Kyoto Treaty emissions trade could raise Finnish electricity prices significantly
Ministry consultant recommends more nuclear and wind power
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According to a report commissioned by the Ministry of Trade and Industry, Finns will incur about EUR 400 million in extra costs from emissions trade under the Kyoto Climate Treaty.
Trade in emissions of carbon dioxide and other greenhouse gases requires power plants and other installations that emit those gases to pay for the right to do so.
According to the report by Professor Mikko Kara at the Technical Research Centre of Finland (VTT), the impact will not be very great in the first years of emissions trade - 2005-2007. At that time he estimates that the price of electricity will rise by no more than 10%.
However, in 2008-2012 the price of electricity could surge by 15-20%.
The greatest beneficiaries of the emissions trade system will be producers of nuclear energy and wind power. In the EU, major beneficiaries will include France and Germany.
The system will bring windfall profits to some producers, and extra costs mainly to consumers, small and medium-sized enterprises, and industries that do not generate their own energy. Kara estimates that Finnish consumers and farmers will have to pay an extra EUR 150 million a year.
Annual electricity costs for the service sector would increase by about EUR 100 million.
Kara and other VTT researchers estimate that the emissions trade would impose costs on the national economy equivalent to 0.6% of GDP. Domestic consumption would decrease by 1.5%, and employment would decline by 0.3%.
Kara proposes a number of measures to mitigate the effects of the emissions trade.
The first measure would be to increase market efficiency. Kara notes that in Finland fewer companies than before own production facilities and engage in trade in shares. "It is possible that these few companies will take advantage of their market positions".
Kara says that the most cost-effective way to reduce emissions would be to build more nuclear energy. The use of wind energy and other renewable sources should also be increased, but he says that the grid fees and transfer fees for small and dispersed electricity production should be brought down to a more reasonable level.
He also recommends a number of measures in tax policy. For instance, he feels that taxes on light fuel oil should be increased. "We are the only country where the consumption of light fuel oil has increased in recent years. If taxation is increased, it will promote the use of wood as fuel for heating, reducing emissions in this respect."
Kara also would like to remove the 50% tax break on natural gas.
Mikko Kara has reservations about taxing the profits that energy companies get from trade in emissions. He says that if such a tax is imposed, the revenue should be used to promote updating the Finnish energy system in the form of investment supports, for instance.
The Finnish Electricity Association SENER does not see the prospect of higher electricity prices as exclusively negative. The association’s managing director Juha Naukkarinen says that it could serve as an incentive for the construction of more environmentally friendly production.
Helsingin Sanomat
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| 8.10.2004 - TODAY |
 Kyoto Treaty emissions trade could raise Finnish electricity prices significantly |
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