008 Law on Electricity Supply (the Stromversorgungsgesetz), which unbundled the electricity market and established an independent regulator (ELCom) to oversee open and non-discriminatory access to the grid.
Energy prices and taxes
Prices of petroleum products in Switzerland are set by the market. Wholesale prices of natural gas do not vary much across the country, as it is sold to utilities at cost by Swissgas AG and four regional associations; but retail gas prices are subject to more variation, depending on local circumstances. For electricity, most companies and all households remain subject to regulated prices, which in the past have generally been lower than those set by the electricity exchange.
All energy sales are subject to a value-added tax, with the normal rate set to 8.0% up until December 2017, that has since been slightly lowered at 7.7% afterwards. Additional taxes are levied on heating and process fuels (CO2 levy), on the sales of mineral oils and a private organisation-collected compensatory surcharge for CO2 emissions on motor fuel oil. Electricity is also subject to a renewable production support levy in a form of a network surcharge.
In the wake of the COVID-19 pandemic, discussions in the administration are ongoing on strengthening the CO2 legislation. Among these changes are the introduction of CHF 30-120 levy on air tickets, proposed to be levied on all flights from the country with amounts depending on the class of travel taken and distance. Levies of between CHF 500-5,000 are also proposed for flights on private aircrafts with exemptions set for transit flights, flights for medical purposes and flights for sovereign purposes. These proposals, while initially passed by the parliament, were however rejected in a referendum in June 2021.
Figure 2. Total tax rebates and support for fossil fuels in Switzerland
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 bulk of fossil fuel support instruments in Switzerland can be seen on measures benefitting the transportation sector. Largest among these are excise tax exemptions on most uses of aviation fuels that normally applies to most sales of mineral oils in the country. For individuals, there are also deductions claimable from the federal direct tax on commuting expenses capped at CHF 3 000 at the federal level, where Switzerland has a relatively high use of fossil fuels in its transportation sector. Cantons similarly allow deductions for commuting expenses through cantonal and municipal income taxes, which are often more generous than the federal deduction.
Significant revenue forgone amounts can also be observed on exemptions on CO2 levy for certain large energy-intensive companies for fuels used on heating and non-energy purposes. The CO2 levy was introduced in January 2008 at a price of CHF 12 per tonne of CO2. Because interim targets have not been met, this price was raised in 2010 (CHF 36 /t CO2), 2014 (CHF 60 /tCO2), 2016 (CHF 84/tCO2), 2018 (CHF 96/tCO2) and CHF 120/tCO2 from 2022. To offset potential losses of competitiveness arising from the tax, certain large industrial users of energy (i.e., energy-intensive companies) can be exempted from the additional charge levied on heating and process fuels since 2008. Those companies must, however, commit to legally binding CO2-reduction targets or are covered by the Swiss emission trading scheme ETS.
Measures directly benefitting the transport sector saw declines in support amounts in 2020 as covid-19 mobility restrictions were implemented and consumption of transport fuels significantly fell as a direct consequence. The effects of these can be clearly seen in the aviation sector, where the excise tax exemption for the aviation sector recorded a 64% fall in revenue foregone in 2020 with the aviation sector slowing to a minimum, particularly during the early stages of the pandemic. This remained the case for 2021 with a marginal increase, as covid restrictions continued albeit on a less stringent nature as the economy gradually prepared for a full re-opening.
Interestingly, the increase in wholesale energy prices in Europe following Russia’s war of aggression against Ukraine has not prompted Switzerland to put in place measures to shield consumers from the direct impact of rising fossil fuel prices. With Swiss electricity generation relying mainly on hydropower and nuclear power, the Swiss government instead announced in late 2022 another approach to achieving energy security involving the expansion of the hydropower and solar power capacities.
The fiscal cost of support measures for fossil fuels in Switzerland was estimated at CHF 2.17 billion in 2022 (Table 1). Eighty-four per cent (84%) was directed at end user beneficiaries, as opposed to 16% directed to firms. Support was mainly given out in the form of tax expenditures (CHF 2.17 billion) accounting for 100% of the total fiscal cost of support measures.
The fiscal cost of support measures for fossil fuels has decreased by 9% since 2017. Since last year, tax expenditures have increased by 47%, from CHF 1.50 billion to CHF 2.17 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 |
2.386 |
2.458 |
2.552 |
1.429 |
1.498 |
2.172 |
|
Direct transfers |
0.008 |
0.004 |
0.003 |
0.003 |
0.002 |
0.002 |
|
Total |
2.393 |
2.462 |
2.555 |
1.432 |
1.500 |
2.174 |
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 |
|
|||
|
Excise Tax Exemption for Aviation |
1.267 |
1.619 |
-0.352 |
|
|
Deduction of commuting expenses from the federal direct tax |
0.372 |
0.315 |
0.057 |
|
|
CO2 Tax Exemption for Large Energy Consumers and Non-energy Purposes |
0.313 |
0.279 |
0.034 |
|
|
Direct transfers |
||||
|
Petroleum RD&D Funding |
0.002 |
0.008 |
-0.006 |
|
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
|
Excise Tax Exemption for Aviation |
Most uses of aviation fuels are entitled to exemption of the excise tax that normally applies to most sales of mineral oils in Switzerland. These uses include refuelling aircrafts operating on international routes and imports of fuels in the reserve tanks of aircrafts or in reserve jerrycans. |
|
Deduction of commuting expenses from the federal direct tax |
This measure provides a tax relief for travels between home and work with the federal direct tax (federal income tax). Starting with the tax year 2016, the deduction is capped at CHF 3 000 at the federal level. |
|
CO2 Tax Exemption for Large Energy Consumers and Non-energy Purposes |
This provision exempts certain large industrial users of energy (i.e. energy-intensive companies) from the CO2 tax that Switzerland levies on heating and process fuels. Companies exempted from the CO2 tax must, however, commit to legally binding CO2-reduction targets. Companies that participate in the emissions trading scheme are also exempted from the CO2 levy. The CO2 tax is also reimbursed for fuels used for non-energy purposes. |
|
Petroleum RD&D Funding |
Government support is provided to Research, Development, and Demonstration (RD&D) in the oil and gas sector. |
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.