Economic environmental policy instruments

Finland, like other Nordic countries, has largely based its environmental policy on administrative regulations, site-based emission permits and mandatory reporting systems. In the beginning of the 1990s, however, a number of economic instruments were introduced for environmental purposes. Since then emphasis in taxation has gradually been shifted from taxation of labour to taxation of the use of natural resources and of activities polluting the environment.

Most important taxes with environmental components are tax on waste, car tax and excise duty on fossil fuels and electricity.

Finland's energy taxation system

The present energy tax system consists of duties on traffic fuels and heating fuels, and on electricity. The fuel duty is divided into a basic duty and an additional duty. The basic duty is differentiated in order to promote environmental protection and, therefore, lower tax rates are applied to desulphurised reformulated petrol, as well as to desulphurised diesel oil. The additional, environmentally-based duty (the so-called CO₂ tax, introduced on 1 January 1990) is determined on the basis of the carbon content of the fuel. Since January 2008, the rate of the additional duty is €20 per tonne of carbon dioxide for liquid fuels and coal. Reduced rate is applied on natural gas.

Since 1997, no taxes on fuels for electricity production have been applied. Instead, there is an output tax on electricity, which falls into two classes: a lower rate for industry and greenhouse cultivation and a higher rate for e.g. households and the service sector. To improve the competitiveness of renewable energy sources and to partly compensate for the tax, subsidies are granted to electricity produced by e.g. wind, small-scale hydropower and recycled fuels.

Economic instruments for water pollution control

Municipalities have the primary responsibility for providing delivery of fresh water and treatment of waste water. These services are financed by charges collected from the users. Water and waste water tariffs are decided by each municipality. In addition to volume charges, there are fixed components, e.g. a connection charge designed to cover the investment costs by the municipality in water service management. Industry often abstracts its water directly from surface water or groundwater sources, and is also responsible for the treatment of its own waste waters.

Municipal water charges are based on a "full-cost principle". This means that the total cost of providing the water services should be paid by the users. On the whole, this principle applies but for individual water or waste water works the situation may differ to some extent due to state subsidies for water management. In February 2008 the average total price for blocks, including the volume component and fixed components was € 1.27 per cubic metre for water and €1.90 per cubic metre for waste water.

Economic instruments for waste management

Municipalities are responsible for the collection, treatment and reuse of household waste. Waste service charges are set at levels covering the cost of the service. The average municipal waste charge in 2007 is estimated at  €100 per tonne for treatment plus roughly the same for collection.

The waste tax came into force in 1996. The tax applies to waste deposited in municipal landfills; private landfills, such as industrial waste dumps, are excluded from the tax. The rate is €30 per tonne from January 2005 (included in the municipal waste charge figure above).

Waste-related taxes are also imposed on drinks packages as well as on lubricating oils.

For more information

Mr. Magnus Cederlöf, Senior Technical Adviser, e-mail: forename.surname@ymparisto.fi [magnus.cederlof]

Mr. Timo Parkkinen, Senior Economic Adviser, e-mail: forename.surname@ymparisto.fi