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Minister Tiilikainen: Government budget session gives greater climate steerability to the energy sector

Ministry of Economic Affairs and Employment
Publication date 29.8.2018 14.19 | Published in English on 31.8.2018 at 15.49
Press release

The Government has agreed the 2019 budget proposal. In the energy sector, the budget has earmarked more money for energy aid for structural reorganisation. The tax decisions made support the transition from fossil fuels to renewables. The use of biogas and electricity in road traffic will be promoted to achieve reductions in emissions. The infrastructure support programme to be introduced this year will be continued next year.

The Ministry of Finance, together with the Energy Department of the Ministry of Economic Affairs and Employment, has prepared changes to energy taxation. In fuel taxation, the focus is shifting increasingly more strongly to carbon dioxide taxation by taking into account also the life-cycle emissions of fuels. The taxation of combined heat and power (CHP) production will be changed so that the halving of the carbon dioxide tax is replaced by a reduction in the energy content tax. Tax on the use of peat as a fuel will be increased by EUR 10 million. The change will not affect the dispatch between heating fuels (forest chips, fuel peat, coal).

Electricity taxation will be adjusted to ensure that the double electricity taxation of large batteries is avoided. This will promote the development and deployment of energy storage systems that are important as regards smart grids and demand-side management.

“Changes in taxation are a logical step in ending the use of coal. Also, peat and oil taxes will become tighter. In the same context, it is important to safeguard the playing field in CHP production, among other things, for security of the electricity supply. "Removal of the double taxation of electricity storage will promote the increased use of renewable energy and utilisation of demand-side management in the electricity market,” Minister of the Environment, Energy and Housing Kimmo Tiilikainen says.

Additional resources for the promotion of new energy technology

EUR 80 million, EUR 25 million more than in the actual budget for the current year, is proposed as a budget authority for energy aid. The increase in the budget authority is based on the national energy and climate strategy.

“Additional resources for energy aid is one element in reaching Finland’s national and the EU’s energy and climate goals. The aim is to channel additional resources primarily to demonstration projects in new energy technology. We are also prepared to support investments in the production of renewable liquid transport fuels. Resources will promote the national implementation of the 2030 Agenda in Finland and in particular achievement of the carbon-neutral and resource-wise Finland objective,” Minister Tiilikainen says.

Expenditures on production subsidy for electricity generated using renewable sources will fall by almost EUR 50 million due to the increase in prices of emissions allowances and electricity. A technology-neutral call for tenders will be implemented on the basis of the amendment to the Act on the Production Subsidy for Electricity Produced from Renewable Energy Sources already adopted by Parliament. The new system will trigger expenditure from 2020 onwards

“In future, production subsidies will be granted only to the most cost-effective and competitive investments and for taxpayers, this is a significantly more affordable way to support renewable electricity generation than the current feed-in-tariff system. This will enable us to provide more and more affordable and clean energy in the future,” Minister Tiilikainen adds.

The prices of emissions allowances and proceeds of auctioning emissions allowances are on the rise, but the Market Stability Reserve will cut the amount of allowances and revenues from their auction proceeds from next year onwards

Emissions trading is a cost-effective way to reduce emissions and to steer investment towards clean technologies. In emissions trading, operators generating carbon dioxide emissions must acquire a corresponding amount of emissions allowances. The effectiveness of the scheme had long been poor owing to the generous amount of free emissions allowances.

Future growth in revenue from auction proceeds will be curbed by the Market Stability Reserve (MSR), which will start operating on 1 January 2019 and reduce the surplus of emissions allowances prevailing on the market. The surplus will be reduced by decreasing the amount of allowances to be auctioned and by transferring the allowances concerned to the MSR. In 2019, the amount of Finland's emissions allowances to be auctioned, like those of other Member States, will be reduced by an estimated more than 40% compared with 2018. The purpose of the MSR is to improve the regulatory impact of emissions trading.

This change is already having an effect. Emissions allowances prices have quadrupled during the past year and are currently around EUR 21 per tonne of carbon dioxide. Because of this change, also the price assessment of an emissions allowance in the Budget has been revised upwards. It is assumed the price in 2019 will average EUR 18.

At this price level, emissions allowances auctions are expected to generate proceeds of EUR 164 million next year. Between 2013 and 2017, the proceeds Finland received from emissions allowances auctions varied between EUR 63 million and EUR 95 million a year.

Taru Savolainen, Special Adviser to the Minister of the Environment, Energy and Housing, tel. +358 40 535 8622
Riku Huttunen, Director-General, Ministry of Economic Affairs and Employment, tel. +358 50 431 6518
Mika Niemelä, Director of Finance, Ministry of Economic Affairs and Employment, tel. +358 29 506 2135

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