Questions and answers on road tax on biodiesel

Why has the Government proposed to remove the exemption of road tax on biodiesel?

Health and environmental emissions from road traffic will vary depending on choice of fuel. Biodiesel counts as a climate neutral fuel and is therefore exempted from the CO2-tax.

Road traffic has in general other negative consequences for the welfare of society. In addition to health- and environmentally damaging emissions, it leads to accidents (death, personal and material damage) road congestion (loss of time for businesses and individuals), noise (annoyance and health problems), and road wear and tear (increased maintenance). Costs related to accidents, congestion, noise and road wear and tear are independent of choice of fuel. Driving based on biodiesel also contributes to these road-related negative consequences. This is the reason why it is reasonable to tax biofuels.

The Government stated already in the budget of 2007 (published October 2006) that all fuels should be taxed because the use of motor vehicles is related to accidents, congestions, noise, tear and wear of the road surface and pollutions that are harmful for health and environment. There is also a European trend that taxes on biofuels are introduced.

Secondly, Norway has introduced a sales obligation that guaranties 2.5 per cent biofuel in 2009. This obligation will be achieved by low blends of biodiesel in all ordinary diesel. Today's tax exemption for biodiesel reduces the price of all autodiesel, which gives incentives to increase diesel consumption. Increased diesel consumption contributes even more to the negative consequences of road traffic mentioned above. The sales obligation will be mandatory when it comes to the total sale of biofuels in Norway. The tax exemption for biodiesel is therefore redundant, and also leads to reduced revenue for the state.

Has the Government proposed that there should be the same tax on biodiesel as fossil fuel from next year?

Biodiesel will in the future still be taxed less than fossil fuel, because biofuels are still exempted from the CO2-tax. The CO2-tax amounts to 214 NOK per ton CO2, whereas the carbon price in the european emission market lately has been about 100-150 NOK. Up till today biodiesel has not been subject to the road tax on diesel. The exemption from the road tax will be halved in 2010, and phased-out completely from 2011.

Will the road tax reduce the sale of biodiesel?

The sales obligation of biofuels will secure that fossil fuels are replaced by biofuels. Biodiesel consumption was low in Norway until the Government signalized to introduce a sales obligation in 2007. The Government has expressed that it plans to raise the sales obligation from 2.5 pct. to 5 pct. in 2010 conditioned upon an evaluation of the climate effect of biofuels, the development of sustainable criterias for biofuels in the EU, and the development of politics on this area in other countries. EU legislation will also bind Norway to put effort into shifting to more renewable energy in the transportation sector. These initiatives will reduce climate emissions from the transportation sector.  

Is the introduction of road tax on biodiesel in line with the common policy trend in Europe?

The European trend is to reduce or abolish tax exemptions for biofuels and instead use biofuel sale obligation. Germany, the main European producer of biodiesel, introduced a tax on biodiesel already in 2007. At the same time a biofuel sale obligation was introduced. The Swedish government has also stated that the tax exemption on biofuels should be abolished no later than 2014. They have also stated that a biofuel sale obligation can be introduced.

The Norwegian policy on biofuels, including introducing a biofuel sale obligation and abolishing the tax exemptions for biodiesel, is thus in line with the common policy trend on biodiesel in the major biodiesel markets in Europe.

Has the Government proposed to allocate funds for developing new environmental technology?

The government proposed in the budget for 2010 to allocate 100 million NOK to a new scheme for development of environmental technology under Innovation Norway. Through the budgetary procedure of the Norwegian Parliament (the Storting) the government parties propose to strengthen the new support scheme with additional 40 millions NOK. Thus, in total 140 million NOK is allocated, of which 100 million is earmarked to the development of second generation biodiesel.