**1. Introduction**

106 Sustainable Growth and Applications in Renewable Energy Sources

Chaureya, A., Ranganathana, M. and Mohanty, P. (2004). Electricity access for

Ferrer-Martí, L., Garwood, A., Chiroque, J., Escobar, R., Coello, J, Castro, M. (2010) A

Ferrer-Martí, L., Pastor, R., Capó, G.M. and Velo, E., (2011). Optimizing microwind rural

Kanagawa, M. and Nakata, T. (2008). Assessment of access to electricity and the socio-

Kirubi, C., Jacobson, A., Kammen, D.M. and Mills, A., (2009). Community-Based Electric

Lew, D.J. (2000). Alternatives to coal and candles: wind power in China. Energy Policy, 28,

Seitz, M. (2006). Patagonia wind aids remote communities, BBC News, 10 February 2006.

geographically disadvantaged rural communities—technology and policy insights.

Community Small-Scale Wind Generation Project in Peru. Wind Engineering, 34

electrification projects. A case study in Peru. Journal of Global Optimization, 50 (1),

economic impacts in rural areas of developing countries. Energy Policy, 36 (6),

Micro-Grids Can Contribute to Rural Development: Evidence from Kenya. World

**10. References** 

Energy Policy, 32, 1693–1705.

IEA (2009) International Energy Agency: World Energy Outlook

(3), p 277–288.

127-143.

2016-2029.

271-286.

Dev., 37 (7), 1208–1221.

PDM (2007) Municipal Development Program.

The share of renewable energy source (RES) in gross final energy consumption was 10.3% in the European Union (EU-27) in 2008; the remaining 89.7% was covered through the use of conventional fuels such as natural gas or oil products (Eurostat, 2010). The renewable energy share in gross final energy consumption was used for the production of heat (5.5%), electricity (4%) and transport fuels (0.8%).

Deployment of RES contributes to two of the four targets of the EU-27 energy strategy: the need to reduce primary energy dependency and the stress of demand on primary energy resources. In addition, the Green House Gas (GHG) abatement due to a more intensive use of RES contributes to improve the EU-27's target related to climate change, this being the fourth target in its energy strategy.

From a legal point of view, The Green Paper (EC 1996), which was the first attempt of establishing a common policy on renewable energies in the European Union, settled down the goal of duplicating the contribution of RES in the gross domestic consumption in 15 years. From the year 1996 until the present, the European Union has developed an intense ruling activity around the promotion of RES.

An important step forward the construction of the Community framework about harmonized fiscal treatment was the passing of the Directive (EC, 2003/96), that restructures the community regime about taxation over energy products and electricity.

In order to improve on energy efficiency, the most important EU policies for the households sector are the EPBD (EP&C, 2010), "The Energy Services Directive (ESD)" (EP&C, 2006) and "The Eco-design Directive" (EP&C, 2009).

The renewable energy Directive 2009/28/EC covers renewable energy use in three sectors:


IEA (2009) has recently pointed out that part of renewable energies growth is due to strong policy support. Therefore, policy measures to promote RES are becoming an interesting issue in its deployment.

Taxes Incentives to Promote Res Deployment: The Eu-27 Case 109

Czech Republic has a total exemption of the tax revenues that the taxpayer obtains coming from the generation of this type of energy. A similar exemption is also contemplated in the corporate tax. In Belgium and in France an exemption is allowed in the personal income tax (on the taxable income) on behalf of the cost of the investment of the system installation PV. In the French case, the exemptions not only cover the cost of the investment in system PV but also in the systems with small capacity which use wind energy, hydraulics and biomass. Luxembourg promotes solar photovoltaic electricity with an exemption from income tax of the

**Property** 

**Tax VAT**

**Others Excise Duty Exemptions** 

**CCL Other Taxes** 

sale of electricity generated by this system and whose capacity is small.

**Corporate tax** 

**France** 

**Italy** 

**Portugal** 

**Spain** 

Table 1. Fiscal incentives to promote green electricity

has been used by few municipalities because are borne by them.

