Finland’s technical research centre 814 VTT and the Government Institute for Economic Research (VATT) have completed a study commissioned by the Ministry of Employment and the Economy and the Ministry of the Environment, assessing the impact of the EU's 2030 Climate and Energy Framework on Finland's energy system and national economy. The increased use of second-generation bio-fuels in road transport would provide Finland 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 impact on the national economy caused by the policy framework is estimated to remain moderate, although there are still uncertainties in the estimates.
The1690 European Commission’s policy framework of January 2014 proposed a 40 per cent reduction in greenhouse gas emissions for 2030 compared to 1990 emissions. The goal for the EU’s emissions trading sector (EU ETS) is 43 per cent and for sectors outside the EU ETS a reduction of 30 per cent from the 2005 level is proposed.
The project implemented by VTT and VATT assessed the impact of the emission goals on Finland's energy system and the national economy. Calculations were made using three different scenarios, where the country’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 largest emission reductions in the sectors outside the EU ETS can be achieved in the transport sector by using second-generation bio-fuels that can be used in existing vehicle fleet. The share of bio-fuels in road transport would increase to as high as 40 per cent 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,” says VTT's leader of the research team Tiina Koljonen.
“Costs will rapidly increase if the emission goal is above 36 per cent in sectors outside EU ETS. This would require expensive investments to be made in Finland to reduce emissions. With regard to buildings, cost-effective investments will be a reality under the current policy, signifying a significant increase in the energy-efficiency of buildings. In agriculture, the use of greenhouse gases can only be reduced by a small amount, mainly through decreased use of fertilisers,” Koljonen says. “The sustainability criteria of bio-fuels and their actual production cost still include many uncertainty factors that may have a significant effect on the different scenarios. According to initial estimates, refinery investments will require an investment subsidy of around €500 million. If production subsidies for second generation bio-fuels are also required, the amount of subsidies required will increase to around €1,500 million cumulatively for the years 2020-2030.”
With regard to EU ETS, Finland would be a net buyer of emission rights; furthermore, the proposed EU policy would increase the price of electricity and district heating compared to the baseline scenario, also taken into account in the calculations for national economy.
The impact of the EU's 2030 Climate and Energy Framework on Finland's national economy was assessed using the VATTAGE model for the macro economy developed by VATT, taking into account the results of the of the energy system modelling.
“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 bio-fuels. Our calculations are based on the bio-fuels used being produced from domestic wood based raw materials. The assumption was that bio-refineries would increase Finland's refinery capacity, which would open up possibilities for an increase in the export of refined petroleum products,” says Docent Juha Honkatukia, research director at VATT.
The proposed climate policy will increase pressure for an EU-level price increase and would reduce household purchasing power.
“In the different scenarios, 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. In the scenario, employment would reduce by 0.1 to 0.4 per cent, depending on the development of real wages and the assumed emissions goal,” Honkatukia says. “Finnish GDP would reduce by around 0.7 per cent at most.”
“Finland has plenty of wood raw materials and top-level know-how for the production technologies of 2nd generation bio-fuels. The forest industry has already announced significant investments in next-generation pulp plants, into which the production of bio-refining products could also be integrated,” Koljonen says. “We extensively utilised VTT's top-level know-how in different fields in the project. The significance of research and development activities is central in combating global warming.”
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The project implemented by VTT and VATT assessed the impact of the emission goals on Finland's energy system and the national economy. Calculations were made using three different scenarios, where the country’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 largest emission reductions in the sectors outside the EU ETS can be achieved in the transport sector by using second-generation bio-fuels that can be used in existing vehicle fleet. The share of bio-fuels in road transport would increase to as high as 40 per cent 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,” says VTT's leader of the research team Tiina Koljonen.
“Costs will rapidly increase if the emission goal is above 36 per cent in sectors outside EU ETS. This would require expensive investments to be made in Finland to reduce emissions. With regard to buildings, cost-effective investments will be a reality under the current policy, signifying a significant increase in the energy-efficiency of buildings. In agriculture, the use of greenhouse gases can only be reduced by a small amount, mainly through decreased use of fertilisers,” Koljonen says. “The sustainability criteria of bio-fuels and their actual production cost still include many uncertainty factors that may have a significant effect on the different scenarios. According to initial estimates, refinery investments will require an investment subsidy of around €500 million. If production subsidies for second generation bio-fuels are also required, the amount of subsidies required will increase to around €1,500 million cumulatively for the years 2020-2030.”
With regard to EU ETS, Finland would be a net buyer of emission rights; furthermore, the proposed EU policy would increase the price of electricity and district heating compared to the baseline scenario, also taken into account in the calculations for national economy.
The impact of the EU's 2030 Climate and Energy Framework on Finland's national economy was assessed using the VATTAGE model for the macro economy developed by VATT, taking into account the results of the of the energy system modelling.
“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 bio-fuels. Our calculations are based on the bio-fuels used being produced from domestic wood based raw materials. The assumption was that bio-refineries would increase Finland's refinery capacity, which would open up possibilities for an increase in the export of refined petroleum products,” says Docent Juha Honkatukia, research director at VATT.
The proposed climate policy will increase pressure for an EU-level price increase and would reduce household purchasing power.
“In the different scenarios, 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. In the scenario, employment would reduce by 0.1 to 0.4 per cent, depending on the development of real wages and the assumed emissions goal,” Honkatukia says. “Finnish GDP would reduce by around 0.7 per cent at most.”
“Finland has plenty of wood raw materials and top-level know-how for the production technologies of 2nd generation bio-fuels. The forest industry has already announced significant investments in next-generation pulp plants, into which the production of bio-refining products could also be integrated,” Koljonen says. “We extensively utilised VTT's top-level know-how in different fields in the project. The significance of research and development activities is central in combating global warming.”
