Quarter of Finland’s emission allowances unused last year

Warm weather and ample hydroelectric supply sharply reduces need

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Carbon dioxide emissions by Finnish industry and energy utilities last year were significantly below the level of emission allowances that had been allocated for them.
      Under the European emissions allowance system, the government granted industrial and energy companies permission to generate 44.7 million tonnes of the greenhouse gas, but the total output was just 33 million tonnes, which means that nearly a quarter was left unused.
      Finnish industry and power utilities therefore had no problems in meeting their emission requirements, because entitlements for emissions were significantly higher than what was needed. Finland’s surplus of about 25 percent in emission rights was among the highest in the European Union.
     
The European Commission published data on greenhouse gas emissions of all but four member states on Monday. Germany, which has the greatest emissions of industrial pollutants in all of Europe, also had a surplus of emission rights, but only four percent.
      Finland’s surplus was not the result of a deliberate attempt by companies to cut back on emissions: instead, it was largely the result of favourable conditions.
      The main factor was a large amount of rain in neighbouring Sweden and Norway, leading to good year for hydroelectric power imported from those countries. As a result, less power was generated with coal and other fuels that emit carbon dioxide.
      Another factor was the relatively warm winter of 2005, which reduced demand for electricity and district heat.
      There was also the labour dispute in the paper industry, which kept pulp and paper mills shut down for a number of weeks.
     
The greatest surplus in emission rights was in the production of electricity in plants burning fossil fuels. Their emissions were just one million tonnes last year, even though they would have been allowed to put out five million tonnes.
      Finland’s largest electric utilities made considerable windfall profits by selling emission rights that they have saved. They added to these profits by raising the price of electricity by the amount that they might have paid for extra emission rights, which they never used.
      Manufacturing industries ended up with a surplus of three million tonnes in emission allowances. The pulp and paper industry labour dispute reduced emissions by an estimated 0.6 - 0.8 million tonnes.
      The district heating business saved three million tonnes in emission rights - about 20 percent of what it had been entitled to generate. Factors included warm winter temperatures, as well as changes in the choice of fuels.
     
The considerable surplus in emission allowances has raised questions over whether or not trade in emissions is really an effective way to control greenhouse gases, considering that the overall amount of emissions is so dependent on weather conditions.
      Minister of Trade and Industry Mauri Pekkarinen (Centre) conceded that the criticism was at least partly justified.
      Although Finland’s emissions were fairly small last year, it does not mean that Finland will necessarily achieve its so-called Kyoto target in 2008-2012.
      A colder winter in a year with less rain could lead to a sudden rise in emissions, and a shortage of emission allowances.
      According to an estimate by the European Commission, Finland is one of about ten countries that are not likely to meet their Kyoto targets with their present action.
     
Pekkarinen criticised the system on the basis of the first year’s experiences, noting that there had been too little information on the market about the emissions. The figures are released only once a year, which has led to the kind of speculation that first raised the price of emission allowances to levels as high as EUR 33 a tonne. The release of the statistics caused the price of a tonne of emission rights to plummet to less than EUR 10.
      This has benefitted electric utilities, which raised their prices in all of Europe to meet the expected costs of allowances, that they ultimately did not need to buy.
      Pekkarinen said that he hopes that the Commission could improve the dissemination of information before the post-2008 period. He also said that the Commission should ascertain if the prices of the emissions market might have been manipulated by electric utilities, for instance.
      There have been calls in Germany and the UK to impose tighter regulations on the distribution of emission rights, so that the trade in emission rights could better serve as an incentive to reduce output of greenhouse gases. Tony Ward of Ernst & Young says that as it now stands, the system is failing in its main aim, and has merely established an extremely volatile market for emissions allowances.


Previously in HS International Edition:
  Figures on last year’s greenhouse gas emissions brings down prices in allowances trade (28.4.2006)

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