**Denmark** 

**Germany** 

**Poland** 

**Romania Slovakia** 

**Sweden** 

**Kingdom** 

Belgium, Greece and Spain allow the deduction of a percentage of the investment made in systems that generate green electricity from the net tax base in the corporate tax. In the first two cases, the exemption is allowed by the company that has spent the funds in building the systems that generate green electricity. In Spain, it is allowed a deduction of a percentage of the investment that the company carries out in the installation of systems for the green

Finally, only Italy and Spain have used property taxes to promote green electricity. In Italy, municipalities may establish rates lower than 4 per 1000 of ICI ('Imposta comunale sugli immobili') for taxpayers who install or have installed a system of renewable energy to produce electricity or heat for domestic use. In Spain, municipalities may reduce the IBI, which is a similar tax to ICI, under specific conditions, up to 50% of the full share of the tax for real state to promote the establishment of solar energy systems. However, this measure

**Finland** 

**Netherlands** 

**Personal Income Tax** 

**Belgium Czech Rep.** 

**Greece** 

**Luxembourg** 

**United** 

Source: Cansino *et al.* (2010)

electricity from the net tax base.

In November 2010 the Commission presented the new strategy for competitive, sustainable and secure energy (COM 2010/0639). The communication, named "energy 2020", fixes the priorities in the field of energy for the next ten years and the actions that should be performed to save energy, achieve a competitive market, and guarantee the safety of supply, promoting at the same time technological leadership.

Focusing on green electricity, RES for Heating and Cooling and its use in transport, this chapter offers an overview of the main tax incentives that have been implemented to promote their use by the Member States (MSs) of the EU-27. In a general way, along with the reduction of investment costs, tax incentives can also be used to make the energy generated from RES more profitable than that generated by conventional energy sources.

Chapter has been structured as follows. Section 2 analyzes tax incentives to promote green electricity. Section 3 is dedicated to study the same topic in promoting RES for H & C. Section 4 focus on the way MSs promote the use of biofuels in transport by using tax incentives. Finally, section 5 includes a political discussion and main conclusions.

In a summarized way, Section 2 provides a comprehensive overview of the main tax incentives used in the EU-27 MSs to promote green electricity. Sixteen MSs use tax incentives to promote green electricity along with other promotion measures as quota obligations and price regulation. Section 3 shows the main tax incentives used to promote RES for H&C by EU-27 countries up to 2009. Although subsidies is the most widely used instrument to promote RES for H&C, twelve MSs have used tax incentives as deductions, exemptions and reduced tax rates. Section 4 analyses the tax incentives that MSs have used to reach the target of a share of 5.75 % in final consumption of energy biofuels in transport in 2010. This is the target fixed by Directive 2009/28/EC. Although green electricity for transport and hydrogen vehicle are included in the Directive 2009/28/EC framework, this chapter focuses on the policy measures, mainly those related with taxes, that have been used to promote the use of biofuels in transport.

### **2. Tax incentives to promote green electricity**

This section provides a comprehensive overview of the main tax incentives used in the EU-27 MSs to promote green electricity1. As stated Cansino *et al*. (2010), in promoting green electricity, there are probably no "perfect" fiscal incentives that should be widely applied in all situations and countries. These incentives are applied simultaneously with other promotion's measures, specially quota obligations and price regulation.

In UE-27, seventeen MSs have used fiscal incentives to promote green electricity. Mainly designed as tax exemptions, rebates on taxes, tax refunds and by applying lower tax rates on activities promoted. However, not all disposable technologies are always promoted. Table 1 provides an overview of the use of these tax incentives in the EU-27 MSs.

Fiscal incentives in direct taxes are used to promote electricity from RES by seven MSs. Czech Republic, Belgium, France and Luxembourg use the personal income tax as it allows either tax deductions or exemptions depending on the source of income and the capacity installed.

