Returning the electricity tax of the service sector to the same level with industry would enable commerce to reach carbon neutrality by 2035

The aim of the Renewable Commerce 2035 roadmap is to enable Finnish commerce to be a global climate pioneer in the industry and achieve carbon neutrality by 2035. However, the commerce sector cannot achieve this on its own but needs incentives for investments as well as new tax solutions.

Electrification of the commerce sector can clearly reduce greenhouse gas emissions. An electricity use survey commissioned by the Finnish Commerce Federation as part of the carbon neutrality roadmap demonstrates that lowering the electricity tax of the commerce sector would speed up electrification, thus enabling carbon neutrality. *

Before the year 1997, there was a single electricity tax rate for all businesses. In 1997, the Government decided to split the electricity tax into two tax categories in order to increase public income. At that time, the service sector was raised to the higher tax category.

“The goal set by the current government of achieving carbon neutrality by 2035 will not be achieved in the commerce sector if the various branches are not treated equally. The goal requires measures for reducing emissions in all branches and enabling these measures,” says Mari Kiviniemi, Finnish Commerce Federation Managing Director.

Finnish commerce has faced new challenges and intensifying international competition for a long time, much like industry. This is a clear reason for returning the electricity taxation of the commerce sector to the same level with industry.

“How the commerce sector fares is very important to society, since commerce generates wealth, well-being and success in Finland. We should take care of the well-being and future outlook of the commerce sector,” says Kiviniemi.

Emission benefit of electrification is more than eight-fold

According to a survey commissioned by the Finnish Commerce Federation, electrification of the commerce sector can substantially reduce greenhouse gas emissions. The emission benefit achievable with electrification is more than eight times the emissions caused by the increased use of electricity.

Returning the electricity tax of the service sector to the same level with industry would encourage investments that reduce the carbon footprint. Electricity can replace energy generated with fossil fuels, such as district heating and fossil fuels like diesel in logistics. Greater emission benefits can be achieved using electricity from renewable sources. Renewable electricity production in the commerce sector is considerable and growing annually.

“The commerce sector has also increased electric transport considerably in a market-driven way by building charging stations around the country. This development together with other electrification can be sped up by returning the electricity tax to the same level with industry,” says Kiviniemi.

Impact of lower electricity tax is small compared with commerce sector tax revenues

The commerce sector has a considerable impact on national employment and taxation. In 2019, tax revenue for the commerce sector totalled over EUR 800 million, and commerce rendered the Government EUR 8.7 billion in value added tax.

Currently, the electricity tax for the service sector is 40 times higher than it is for industry. ** Returning the service sector electricity tax back on par with industry would decrease the annual tax revenue of the commerce sector by 91 million.

Impact of this lowered electricity tax compared with the total tax revenue of the commerce sector would be very small and could improve the sector’s competitive strength. Commerce keeps the wheels of our society turning, because it the largest business sector, measured with employment and GDP.

“If the commerce sector loses its international competitiveness, this will have a considerable impact on employment and the national budget and economy,” Kiviniemi concludes.

*As part of implementing the commerce sector low-carbon roadmap, the Finnish Commerce Federation commissioned Gaia Consulting to conduct a survey on electricity use. The survey provides detailed information on the current overall use of electricity, estimates on its development over the following 20 years and on factors that affect the development. The project also assessed how the national economy would be impacted if the commerce sector would be returned to the same electricity tax category as industry, how much the lower tax category would increase electricity use, enabling digitalisation and automation as well as how it would increase employment and foster carbon neutrality.

**Tax category I includes households, the public sector, agricultural sector and service functions. For tax category I, electricity tax is 2.253 c/kWh. Tax category II includes industry, mining, professional greenhouse farming and data centres in excess of 5 megawatts. A tax refund is used to decreased the taxation of electricity used in agriculture to the level of category II. Since the beginning of 2021, electricity tax for category II is 0.05 c/kWh.

Appendix: Survey on commerce sector electricity use, Gaia Consulting / summary (in Finnish)

For further information, please contact:

Mari Kiviniemi, Managing Director, Finnish Commerce Federation, tel. +358 (0)50 511 3189, firstname.lastname@kauppa.fi

Bate Ismail, Economist, Finnish Commerce Federation, tel. +358 (0)40 526 0942, firstname.lastname@kauppa.fi

See also: Electrification enables carbon neutrality (in Finnish)