Sustainability criteria
The Act on Biofuels and Bioliquids (393/2013, hereinafter referred to as “the Sustainability Act”) entered into force on 1 July 2013. The act imposes sustainability criteria for biofuels and bioliquids in accordance with the Renewable Energy Directive (RED) as part of the Finnish legislation. It also defines national measures to verify sustainability. However, the obligation to verify sustainability is not determined in the Sustainability Act. Instead, the obligation to verify the sustainability of biofuels and bioliquids is laid down in other acts, through financial benefits and subsidy systems in accordance with RED.
According to RED, sustainable biofuels and bioliquids are a requirement for being included in the national distribution obligation, lower taxes, the fulfilment of terms and conditions of state subsidies, and the application of the zero emission factor. If biofuels or bioliquids are not verified to be sustainable, they cannot be included in the distribution obligation, they will be taxed more heavily, and the terms and conditions of state subsidies will not be fulfilled. Furthermore, if the economic operator cannot verify the sustainability of a bioliquid in an annual emissions report in accordance with the Emissions Trading Act, the bioliquid will be considered to be fossil.
The following economic operators pertaining to the Sustainability Act have an obligation to apply for a sustainability scheme:
- parties with a distribution obligation in accordance with the Act on the Promotion of the Use of Biofuels in Transport (446/2007)
- parties with a tax obligation in accordance with the Act on Excise Tax on Liquid Fuels (1472/1994)
- operators in accordance with the Emissions Trading Act (311/2011) and users of aircraft in accordance with the Act on Emissions Trading in Air Traffic (34/2010)
- recipients of state subsidies, whose subsidy decision imposes an obligation to verify sustainability
- starting from 2021, parties with a distribution obligation in accordance with the Act on the Promotion of the Use of Biofuel Oil (418/2019)
The verification of the sustainability criteria must be based on an economic operator’s sustainability scheme in accordance with the Sustainability Act or a voluntary scheme approved by the European Commission. The Energy Authority approves national sustainability schemes and monitors their compliance. For a separate application, the Energy Authority may also issue an advance ruling for a raw material in accordance with the Sustainability Act or the Distribution Obligation Act. The Ministry of Economic Affairs and Employment is responsible for general steering, monitoring and development of activities in accordance with the Sustainability Act.
Finland has set out a distribution obligation, according to which 30 % of all transport fuels must be biofuels by 2030. The distribution obligation is prescribed in the Act on the Promotion of the Use of Biofuels in Transport (446/2007, hereinafter “the Distribution Obligation Act”). In 2021, the distribution obligation will be 18 %, and it increases gradually so that it will be 30 % in and after 2029. The sub-goal set for second-generation biofuels will increase gradually from 2% in 2021 to 10% in 2030. The system of double counting will also be dissolved altogether.
The Act of the Promotion of the Use of Biofuel Oil (418/2019) imposes an obligation to replace part of the light fuel oil used in heating, heavy-duty machinery and fixedly installed motors by biofuel oil starting from 2021. In 2021, the distribution obligation will be 3 %, and it increases annually by one percentage point until it is 10% in and after 2028.
The Energy Authority is the competent authority in matters related to advance rulings concerning the Distribution Obligation Act and the Biofuel Oil Distribution Obligation Act. An advance ruling in accordance with the Distribution Obligation Act indicates whether the raw material used in the production or manufacturing of a biofuel or bioliquid is a raw material defined in section 5 of the Distribution Obligation Act, i.e. whether it is eligible for double counting, whether it is in accordance with a grandfather clause or whether it is in accordance with the cap of seven percentage points as defined in the Distribution Obligation Act. The classification of raw materials determines how biofuels produced from different raw materials fulfil the economic operator’s distribution obligation. An application for an advance ruling in accordance with the Distribution Obligation Act can be filed by economic operators with a distribution obligation concerning raw materials used in the production or manufacturing of biofuels intended to fulfil their distribution obligation, or economic operators defined in the Sustainability Act concerning raw materials used or planned to be used in their own production or manufacturing of biofuels.
The Tax Administration is responsible for other matters related to the Distribution Obligation Act, such as the fulfilment and monitoring of the distribution obligation. The Energy Authority can disclose information obtained during assignments to the Tax Administration for the provision and monitoring of tax information and for carrying out the tasks defined in the Distribution Obligation Act, without being prevented by non-disclosure clauses.
Taxation on transport fuels is defined in the Act on Excise Tax on Liquid Fuels (1472/1994, hereinafter “the Fuel Tax Act”). For example, authorised warehouse-keepers are liable to pay taxes. Carbon tax has been divided into three categories on the basis of the reductions in lifecycle carbon dioxide emissions that can be achieved using biofuels and bioliquids relative to fossil fuels. The greenhouse gas emission reduction of biofuels produced from waste and residues can be up to 90 % compared with fossil fuels. Biofuels produced from waste and residues as defined in RED are exempt from carbon tax.
An advance ruling in accordance with the sustainability act indicates whether a raw material should be regarded as waste, residue, non-food cellulosic material or lignocellulose when applying the Act on Excise Tax on Liquid Fuels. A lower excise tax category, i.e. category T, applies to biofuels produced from this type of raw material.
According to the Emissions Trading Act (311/2011), if in their emissions report, operators define zero as the emission factor for biofuels used for the production of energy at their facility, the biofuels must fulfil the sustainability criteria set out in the Sustainability Act, and the operator must verify this in accordance with the Sustainability Act. According to the Emissions Trading Act, a bioliquid means a liquid fuel separated from biomass for use as energy in a sector other than transport as defined in the Sustainability Act.
The Finnish Government has promoted the use of biofuels and bioliquids by supporting investments in biofuel and bioliquid production and the research and development projects of biofuels and bioliquids. Subsidised projects are required to verify the sustainability of biofuels and bioliquids.
The Sustainability Act includes provisions on the sustainability of biofuels, including definitions of waste, residues and processing residues. In Finland, the Energy Authority is the competent authority, which makes decisions on the classification of raw materials on the basis of applications submitted by economic operators. This classification has an impact on for example taxation and on applicable sustainability requirements.
According to the Sustainability Act, waste means a substance or object which the holder discards, intends to discard or is required to discard as defined in section 5 of the Waste Act (646/2011), apart from material, which has been purposefully modified in order to be classified as waste. The Sustainability Act does not include any definition of by-products.
According to the act, processing residue covers material, which is not the end product that a production process directly seeks to produce. Processing residue is not the primary aim of the production process, and the process has not been deliberately modified to produce processing residue. According to the Sustainability Act, residues are processing residues and residues directly resulting from agriculture, aquaculture, fishing and forestry.
For an application submitted by an economic operator, the Energy Authority, as the competent authority, can issue an advance ruling, as defined in the Sustainability Act, concerning whether a raw material should be regarded as waste or residue when applying the Fuel Tax Act. An advance ruling can only be revoked due to changes in interpretations of provisions or for other specific reasons. The approval of raw material as waste or residue may be significant in terms of investments in the production of biofuels or bioliquids. Therefore, advance rulings are valid until further notice. The Energy Authority can revoke its advance ruling due to changes in interpretations of provisions or for other specific reasons.
No additional requirements are set out for individual raw materials in the Sustainability Act. The goal of the Sustainability Act is that the raw material range would remain as broad as possible, in particular, for different raw materials based on waste and residues.
Finland does not publish any lists of raw materials approved as waste, residue or lignocellulose.