<sup>1</sup> In this section, in addition to the country-specific information, we have taken into account the country reports in EREC (2009) titled "Renewable Energy Policy Review", the information obtained from Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit (2011), the "Taxes in Europe" database published by the European Commission (2011) and the paper of Cansino *et al*. (2010).

In November 2010 the Commission presented the new strategy for competitive, sustainable and secure energy (COM 2010/0639). The communication, named "energy 2020", fixes the priorities in the field of energy for the next ten years and the actions that should be performed to save energy, achieve a competitive market, and guarantee the safety of supply,

Focusing on green electricity, RES for Heating and Cooling and its use in transport, this chapter offers an overview of the main tax incentives that have been implemented to promote their use by the Member States (MSs) of the EU-27. In a general way, along with the reduction of investment costs, tax incentives can also be used to make the energy generated from RES more profitable than that generated by conventional energy sources. Chapter has been structured as follows. Section 2 analyzes tax incentives to promote green electricity. Section 3 is dedicated to study the same topic in promoting RES for H & C. Section 4 focus on the way MSs promote the use of biofuels in transport by using tax

In a summarized way, Section 2 provides a comprehensive overview of the main tax incentives used in the EU-27 MSs to promote green electricity. Sixteen MSs use tax incentives to promote green electricity along with other promotion measures as quota obligations and price regulation. Section 3 shows the main tax incentives used to promote RES for H&C by EU-27 countries up to 2009. Although subsidies is the most widely used instrument to promote RES for H&C, twelve MSs have used tax incentives as deductions, exemptions and reduced tax rates. Section 4 analyses the tax incentives that MSs have used to reach the target of a share of 5.75 % in final consumption of energy biofuels in transport in 2010. This is the target fixed by Directive 2009/28/EC. Although green electricity for transport and hydrogen vehicle are included in the Directive 2009/28/EC framework, this chapter focuses on the policy measures, mainly those related with taxes, that have been used

This section provides a comprehensive overview of the main tax incentives used in the EU-27 MSs to promote green electricity1. As stated Cansino *et al*. (2010), in promoting green electricity, there are probably no "perfect" fiscal incentives that should be widely applied in all situations and countries. These incentives are applied simultaneously with other

In UE-27, seventeen MSs have used fiscal incentives to promote green electricity. Mainly designed as tax exemptions, rebates on taxes, tax refunds and by applying lower tax rates on activities promoted. However, not all disposable technologies are always promoted. Table 1

Fiscal incentives in direct taxes are used to promote electricity from RES by seven MSs. Czech Republic, Belgium, France and Luxembourg use the personal income tax as it allows either tax deductions or exemptions depending on the source of income and the capacity installed.

 In this section, in addition to the country-specific information, we have taken into account the country reports in EREC (2009) titled "Renewable Energy Policy Review", the information obtained from Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit (2011), the "Taxes in Europe"

database published by the European Commission (2011) and the paper of Cansino *et al*. (2010).

incentives. Finally, section 5 includes a political discussion and main conclusions.

promoting at the same time technological leadership.

to promote the use of biofuels in transport.

 1

**2. Tax incentives to promote green electricity** 

promotion's measures, specially quota obligations and price regulation.

provides an overview of the use of these tax incentives in the EU-27 MSs.

Czech Republic has a total exemption of the tax revenues that the taxpayer obtains coming from the generation of this type of energy. A similar exemption is also contemplated in the corporate tax. In Belgium and in France an exemption is allowed in the personal income tax (on the taxable income) on behalf of the cost of the investment of the system installation PV. In the French case, the exemptions not only cover the cost of the investment in system PV but also in the systems with small capacity which use wind energy, hydraulics and biomass. Luxembourg promotes solar photovoltaic electricity with an exemption from income tax of the sale of electricity generated by this system and whose capacity is small.


Source: Cansino *et al.* (2010)

Table 1. Fiscal incentives to promote green electricity

Belgium, Greece and Spain allow the deduction of a percentage of the investment made in systems that generate green electricity from the net tax base in the corporate tax. In the first two cases, the exemption is allowed by the company that has spent the funds in building the systems that generate green electricity. In Spain, it is allowed a deduction of a percentage of the investment that the company carries out in the installation of systems for the green electricity from the net tax base.

