Study: Blending with fuels to achieve CO2 reduction targets in transport

Case study: Sweden
Study commissioned by the Austrian Automobile, Motorcycle and Touring Club (ÖAMTC)

In 1991, Sweden made extensive changes to its environmental and energy policy, including the introduction of a tax on CO2 emissions as part of a comprehensive tax reform. To ensure that the tax burden remained unchanged at the beginning, other taxes were reduced. This affected, for example, the energy tax (the Swedish equivalent of the mineral oil tax), which was reduced by fifty percent. This represents a significant difference to Austria, particularly at the time the tax was introduced, as no corresponding adjustments were made to the mineral oil tax in Austria. Over time, Swedish CO2 tax rates have been consistently increased and are currently the highest in the world.

In addition to tax measures, the blending of alternative fuels was introduced in Sweden from the 1990s onwards through a combination of tax incentives for blending and mandatory blending quotas for biofuels, which led to a sharp increase in the share of biofuels in energy consumption in the transport sector and a reduction in emissions from the transport sector.

A key factor in the success of the Swedish system, which consisted of a combination of a CO2 tax and increased biofuel blending, was that the obligations were increased over time, which reinforced the reduction in emissions.

In Austria, the CO2 levy was introduced in October 2022 with an initial price of 30 euros per tonne as an additional levy. This levy applies to companies that produce or import fuels in Austria, among others. The main aim of the levy is to motivate consumers to emit less CO2. The price is to be gradually increased and reach the target value of 55 euros by 2025. After that, the prices are to be released - similar to the EU ETS.

Austria's central goal in the transport sector is to achieve climate neutrality in the transport sector by 2040. According to estimates by Fichtinger et al. (2023), an important interim goal is to reduce emissions from car traffic to 6.9 million tons by 2030.

As in Sweden, there is currently a tax exemption for pure biofuels and a reduced rate for blends of biofuels. However, it should be emphasized here that the reduced rate applies to all blends (from E5 or B7), but regardless of the degree of blending, which appears problematic from the point of view of reducing emissions, as this does not provide any incentive to offer fuels with a higher degree of blending than the minimum prescribed.

A higher proportion of biofuel blends can directly help to reduce emissions, especially in view of the observation that despite the high momentum in the registration of electric vehicles, their share of the Austrian passenger car fleet is currently still only around 2.5 percent. The study by Fichtinger et al. (2023) suggests that Austria - if it relies exclusively on electromobility - will not achieve its climate targets in either 2030 or 2040. It is therefore important to continue to promote e-mobility on the one hand and to focus on the use of alternative fuels on the other. Only under the assumption that there will not be enough alternative fuels available to achieve the 2030 target would it be necessary to increase CO2 pricing in order to reduce mileage.