How can we achieve a carbon-neutral society and what will it cost?

The Government’s climate targets are ambitious: carbon neutrality by 2035, and nearly fossil-free energy production in the course of the 2030s. The wide-ranging changes required to achieve these targets demand vigorous policies and consistent action. At the same time, however, one has to ensure social justice and the competitiveness of businesses. Paths to carbon neutrality involve major uncertainties.

Since about 75% of greenhouse gas emissions are the result of energy sector, energy plays a key role in medium-term climate policies. Low-carbon energy production is already making good progress in Finland: More than 80% of the electricity we produce is emission-free.

The enforcement of the coal ban in 2029 and the aim to reduce peat-burning for energy purposes by at least a half in the 2020s will make carbon neutral heating solutions increasingly common. Sustainable renewable energy sources, heat pumps, energy reserves and various intelligent solutions will replace fossil fuels. Transport is another sector of key importance. Measures in this sector should be accelerated to meet the obligations imposed in the EU’s effort sharing regulation.

The biggest long-term challenge (until 2050) concerns sectors such as agriculture, cement production and oil refining in which comprehensive means to reduce emissions are not available. For this reason, carbon sinks are necessary to compensate for emissions. Indeed, determined long-term action is required to build natural carbon sinks and develop carbon capture and storage (CCS) solutions. As a starting point, common criteria should be applied to the assessment of emissions and sinks. However, there is a great deal of uncertainty around the development of carbon sinks in the land-use sector, especially in our forests.

The measures used and the speed at which Finland’s energy-intensive industries (steel, chemistry, forests) can adopt low-carbon processes are crucial for the achievement of carbon neutrality.

This is where the importance of research becomes clear: we need to analyse the range of measures called for and ways of implementing them without risking opportunities for growth and profitability. A study on the long-term overall emissions trend conducted by VTT Technical Research Centre of Finland and the Finnish Environment Institute serves as the basis for the long-term strategy work.

In the best case scenario, transition into low-carbon technologies will become an important competitive asset for Finland. 

Only one of the scenarios presented in the study would lead to carbon neutrality in Finland before 2040. The scenario also involves a significant reduction in the use of forests, which would be problematic considering not only the forest industry investments but also e.g. new materials replacing plactics made from wood. This autumn, the scenarios will be supplemented to comply with the Government’s 2035 target. In practice, this means more drastic steps to reduce emissions.

But scenarios are just scenarios. They are not forecasts, and they are no more self-fulfilling than political objectives. In practice, changes in areas that affect everyday life such as housing, road transport, and digitalisation, require far-reaching decisions and actions. Means to achieve these changes include various environmental taxes, different forms of subsidies to drive change, and appropriate regulation. If extreme measures are called for, climate policy will be implemented with bans.

As a rule, emission reduction measures should be implemented in order of cost-effectiveness in order to maintain economic competitiveness. Social justice is equally crucial: the policy to be implemented must have extensive support from society.

The energy-intensive industry is a case in point: changes must be implemented in such a way that the technology to be adopted is competitive; otherwise jobs and economic growth will be compromised. It is clear that different industries and production processes require their own, individual schedules for low-carbon transition. 

The low-carbon roadmaps to be jointly prepared by the industrial sectors and the Ministry of Economic Affairs and Employment provide more detailed scenarios, including an outlook for energy use, particularly electrification. In the best case scenario, transition into low-carbon technologies will become an important competitive asset for Finland. The sectoral roadmaps will be completed during the spring.

The long planning horizon and non-immediate effects are a major challenge for climate policy. It may take as long as twenty years for changes in land and forest use to take effect; from this perspective, 2035 is already around the corner.

No-one can put a price tag on carbon neutrality. There are many variables to consider such as global and EU-level policies, technological advancement, and the size of carbon sinks. The best alternative is to proceed with measures with obvious cost-effectiveness and impact, such as land use changes and transformations in the transport sector. At the same time, however, we must invest in research and innovation for the decades to come.

Short-sightedness in matters such as economic incentives is the biggest pitfall in the low-carbon transition. Large investments require stable operating conditions. A long-term approach and predictability build the foundation for ecological, economic and social sustainability.

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