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Sweden stands out as a global leader in climate policy, thanks in part to its carbon tax, which has played a central role in reducing greenhouse gas emissions since its introduction in 1991. Alongside the country’s longstanding energy tax, first levied in the 1920s, the carbon tax is a cornerstone of Sweden’s fiscal and environmental strategy.
How Sweden’s Carbon Tax Works
Sweden’s carbon tax is based on a trade-unit calculation—fuel is taxed based on quantity or weight, reflecting its carbon content. Because carbon dioxide (CO₂) emissions are directly proportional to carbon content, there’s no need to measure emissions from combustion directly. This design simplifies tax collection and compliance.
Importantly, sustainable biofuels are exempt from the tax because they do not contribute net CO₂ emissions, reinforcing Sweden’s commitment to renewable energy.
Who Pays the Carbon Tax?
The carbon tax applies broadly to fossil fuel use, with the following exceptions:
- Power generation fuel is exempt.
- Industrial fossil fuels are taxed at 50% of the standard rate.
- Industries participating in the EU Emissions Trading Scheme (EU ETS), launched in 2005, are exempt from the domestic carbon tax to avoid double carbon pricing.
Carbon Tax Rates and Revenue Use
When launched in 1991, Sweden’s carbon tax was set at 250 SEK per tonne of CO₂. By 2021, the rate had increased nearly fivefold to 1,200 SEK per tonne, making it one of the highest carbon tax rates globally.
These gradual, predictable increases have allowed businesses and households time to adapt, making the policy more politically sustainable and economically effective.
Although transport fuels generate the bulk of carbon tax revenue, Sweden does not earmark these funds for climate programs. Instead, revenues flow into the general government budget, meaning climate investments must compete with other national priorities.
Vehicle Tax Based on CO₂ Emissions
Sweden also integrates carbon pricing into vehicle taxation, with a tax formula based on several technical characteristics. Emissions are calculated using this formula:
- Emissions (g/km) = 10523.452 + (vehicle weight × 0.063) + (four-wheel drive × 23.569) + (vehicle year × -5.234) + (non-manual × 7.127) + (engine power × 0.195)
Formula Variables:
- Vehicle weight: In kilograms, up to a maximum of 3,500 kg.
- Four-wheel drive: Enter 1 if present, otherwise 0.
- Transmission: If non-manual, enter 1; if manual or unknown, enter 0.
- Vehicle year: Calendar year of manufacture.
- Engine power: Measured in kilowatts (kW).
This formula encourages lower-emission vehicle design and informs both taxation and consumer behavior.
Sweden’s Carbon Tax in Summary
| Aspect | Detail |
|---|---|
| Start Year | 1991 |
| Current Rate (2021) | 1,200 SEK per tonne CO₂ |
| Coverage | All fossil fuels, excluding power generation and EU ETS sectors |
| Exemptions | Biofuels, power sector, EU ETS-covered industries |
| Revenue Use | General budget (not earmarked for climate spending) |
| Complementary Taxes | Vehicle tax based on CO₂ emissions and technical parameters |
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