Tax subsidies for power production based on renewable energy sources

Subsidies for power production were introduced in connection with tax reforms in 1997. This revised tax system replaced a combined CO2 and energy tax introduced in 1994. Based on the revised tax system, electricity is taxed at its consumption stage and fuels used for power production are tax-free. Tax subsidies are paid for power production based on renewable energy sources. These subsidies were extended in 2003 to cover nearly all power production based on renewable energy sources, except for large-scale hydropower. However, in 2007 subsidies were removed from electricity produced using wood and wood-based fuels except for forest chips. Furthermore, they were removed from electricity produced with the waste gases from metallurgical processes and the reaction heat from chemical processes. Due to the changes in the operating environment caused by the European Union Emission Trading Scheme, these production types are considered competitive and therefore ineligible for subsidies. As of 1 January 2007, electricity produced through windpower, small-scale hydropower (below 1 MVA), recycled fuels, biogas and forest chips are eligible for subsidies. The tax subsidies have three levels: the subsidy for wind power and electricity produced with forest chips is Eur 0.69 (cents per kilowatt hour), that for electricity produced using recycled fuels is Eur 0.25 per kWh and the subsidy for others is Eur 0.42 per kWh.

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