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Going green: What will Finland do when energy taxes dry up?

An energy sector lobby claims that Finland could lose up to two billion euros in energy taxes over the next decade.

Image: Petteri Sopanen / Yle

The year 2030 may seem far off in the future. But it'll arrive in 10 short years, during which time Finland will increasingly wean itself from carbon-emitting fossil fuels.

However, the taxes on petrol, diesel, electricity, coal and natural gas have generated a major, vital source of revenue for the state for decades.

But as the country goes increasingly carbon-neutral, it will lose out on between one to two billion euros in energy taxes over the next decade, according to the branch organisation for the industrial and labour market policy of the energy sector, Finnish Energy.

"We are moving toward a climate-friendly energy system, which is very good and important. At the same time, the use of fossil fuels will also be reduced, and there will be less money in state coffers generated from energy taxes," Finnish Energy's managing director, Jukka Leskelä, said.

Future plans to fill the gap?

He emphasised that the energy sector is committed to implementing strict measures to cut emissions levels. However, he said it would be a good time to start discussing how the state plans to fill the revenue gap when fossil fuel taxes begin to dwindle.

The energy group based its tax loss estimates on the state's energy plan, and takes into consideration that by 2030, Finland will have: stopped using coal, reduced its peat burning by at least half, halved petrol and diesel emissions by replacing them with biofuels and electricity, and lowered heavy industry's electricity tax to the EU minimum.

The biggest revenue losses are expected from transportation fuel taxes, according to Finnish Energy. However, the interest group noted that its calculations were still estimates and some uncertainty remains.

After VAT and income taxes, the levies on energy products generate the third-most revenue for the Finnish state. This year, energy taxes will bring around 4.7 billion euros into state coffers. Generally energy taxes make up about one-tenth of the state's annual income.

"The state must compensate for that deficit somehow. This type of tax revenue is unlikely to continue," Leskelä warned.

Finland's ultimate stated goal is to be completely carbon neutral within 15 years, which means that the country cannot produce more carbon emissions than forests and soil can compensate for.

Energy firms want answers

Leskelä said the energy industry is preparing to spend billions of euros on emissions-free electricity and heat production projects, saying that companies should have the right to know what the energy tax scheme will be by the end of the decade.

"We see it as a big risk for investors if the state would suddenly be surprised about the tax revenue decrease and then start making quick changes," he explained, noting that one fear within the energy sector is that the reduced fuel tax revenues would be offset by increased electricity taxes.

However, the country's finance minister Katri Kulmuni said that Energy Finland has addressed the right issues but she doesn't see the need for making sudden decisions just yet.

The ministry closely monitors the development of energy taxes, and the ministry also acknowledged that those revenues will decrease.

The Tax Administration noted that lost tax income from coal, natural gas and peat can be replaced by increasing taxes or by scaling down government fuel subsidies.

Kulmuni also noted that the tax loss projections she has seen - from, for example, the Technical Research Center VTT - are less dramatic than the 1-2 billion euro calculations reached by Finnish Energy.

However, Kulmuni acknowledged that the government does not yet have a plan to fill the anticipated tax gap.

"It is of course something that will affect the whole [tax] system this decade. We do not have a solution yet," Kulmuni said.

But the minister also noted that the business community can rely on the state's future plans to favour - as well as invest in - domestic, renewable energy.

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