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Energy and Climate Strategy in Preparation – Clean Investments are crucial

Ministry of Economic Affairs and Employment
Publication date 25.3.2024 10.01
Riku Huttunen in semi close-up pic
Riku Huttunen

Clean energy is one of the main themes of Prime Minister Petteri Orpo’s government program in Finland. The energy and climate policy actions for the coming years will be outlined in a comprehensive national strategy. The key objective is to establish a predictable and economically sustainable foundation for the significant investment efforts needed to advance both climate goals and our national economy.

The Energy and Climate Strategy is a holistic plan led by the Ministry of Economic Affairs and Employment. It encompasses comprehensive guidelines for both energy policy and emission reduction. The government’s emission debt repayment program, as outlined in the program, plays a central role in this work.

The strategy will be based on extensive scenario work covering the upcoming decades. The broad PEIKKO project led by VTT (Technical Research Centre of Finland) is finalizing baseline scenarios, which describe future developments without new policy measures. Subsequently, during the government’s decision-making process, a policy scenario will be defined. The preparation of the strategy is guided by the ministerial working group on clean energy, the environment, and security of supply.

The rapidly changing operational environment presents challenges for energy policy 

The energy sector is evolving faster than ever, particularly with the growth of emissions-free electricity production. Key aspects of the strategy include electrification and ensuring security-of-supply in electricity markets. Investments to flexibility and energy storages as well as capacity mechanisms play a crucial role in achieving this. Simultaneously, the promotion of renewable and nuclear energy, energy efficiency and necessary clean innovations are important.

Rapid termination of Russian energy imports was a leading theme in our previous national strategy in 2022. Energy security and resilience remain central considerations, particularly concerning critical infrastructure. The strategy also takes into account the impact of Finnish NATO membership on energy sector preparedness and crisis resilience.

Climate Goals as the Foundation for Planning

The comprehensive emissions trading system for energy production and industry operates at the EU level and does not include national targets. Instead, EU regulations obligate Finland to increase carbon sinks in the land use sector (known as the LULUCF sector) and reduce emissions in the non-ETS sector (known as the effort sharing sector).

Recent data reveals that carbon sinks in the LULUCF sector are significantly smaller than previously assumed. While the Ministry of Agriculture and Forestry’s Climate Plan for the Land Use Sector from 2022 is not updated, it remains part of the overall Energy and Climate Strategy.

Similarly, the burden-sharing sector includes emissions from transportation, agriculture, waste management, and buildings. In this regard, the Ministry for Environment coordinates the Medium-term Climate Plan, which is being prepared alongside the Energy and Climate Strategy, using the same data basis and scenarios.

Cost-effectiveness as an essential criterion

Multiple coordinated plans are in place. Ultimately, however, the focus is on mobilising clean investments. These investments are crucial for economic renewal and growth, especially given the significant budget deficit in public finances.

Finland cannot compete with larger countries in terms of state aid. Instead, our traditional strengths lie in a stable society, predictable regulations, and a strong knowledge base. Licensing processes are being streamlined through various means.

Finland’s robust electricity grids and affordable electricity prices significantly reduce production costs, which are crucial for energy-intensive industrial investments. These factors help compensate for the scarcity of investment subsidies. Focussing limited state aid toward innovative projects would be beneficial.

Concurrently with the Energy and Climate Strategy, the Ministry of Economic Affairs and Employment is developing an Industrial Policy Strategy. The coordination aims to attract much needed significant industrial investments to Finland. Historically, capital intensive investments have been channelled to energy production.

Cost-Effectiveness as a key criterion

When selecting policy actions, it is essential to identify the most cost-effective and impactful measures. This approach ensures the competitiveness of our businesses and eases the pressure on citizens’ purchasing power.

In this context, adopting new technologies is crucial. Promoting Finnish innovation knowledge generates demand also in international markets and enhances our positive climate footprint.

Over the long term, carbon capture and technical carbon sinks play a vital role in Finnish climate policy, especially given the substantial biogenic emissions from forest industries. Efforts are being made at both the national and EU level.

Strategy takes shape within a year

The political preparation of the strategy has begun, and during the spring, we will refine the list of potential policy measures for scenario analysis. However, decisions regarding specific actions and their scale will take place only in the fall.

According to the government program, the emission debt repayment program should be ready by the end of the year. The complete Energy and Climate Strategy will be finalised approximately a year from now, in spring 2025.

Before that, in June, Finland must submit an updated National Energy and Climate Plan (NECP) to the European Commission in line with the Energy Union governance model. Naturally, this update will leverage the work already done on the strategy. The purpose of the NECP is to promote joint EU-level actions and provide a vision for the necessary significant investments.

Riku Huttunen is the Director General of the Energy Department of the Ministry of Economic Affairs and Employment