Energy-related taxation as an environmental policy tool—the Finnish experience 1990–2003

Finland has over 10 years experience of environment-based energy taxation. The design and level of the CO2 and energy tax scheme has been changed several times on an ad hoc basis. In recent years, Finland has introduced more and more tax “departures”, i.e. deviations and exceptions from an “ideal” type of environmental tax. Examples of this include fuel-specific and user-specific exemptions or lowered tax levels taxes on electricity production from non-fossil energy sources, plus refund systems for fossil fuel and electricity users. Thus, it is apparent that Finnish energy taxation aimed at improving the environment has developed ineffectively. Increases in the level of CO2 tax on fossil fuels have served mostly fiscal purposes with reduced CO2 emissions being only a side benefit. No systematic follow-up or ex post analysis on the impacts of the CO2 and energy taxes has been carried out. From the perspective of greenhouse gas mitigation, the discussion on economic instruments has shifted from CO2 taxation towards emissions trading in the international context of the European Union and the Kyoto Protocol.