Sweden proposes divisive fuel tax hike

The Swedish government has proposed rises in diesel and vehicle taxes in a move designed to cut carbon emissions.

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Energy taxes on diesel are set to rise by 0.40 kronor ($0.04) per litre and a scale introduced to link vehicle tax to carbon emissions. Taxes will rise for every extra gramme of carbon dioxide emitted.

New eco-cars will also be made exempt from vehicle taxes for their first five years.

These are some of the suggestions in the government's climate proposition, presented by cabinet ministers, Anders Borg, Maud Olofsson and Andreas Carlgren, in a debate article in Dagens Nyheter on Tuesday.

"The rule should be that it should be expensive to drive with fossil fuels," environment minister, Andreas Carlgren, said at a press conference in connection with the presentation of a new book of climate proposals and their costs in Stockholm.

The Green party climate spokesperson, Karin Svensson Smith, described the proposition as "far too weak" and was critical of the lack of a proposal to introduce a kilometre tax on lorries.

The Federation of Swedish Farmers (LRF) was scathing in its criticism of the proposed rise in diesel taxes in a statement on Tuesday morning.

LRF called the tax rise a "declaration of war" and claimed the impact of higher fuel costs would be severe on the Swedish agricultural sector.

According to Lars-Göran Pettersson at LRF the higher diesel taxes will cost the sector around one billion kronor per annum.

"Already at current levels we are above average in European terms. We will now be in a situation of where large tracts of Swedish agriculture will be in threat," Pettersson claims.

Andreas Carlgren has responded to the criticism by claiming that the rise in diesel taxes, in preference to a kilometre tax on lorries, is a more efficient way of meeting carbon emissions targets.

"Tax rises will be compensated by tax cuts, for companies through lower social and payroll taxes," said Carlgren, adding that these proposals will be presented at a later date.

The government proposes that taxes on diesel be raised in two 0.20 kronor steps with the first rise planned for January 2011 and the second in January 2013.

New eco-cars will become exempt from vehicle taxes from January 2010. This would replace the current 10,000 kronor rebate given to buyers of all new electric or renewable fuel cars.

The tax exemption would also apply to new vehicles that emit less than 120 grammes of carbon dioxide per kilometre.

For all cars emitting more than 120 grammes of carbon dioxide per kilometre, vehicle taxes will rise by five kronor to 20 kronor for every extra gramme from January 2011.

Furthermore taxes on fuel for heating within industry, agriculture and forestry will climb from 21 percent to 60 percent.

The proposals are part of Sweden's commitment to cut carbon emissions by 40 percent in comparison with 1990 levels, one of the most ambitious targets of all the European Union countries.