Report: Harmonisation of energy taxation would reduce emissions

According to the researchers’ assessment, greenhouse gas emissions from energy production would be significantly reduced if Finland were to abolish energy tax subsidies for fossil fuels.

The aim of the study was to assess how energy taxation, emissions trading and other climate policy instruments could be reconciled. The targets set for the study were that Finland would achieve carbon neutrality by 2045 and 90 per cent emission-free energy production in 2040.

According to the report, the current measures are not enough for Finland to achieve these targets.

The greatest reductions in greenhouse gas emissions would be achieved by eliminating tax subsidies on fossil fuels and lowering the industrial electricity tax. This would mean abolishing tax subsidies for

• peat
• cogeneration of electricity and heat, and
• the use of fossil fuels in industry and agriculture.

If Finland were to abolish the tax subsidies on fossil fuels, central government tax revenues would increase in the medium term.

Other means are also needed

In addition to abolishing tax subsidies, other means are needed in order for Finland to achieve its carbon neutrality target. For example, the report states that taxes on energy production should be increased gradually if the price of the emission allowance does not rise above the current level (EUR 25/t CO2).

The researchers consider it possible for energy production to be 95 per cent emission-free in 2040. However, to achieve this target, price controls must be made considerably more effective.

The study was carried out by the Technical Research Centre of Finland (VTT), the Government Institute for Economic Research (VATT) and the University of Helsinki. The work was guided by the Ministry of Finance, the Ministry of Employment and the Economy and the Ministry of the Environment.

Since the start of the study, the Government has tightened its target so that Finland should be carbon neutral by 2035. This stricter target could not be taken into account in the report.

Development of excise duties on energy production in Finland

Inquiries:

Leo Parkkonen, Senior Ministerial Adviser, Ministry of Finance, tel. +358 2955 303072, leo.parkkonen(at)vm.fi

Tiina Koljonen, Principal Scientist, Technical Research Centre of Finland (VTT), tel. +358 50 3599549, tiina.koljonen(at)vtt.fi

Marita Laukkanen, Chief Researcher, Government Institute for Economic Research (VATT), tel. +358 2955 19429, marita.laukkanen(at)vatt.fi

Professor Markku Ollikainen, University of Helsinki, tel. +358 2941 58065, markku.ollikainen(at)helsinki.fi