The European Commission Green-lights Sweden’s Tax Exemption Schemes

On 23 October 2024, the European Commission approved Sweden´s tax exemption schemes for non-food-based biogas and bio-propane used for heating or as motor fuel. This follows a lengthy procedure in which the two June 2020 Commission decisions to approve the schemes were annulled by the General Court on procedural grounds in December 2022. In January this year, the Commission opened an in-depth formal investigation procedure to re-examine the compatibility of the tax exemption schemes under EU State aid rules. The Commission now confirms its previous stance and declares that the schemes are in line with the rules. Thus, the Swedish tax exemptions for biogas and bio-propane, which were removed in March 2023, can now be re-introduced.

What Do the Tax Exemption Schemes Entail?
The two schemes exempt biogas and bio-propane used in heat generation and as motor fuel from energy and CO₂ taxation. The exemptions apply equally to both domestic and imported biogas and bio-propane. The aim of Sweden’s policy is to increase the use of biogas and bio-propane and reduce the use of fossil fuels and their greenhouse gas emissions.

The Basis for the Commission´s Decision
The Commission has now assessed whether the tax exemptions combined with support from other Member States, notably Denmark, led to biogas producers being overcompensated for their sales of biogas in Sweden. The Commission now concludes that there is no concrete evidence to show such an effect and that the schemes comply with EU State aid rules, in particular with the Guidelines on State aid for environmental protection and energy and the Guidelines on State aid for climate, environmental protection and energy. The Commission finds that the schemes contribute to the development of renewable energy, in line with national and EU energy and climate objectives, and that they are necessary, appropriate, and proportionate. Particular importance is placed on the fact that Sweden and Denmark consider the impact of potential support from other Member States when monitoring their schemes, and that the risk of overcompensation is appropriately addressed through the combination of the Swedish and the Danish monitoring mechanisms.

Impact of the Decision
As the Commission concludes that Sweden´s tax exemption schemes are compatible with EU state aid rules many actors and enterprises within the affected market have drawn a sigh of relief. The decision enables enterprises operating within this market in Sweden to feel more secure of the terms and conditions of their operations moving forward. The tax exemption schemes entail large financial impacts for the hundreds of affected companies ¬- the estimated budget for the period of 2021-2030 was over 10 billion SEK.

Nevertheless, there are still uncertainties moving forward. The Swedish government released a statement the same day as the Commission’s decision was made, declaring that it will analyze the terms in the decision together with the Swedish Tax Agency, and that the latter will then provide information on how the retroactive and future tax exemptions will be paid out to Swedish companies. It is therefore still uncertain how and when affected companies will be compensated. The re-introduction of the Swedish tax exemption schemes and the compensation will therefore have to be continuously monitored to determine the future terms for the market actors.