Swedish ministry issues HFC tax proposal

The Swedish Ministry of Finance has published a proposal on introducing a tax on HFCs. The proposed tax is expected to decrease emissions by around 0.1 million tonnes of CO₂ equivalents by 2020, while a proposed premium to be paid when HFCs are delivered for destruction will contribute to further reductions.

Responding to a government instruction issued on September 2008 to investigate whether a tax would be the most appropriate instrument to reduce emissions of F-gases, the Swedish Ministry of Finance (Finansdepartementet), has published a proposal on introducing an HFC tax in Sweden. The conclusion of the Inquiry is that a tax on HFCs is the most appropriate instrument to reduce emissions of F-gases. The study estimates that, if the tax is introduced, a reduction in emissions by 2020 due to the tax of around 0.1 million tonnes of carbon dioxide equivalents will be achieved.

The proposal

The HFC tax should be of a general nature without exemptions or reduced tax levels and be charged on HFC which is brought into the country or manufactured here. The proposed tax rates will be:

• set initially at a level corresponding to the reduced carbon dioxide levied on industry not covered by the EU emissions trading scheme: In 2009 this level is 22 öre (Swedish Krona cents) per kg (21% of the general level, which is 105 öre per kg of carbon dioxide in 2009).
   
• based on the respective HFC compound’s GWP (Global Warming Potential): and be charged on the actual content of HFC. Accordingly, different HFC compounds will have different tax rates.
   
• complemented by a premium which is to be paid when HFC is delivered for destruction: This premium should be the same size as the tax, although the premium will be paid regardless of whether tax has previously been paid on the HFC delivered. The premium may contribute to further emission reductions.

In concrete, this would translate in a tax of 287 (=1,300 x 0.22) Krona per kg for the case of R-134a, which is about 26 €/kg.

Rationale for the proposal and recognition of natural refrigerants

• Increasing emissions of F-gases in Sweden: The study maintains that the total emissions of F-gases in Sweden have increased from around 0.5 million tonnes of CO₂ equivalents in 1990 to around 1.2 million tonnes of CO₂ equivalents in 2007. Furthermore, HFC accounted for 69% of CO2 equivalents from F-gases in Sweden in 2007 and is estimated to account for 90% in 2020, without a tax.
   
• Increasing emissions from HFC refrigerants and natural alternatives: With regards to emissions attributed to the use of HFCs as refrigerants, the study estimates that in 2020 82% of the emissions from HFC will derive from such use, reflecting the increased use of HFCs as HCFCs are being phased-out. Nonetheless, “there are alternatives to HFC in the area, such as hydrocarbons, carbon dioxide and ammonia”, reads the document.
   
• Lack of instrument that will reverse the trend of increased use of HFCs as refrigerants: According to the document, no instrument which will reverse the trend of increased use of HFCs as refrigerants has been identified, besides the MAC Directive. Following the introduction of Regulation 2006/842/EC on certain fluorinated greenhouse gases, Sweden has ”no longer any control of filling quantities […] In the light of this, the Inquiry considers that an instrument is needed to reduce the use of HFC and thus reduce emissions of F-gases”
   
• Following the example of the Danish and Norwegian taxes on F-gases: The document maintains that the Norwegian and the Danish taxes on F-gases “has had the greatest impact on HFC as a refrigerant in such a way as to increase use of alternative refrigerants, at the same time as both leakage of HFC and the quantity of HFC has decreased in the facilities”.

Environmental consequences

The forecast produced by the study shows that emissions due to a tax on HFCs is expected to decrease emissions by around 0.1 million tonnes of CO₂ equivalents by 2020. “In addition, the proposed destruction premium can also be expected to reduce emissions of F-gases, partly by HFC being delivered for destruction to a greater extent than at present and partly by a decrease in the average annual leakage due to the early scrapping of older equipment”.

Next steps

The proposal is now open for consideration until the 5th of October. If accepted, the proposed tax on HFCs, together with the proposed premium, should be possible to enter into force on 1 July 2010.