Finally, only Italy and Spain have used property taxes to promote green electricity. In Italy, municipalities may establish rates lower than 4 per 1000 of ICI ('Imposta comunale sugli immobili') for taxpayers who install or have installed a system of renewable energy to produce electricity or heat for domestic use. In Spain, municipalities may reduce the IBI, which is a similar tax to ICI, under specific conditions, up to 50% of the full share of the tax for real state to promote the establishment of solar energy systems. However, this measure has been used by few municipalities because are borne by them.

Taxes Incentives to Promote Res Deployment: The Eu-27 Case 111

The CCL has to be paid by the electricity suppliers, who pass the costs to the industrial and commercial final consumers. To be tax-exempt, is required an authorization which may be given only under some conditions which involve consumers, suppliers and electricity producer. As requirements in the contract enter the electricity consumer and the electricity supplier, an agreement enters the electricity supplier and the electricity producer and some

In Netherlands, electricity from RES is granted by a reduction of the ecotax, if it is produced within and outside the Netherlands but with the condition that has to be supplied to Dutch. All technologies used for the generation of electricity from RES are

Finally, in Finland, the consumption of electricity from RES is also taxable by the excise duty electricity. Nevertheless all operators of plants generating electricity from RES are entitled to a subsidy by statutory law, in order to offset the tax they must pay, which normally is transferred to the consumer. So, this subsidy is used to reduce the price of renewable energies. The application for the subsidy has to be lodged with the Customs District of the area of the domicile of the power plant and no subsidy is paid when the volume of

This section shows the main tax incentives used to promote RES for H&C by EU-27 countries up to 2009. Although subsidies is the most widely used instrument to promote RES for H&C, twelve MSs have used tax incentives as deductions, exemptions and reduced

In addition to subsidies, RES H&C are often promoted through a range of tax incentives, although with a lower intensity compared with green electricity and biofuel promotions (Cansino *et al.,* 2011 and Uyterlinde *et al.,* 2003). The main tax incentives used by EU-27 MSs are deductions, exemptions and reduced tax rates.2 Table 2 provides an overview of the use

There are six MSs that offer different direct tax deductions to encourage the use of RES H&C

In Belgium, all RES H&C technologies benefit from a tax deduction from taxable profits. For all RES and CHP installations, companies can receive a tax deduction of 13.5% for all investments in equipment used to reduce energy consumption. Since January 2003, the Federal Public Service of Belgium offers tax reductions for individuals undertaking energy efficiency and certain renewable energy investments in their homes. In 2009, a tax reduction of 40% of the investment cost was introduced on personal income tax with a maximum of 2,770 € for investment in heat pumps and biomass heating, and 3,600 € for investments in solar boilers. However, for every

 In this section, in addition to the country-specific information, we have taken into account the country reports in EREC (2009) titled "Renewable Energy Policy Review", the Intelligent Energy Europe (2010) report titled "Re-Shape Renewable Energy Country Profile", the EuroACE (2009) report on tax incentives that affect buildings in Europe, the "Taxes in Europe" database published by the European

(Belgium, Finland, Greece, Italy, The Netherlands and Sweden), as Table 2 shows.

investment, the taxpayer can only obtain the maximum support for four years.

Commission (2011) and the paper of Cansino *et al*. (2011).

obligation of the electricity producer with the Office of Gas and Electricity Markets.

promoted.

electricity referred to in the application is small.

**3. Tax incentives to promote RES for H&C** 

tax rates (Cansino *et al*., 2011).

**3.1 Deductions** 

 2

of these tax incentives in the EU-27 MSs.

Fiscal incentives in indirect, pigouvian and others taxes are used to promote electricity from RES by twelve MSs. The Value Added Tax is theoretically one of the most suitable indirect tax to promote renewable energies. However, only three MSs have chosen this tax as an instrument to boost green electricity: France, Italy and Portugal.

