Põllumajandusministeeriumi ja Maaelu ... - bioenergybaltic

The taxation measure aimed directly to promotion of bioenergy is the exemption of biofuels
from excise tax. According to the Alcohol, Tobacco and Fuel Excise Duty Act the biofuels are
exempted from the fuel excise duty in case the relevant permit has been obtained from the
European Commission (EC) for the exemption. The permit was received – by decision of the
EC Estonia has the right to apply excise tax exemption on biofuels for six years (since 27 July
2005).
Up to now, the impact of this tax exemption has been marginal: the Tax and Customs Board
has issued only 11 permits (as of 1 December 2007) for production and releasing for
consumption of biofuel. In 2006, the permit owners have produced almost five thousand tons
of biofuel, 1.17 thousand t of which has been released for consumption – this is an extremely
small quantity. Nevertheless, some positive changes have taken place: in June 2007
construction of a large biodiesel production plant was started in Paldiski. The planned output
of this plant is 300 tons of fuel per day.
Another taxation measure supporting use of biomass fuels indirectly is the imposition of
pollution charges on combustion of fuels. In the end of 2005 the Parliament of Estonia –
Riigikogu – passed the Environment Charges Act that may be considered as a first element of
ecological tax reform in Estonia. The Act provides an obligation for owners of combustion
equipment to pay pollution charges for several pollutants emitted into air. The pollution charge
for release of carbon dioxide into ambient air had been introduced already in 2000. Since 1
January 2008 the CO 2 charge has to be paid by all enterprises producing heat, excluding the
ones firing biomass, peat or waste.
It has to be noted that the foreign trade of biomass needs more analysis in relation to emission
trade of GHG. For example, Estonia exports almost all of the quite large production of wood
pellets – in 2006 more than 250 thousand tons of pellets were exported. This results in loosing
essential amount of potential emission reduction, as in case of utilizing this amount of wood
fuels in Estonia (replacing fossil fuels) it could enable to reduce here the CO 2 emission by
330 – 620 thousand tons (depending on fuel). Currently, this essential amount of emission
reduction is included in GHG balances of countries importing pellets from Estonia.
As a conclusion on current situation, it has to be emphasized that up to present the measures
supporting investments have been of a non-regular character. The measures supporting
operations have been mainly indirect ones, the only exception is the exemption from excise
duty for biofuel. It is recommended to have measures with more stable character, but
introduction of new measures must be preceded by defining national priorities which in turn
presumes thorough impact analysis of various aspects, including life cycle analysis based on
energy, environment and economic aspects considering Estonia’s circumstances. Also, a
question of 'food versus fuel' must be considered: how much land and other resources are
available, how should they be used and what are the priorities in this aspect. And, last but not
least, all national support measures for production and use of biomass must comply with
Community state aid policy, i.e. there should not be undue distortions of competition.
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