Sweden is at the forefront of global decarbonization, aiming for net-zero greenhouse gas (GHG) emissions by 2045. The country has also set an ambitious goal to cut GHG emissions from domestic transport by at least 70% by 2030 compared to 2010 levels. Further emission reductions will be crucial to meeting the EU’s 2030 renewable energy target.
To support this goal, Sweden has implemented a tax exemption system to encourage the use of biogas and bio-propane, helping to reduce GHG emissions.1 Since 2003, Sweden has granted tax exemptions from energy and CO2 taxes for sustainable, non-food-based biogas and bio-propane used as motor fuel (the ‘motor fuel scheme’) and, since 2007, for heat generation (the ‘heating fuel scheme’). These exemptions have been continuously extended over the years and apply to both domestically produced and imported biogas and bio-propane.
In 2020, the European Commission approved an extension of the tax exemption schemes until December 31, 2030. However, in December 2022, the Court of Justice of the European Union annulled the Commission’s 2020 decisions on procedural grounds. The Court ruled that the Commission should have conducted a formal investigation to assess whether the tax exemptions, combined with support from other Member States—particularly Denmark—resulted in overcompensation for biogas producers.
In January 2024, the European Commission launched a formal investigation, allowing Sweden and other stakeholders to submit their comments. By October 2024, the Commission concluded that the tax exemption schemes complied with EU state aid rules and subsequently reapproved both schemes.
What does the Swedish biomethane tax exemption entail?
The tax exemption schemes are designed to promote the use of sustainable, non-food-based biogas and bio-propane as motor and heating fuels, supporting environmental protection efforts. Biogas is methane derived from biomass, while bio-propane is propane or butane produced from biomass. Without these exemptions, biogas would be taxed at the same rate as fossil methane, and bio-propane at the rate of fossil propane. The tax exemptions help bridge the cost gap between sustainable non-food-based biogas and bio-propane and their fossil-based counterparts, making renewable alternatives more competitive.
Who are the beneficiaries of the tax exemptions?
Under the motor fuel scheme, the direct beneficiaries are entities responsible for paying energy and CO₂ taxes on gas and filing tax returns. These include fuel suppliers, importers of biogas and bio-propane and producers of these fuels—provided they also act as fuel suppliers or final consumers. These taxpayers are exempt from paying energy and CO₂ taxes on gas and are expected to pass on the financial benefit of the tax exemption when selling biogas or bio-propane to end consumers.
Under the heating fuel scheme, the direct beneficiaries are end users, like companies operating in the heating, district heating and manufacturing sectors. The tax exemption applies to businesses of all sizes, from small and medium-sized enterprises (SMEs) to large corporations. If an end user is directly responsible for energy and CO₂ taxes, they can deduct the tax in their own tax declaration. Alternatively, if they purchase gas with taxes included, they can apply for a refund.
Indirect beneficiaries include sustainable biogas and bio-propane producers, who will benefit from increased demand for their products as final consumers take advantage of the tax exemption.
What are the eligibility criteria?
To be eligible for the tax exemptions, the biogas and bio-propane must fulfill the sustainability and GHG saving criteria as set out in the Swedish Act on sustainability criteria for biofuels, bioliquids and biomass fuels. Only non-food-based biogas and bio-propane fulfilling the criteria are eligible for the tax exemptions. In case of blending of biogas and bio-propane with other types of gas or fuel, the tax exemptions are only applied to the renewable part of the mixture. The direct beneficiaries must provide a decision from the Swedish Energy Agency (SEA) demonstrating that the biogas and bio-propane that would benefit from the tax exemption are sustainable and non-food-based.
There are no restrictions on the type of technology used to produce gas from sustainable biomass- all biogas production technologies currently in competition are allowed.
What are the obligations of the beneficiaries?
Direct beneficiaries of the tax exemptions have a reporting obligation to the Swedish Energy Agency (SEA). The SEA collects detailed data on both domestically produced and imported biogas. Beneficiaries must report key information, including:
- Production volumes
- Import volumes
- Direct purchases of biogas
- Production and import costs
These reporting requirements help monitor the impact and effectiveness of the tax exemption schemes. However, bio-propane is not subject to the same reporting obligations due to its limited presence in the Swedish market.
Practical Implications of the Reapproval: Will Retroactive Tax Exemptions Apply?
With the European Commission’s reapproval of the tax exemptions, Swedish companies can once again benefit from tax exemptions on biogas and bio-propane used for heating, as well as biogas and bio-propane consumed or sold as motor fuel. This can be applied either by deducting the tax in their tax return or by requesting a refund.
For biogas or bio-propane purchased for heating where no tax return has been filed, beneficiaries can apply for a refund. The Swedish Tax Agency must receive refund applications no later than three years from the end of the quarter to which the application relates.
For beneficiaries who could not make tax deductions in their tax returns during the period when the schemes were inactive, they can request a review of past tax decisions and claim a refund. However, the Swedish Tax Agency will not automatically reassess past tax periods—it is up to the beneficiaries to request a reassessment in order to recover the tax.
Additionally, the Swedish Tax Agency will update the tax return form to allow beneficiaries to make tax deductions directly. This change will take effect in the tax return form for the reporting period of March 2025. Until then, beneficiaries must submit a reassessment request to claim their tax refunds.
Navigating tax exemptions and sustainability policies can be complex. Strive by STX helps businesses optimize their decarbonization strategies with tailored solutions. Contact our expert team to learn how we can support you.
