The Economic and Environmental Impacts of Biofuel Taxes on Heating Plants in Sweden

Abstract

Sweden’s energy policy is currently based on a large-scale introduction of biofuels. Following a 1980 nuclear power referendum, the current plan is to phase out nuclear power, replacing nuclear energy with renewable energy sources. This policy is supported by various tax breaks for biofuels. There is an ongoing discussion about a restructuring of the energy tax system, which will have far-reaching impact on the markets for biofuels. This paper evaluates the impact of changes in current energy taxation by analyzing a panel of approximately 150 district heating plants in Sweden. We estimate plant-specific production functions and derive the economic repercussions of the tax. We also estimate the resulting changes of emissions of sulfur, NO_x and particulates and assess the externality costs.