In January this year the EU published a Climate and Energy Framework proposing a 40 percent reduction in greenhouse gas emissions for 2030, compared to those in 1990, with a goal of 43 percent reduction for the EU’s emissions trading sector (EU ETS) and 30 percent, from the 2005 level, for sectors outside the emissions trading sectors.
The proposed climate policy will increase pressure for an EU-level price increase and would reduce the purchasing power of households according to a new study by VTT and the Government Institute for Economic Research (VATT). In the three different scenarios presented by the study under the policy framework, the purchasing power of households in Finland would reduce by around 0.3 to 1 per cent, and the trade balance would shrink by a couple of hundred million euros. Furthermore, employment would reduce by 0.1 to 0.4 per cent, depending on the development of real wages and the assumed emissions goal.
However, the study also found that the impact on the Finnish national economy would be moderate with increased use of second-generation biofuels in road transport. This would provide the country with the most cost-effective way of achieving the greenhouse gas emissions goals presented in the policy framework for the sector outside of the emissions trading system.
“The largest emission reductions in the sectors outside the EU ETS can be achieved in the transport sector by using second-generation biofuels that can be used in existing vehicle fleet” said VTT's leader of the research team Tiina Koljonen. “The share of biofuels in road transport would increase to as high as 40 percent in 2030. Cost optimisation in the different scenarios would require the reduction of emissions in all sectors outside the EU-ETS such as in residential and commercial sectors, waste treatment, industry excluded in the EU ETS and agriculture. Costs will rapidly increase if the emission goal is above 36% in sectors outside EU ETS. This would require expensive investments to be made in Finland to reduce emissions.”
According to Koljonen Finland has plenty of wood raw materials and top-level know-how for the production technologies of 2nd generation biofuels. The forest industry has also announced significant investments in next-generation pulp plants, into which the production of bio-refining products could also be integrated
“Generally speaking, the impact of the action package appears to remain moderate with regard to the national economy, if the goals set for Finland can be achieved primarily through the increased use of biofuels” added Docent Juha Honkatukia, Research Director at VATT. “Our calculations are based on the biofuels used being produced from domestic wood based raw materials. The assumption was that biorefineries would increase Finland's refinery capacity, which would open up possibilities for an increase in the export of refined petroleum products.Finnish GDP would reduce by around 0.7 per cent at most.”
The study was based on calculations involving three different scenarios, where Finland's emission reduction goal was 32, 36 or 40 per cent in the sectors outside the EU ETS, which include transport, building heating, waste treatment, agriculture, and some industries. In the emissions trade sector, the price of an emission right was assumed to rise to the level of EUR 50/t CO2 due to the proposed EU policy. VTT made the calculations using the TIMES-VTT energy system model, where the greenhouse gas reduction measures are presented by sector. The study was commissioned by Finland’s Ministry of Employment and the Economy and Ministry of the Environment.
For additional information:
