Carbon taxes have existed for nearly 20 years in the wold. It is firstly emerged in Finland in 1990s. The tax rate is $30 per metric ton CO2. Originally, the carbon tax is based only on carbon content, it subsequently evolved to a combination carbon/energy tax. Direct statistical data about carbon tax is currently unavailable in Finland. According to Statistics Finland, tax types are listed as energy taxes, transport taxes, emissions taxes and resource taxes. In 2011, total environmental taxes levied are 58.353 EUR billion. 2/3 of total sum of environmental taxes are energy taxes on electricity and fuels. Nearly 1/3 are various transport taxes levied from vehicles. The 2% emission taxes are mostly waste taxes. [1]From industry aspect, the energy taxes are mainly from household, land and pipeline transport and oil refining industry.
Motivation and Goals
From the common sense, the purpose of the carbon tax is to curb the emissions of GHG, the massive stock of GHG results global warming and initiates extreme weather events. Well, except for the noble goal, the other is initial purpose is revenue collection for government. The Ambassador of Finland Anne Lammila said the motivation for Finland to create a carbon tax is ‘to get more money for the government because Finland economy collapsed for the reason of collapse of the Soviet Union at the beginning of nineties. On the other hand, the oil crisis makes deeper understanding of policy motivated by environmental aspects.’[2]
As a member of EU member states, Finland committed under the Kyoto Protocol to bring annual GHG emission down to their 1990 level in 2008-2012 period. From period 2013-2020, Finland supports EU’s commitment which pledged an EU wide quantified emissions reduction to bring emissions to 20% below 1990 level. [3]The energy strategy and climate strategy of Finland intertwines. Its revised long-term Climate and Energy Strategy in 2008 defines the principal objectives and means of Finland’s climate and energy policy for the next few decades, within the contest of the EU. In 2009, Finnish government adopted the Foresight Report on Long-term climate and energy policy to supplement the longer-term ambitions of the 2008 strategy. The report outlined possible paths to low-carbon Finland by 2050. It sets a target for Finland to reduce its GHG emission by at least 80% from 1990 level by 2050. [3]
Carbon tax/energy tax and EU-ETS
The IEA report claims that the increase in Finland’s emissions by 2050 is almost entirely due to emissions from sectors covered by the EU-ETS sector. The EU-ETS is a mandatory cap-and-trade system established for limiting emissions from energy and emission-intensive sectors. The missions trading sectors includes coal, peat-fired power plants, district heating, oil refineries and energy-intensive industry sectors. Their emissions accounted for 52.4% of total national GHG emission in 2011. The 47.6% Sectors or activities not covered by the scheme should be dealt with energy or carbon tax.[4] Industry like transport, buildings and agriculture, small industry and waste are subjected to rising tax supplemented by a range of other polices.
Carbon tax implementation
The carbon tax of Finland experienced a series of adjustments and explorations. A technical report of National Renewable Energy Laboratory of the U.S. Department of Energy office in 2009 [5] notes that at the beginning of launch, Finland’s carbon tax is separate component of tax levied on fossil fuels for transportation or heating, it applies to gasoline, diesel, light fuel and heavy fuel oil, jet fuel, aviation gasoline, coal and natural gas. Commercial vessels and commercial air traffic as well as fuels used for electricity are exempt. The rate per kWh for electricity does not vary according to carbon content, however, a refund is applicable for renewable electricity. We are also informed that Finland’s carbon tax was initially based on carbon content, it was modified to include a 3/5 carbon component and 2/5 energy component. The energy tax was based on energy use in Mega Watt hour rather than on carbon content of fuel. Starting from 1997, Finland returned to a pure carbon tax. The carbon tax was most recently increased to €20 per metric ton CO2 on January 1, 2008.
The International Energy Agency mentioned tax reform of Finland in its 2013 review of energy policies of IEA countries[3]. In 2011, the government changed the structure of energy taxes on fuel for transport and heat and power plants. The taxation includes the energy content, CO2 emissions and particle emissions that have adverse health effects. In 2011, an additional EUR 730 million was collected in taxes on fuel for heat and power plants, and energy taxes on electricity. In addition, tax on natural gas is to be increased. Peat is now subject to a tax. The weight of levies on carbon dioxide has been raised from their 2010 level. Biofuels which meet the sustainability criteria will be levied carbon tax, but a flat-rate tax reduction of 50% is applicable. The biomass originated from waste and residues, non-food cellulosic and lignocellulosic materials is completed exempted from the CO2 tax. The CO2 tax does not apply to wood and other biomass used in the production of energy. From the start of 2011, carbon tax for fossil fuels used in combined power and heat production were lowered by 50%.
Distribution
Tax revenues could be used to achieve socially desirable objective. The revenue collected through carbon tax is distributed to compensate government budget accompanied by independent cuts in income taxes. The tax-shifting packages could mitigate the regressive impact of carbon tax or cap-and-trade program (disproportionately affect low-income households). Furthermore, tax-affecting firms and sectors may desire compensation for the loss of profitability and assistance in addressing competitiveness concerns.[6] A concern is that the tax burden may weaken the competitiveness of Finish companies.
Cost effectiveness evaluation
One of the most rudimentary metrics for measuring carbon tax effectiveness is overall reductions in GHG emissions that can be tracked.[5] According to Prime Minister’s Office, Finland (2000), emissions were 7% lower in 1998 than they would have been without a tax. Also, the impacts of programs funded by specific carbon mitigation measures can be quantified to determine program effectiveness. With such program evaluation, governments administering carbon taxes can change the rate or shift funds to program that are more effective at reducing emissions. [5]
Reference:
Reference:
[1] Statistics Finland. (2013, Sept). Environmental taxes 2011, by industry.
https://www.stat.fi/til/yev/2011/01/yev_2011_01_2013-09-26_tie_001_en.html
[2] YouTube. (2013, Nov). Carbon tax works in Finland
https://www.youtube.com/watch?v=8j5gop745ek
[3] International Energy Agency. (2013). Energy Policies of IEA Countries-Finland-2013 Review
http://www.iea.org/Textbase/npsum/finland2013SUM.pdf
[4] National Treasury, Republic of South Africa. (2013, May).Carbon Tax Policy Paper.
[5] Jenny Sumner, Lori Bird, Hillary Smith. (2009, Dec).Carbon Taxes: A Review of Experience and Policy Design Considerations.
http://www.nrel.gov/docs/fy10osti/47312.pdf
[6] Pew Center, Global Climate Change. (2008, Fall). Tax Policies to Reduce Greenhouse Gas Emissions.