A cut in the Value Added Tax rate has to follow European guidelines about state helps that favour the environment (EC, 2001) and also has to get the Commission's authorization in order to prevent disproportioned effects over competition and economic growth. France allows a 5.5% reduction when buying basic products related to improvements, changes and installation in residential buildings that incorporate technology based on solar power, wind power, hydro-electric power and biomass. Italy charges a reduced tax rate on sales and services related to wind and solar power generation. There is also a reduced tax on investments in green electricity distribution networks. Finally, Portugal allows a reduction in buying systems which generate green electricity.

Electric energy excise duty exemption is the most pervasive measure to encourage the use of renewable electricity of all. Actually, six MSs use it: Germany, Denmark, Romania, Slovakia, Sweden and Poland. In general, they use this measure because produces two types of benefits, known as the double dividend (Goulder, 1995). The first is to preserve the environment and the second can be obtained in several ways, as a positive impact on employment levels (De Mooij, 1999). This measure has been also use for reducing the higher prices of production of this type of energy. In that sense, this type of exemption is being usually applied to biofuels sales (Bomb *et al*., 2007; Van Beers, C *et al.* 2007). Nevertheless, some EU countries have applied to renewable electricity with the same propose. Fossil fuels and nuclear generations' benefit of a competitive advantage with respect to RES because its lower marginal costs than new renewable technologies and they are able to cope with downward price pressure. Because of that, taxation is important for decreasing most costs of RES sector, by allowing exemptions, reductions and accelerated depreciations (Di Domenico, 2006).

In Germany the law provides exemptions to encourage the use of friendly sources of energy when the electricity is generated exclusively from renewable sources and taken for use from a power grid. In the same sense, Romania has included an exemption from the payments of excises duties for energetic products and electricity when the electricity is generated by RES. is (also) promoted in Slovak Republic renewable energy is promoted through the exemption of the excise duty on electricity. Finally, the new Polish legislation continues to exempt from excise duty electricity from RES.

In the other hand, some countries have introduced electricity excise exemptions for renewable electricity only if they are generated by determinate technology. In Denmark, it is only exempt for excise duty, the electricity produced by wind, waterpower or solar cell systems or in a small plant. In Sweden, the electricity produced in a wind power station is not taxable if it is for own consumption although the electricity surplus might be sold. The exemption value depends on the consumption area. Also, during a transition period all wind energy production has been also entitled a tax reduction (environmental bonus).

Some other tax exemptions are used to promote green electricity. In the United Kingdom, electricity from RES is exempted from the 'Climate Change Levy –CCL-', which can characterize as a typical pigouvian tax. This tax is borne by agents that generate carbon emissions because it pursues to reduce negative externalities which come from human activities (Viladrich, 2004). The CCL was forecast to cut annual emissions by 2.5 million tons by 2010, and forms part of the UK's Climate Change Program.

The CCL has to be paid by the electricity suppliers, who pass the costs to the industrial and commercial final consumers. To be tax-exempt, is required an authorization which may be given only under some conditions which involve consumers, suppliers and electricity producer. As requirements in the contract enter the electricity consumer and the electricity supplier, an agreement enters the electricity supplier and the electricity producer and some obligation of the electricity producer with the Office of Gas and Electricity Markets.

In Netherlands, electricity from RES is granted by a reduction of the ecotax, if it is produced within and outside the Netherlands but with the condition that has to be supplied to Dutch. All technologies used for the generation of electricity from RES are promoted.

Finally, in Finland, the consumption of electricity from RES is also taxable by the excise duty electricity. Nevertheless all operators of plants generating electricity from RES are entitled to a subsidy by statutory law, in order to offset the tax they must pay, which normally is transferred to the consumer. So, this subsidy is used to reduce the price of renewable energies. The application for the subsidy has to be lodged with the Customs District of the area of the domicile of the power plant and no subsidy is paid when the volume of electricity referred to in the application is small.
