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How could Finland promote renewable-energy technology innovation and implementation?

How could Finland promote renewable-energy technology innovation and implementation? Keywords: technology neutrality; commercial viability; subsidy policy; state aid; tax policy; the polluter-pays principle If technological development is not as fast as expected, Introduction the socio-economic burden of greenhouse-gas emissions Finland has set a target for a 39% reduction in greenhouse- will be much more significant. This burden is often re- gas emissions by 2030 and an 80–95% reduction by 2050 ferred to as greenhouse-gas emissions’ social cost or the [1]. The European Parliament has also made a resolution ‘social cost of carbon’ [7 ]. This social cost is difficult to cal- that the EU should lead the way to climate neutrality and culate as there are several factors to be taken into account, achieve that by reaching net-zero greenhouse-gas emis- which makes the models extremely complex [8]. Still, sions by 2050 [2]. This can be seen as an opportunity, as the traditionally, the definition includes damage that global transition will bring significant opportunities for new busi- warming causes, like agricultural damage and damage nesses and technological development [3]. Technological from sea-level rise, but also includes positive effects from development is seen as key to reducing greenhouse-gas warming, like increased agricultural output []. 9 There are emissions and therefore technology-specific strategies several models that can be used to estimate costs but, as are needed to achieve these climate-neutrality targets [4]. all these models have several restrictions, they are only Achieving net carbon neutrality requires significant net indicative for policy advice [7]. Therefore, national and investments annually in the EU for several decades [5]. EU-level technology policies are in a key position for These climate-neutrality goals are strongly tied to techno- reaching greenhouse-gas targets and reaching them cost- logical development: annual cost-reduction goals are set efficiently. At the national level, carbon-neutrality strat- to be higher during years closer to 2050 as a broader set egies keenly follow technological development and are of cost-effective technologies are anticipated to become adjusted based on the level of the current technology [10]. available [6]. Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 Paukku | 449 Economic efforts to achieve carbon neutrality are strongly not become innovations, but not new inventions [18]. linked to the cost-effectiveness of several renewable- Therefore, research and development (R&D) issues, such energy technologies [11]. This requires the innovation as innovation environment cases and R&D subsidies, are and implementation of new technologies, as well as these not covered in this study. This article focuses on possible technologies becoming commercially viable. In Finland, actions taken at the national level, covering legislation and the development of new energy-efficient technologies, using the national budget. The use of the budget covers renewable-energy technologies and business models both taxation and subsidies. Therefore, this article does is seen as a way to promote the national economy and not cover cases in which companies or other organiza- increase welfare nationally [12]. This is based on the as- tions could improve their technological development by sumption made by the European Commission that current changing their policies. This article does not cover general investments for reducing greenhouse-gas investments economic measures aimed at boosting the economy as a will determine the future competitiveness of an economy whole, such as cutting taxes or general fiscal measures. in the following decades [13]. In Finland, investments in This article covers only measures that could be imple- climate technology and low-carbon production are seen mented in Finland. Technological and commercial issues as being key to a sustainable economy in Finland, sustain- that are universal are assumed to occur in Finland, and ability covering in this case an ecologically, socially and policy solutions chosen in other countries are assumed to financially sustainable economy [14]. have a similar effect in Finland unless otherwise stated. This article focuses on several renewable-energy- One central viewpoint that is not deeply covered in this production technologies and policies that can promote article is that countries compete on renewable-energy in- those technologies. At least from the policymaker’s vestments, which reduces policy effectiveness [19]. This viewpoint, other benefits might be regional effects or in- has partially led to the subsidy race as state-aid rules have creased employment [10]. One of these renewable-energy- been relieved to increase renewable energy production and production technologies is offshore wind power. Offshore investments [20]. wind power has higher investment costs than land-based This study aims to provide information on how pol- wind power. Still, offshore wind power installations gen- icymakers could change current policies, legislation and erate more electricity due to better wind conditions and, budgets to promote new renewable-energy technologies so more importantly, create less conflict with interest groups, that they become commercially viable more quickly. This e.g. neighbours, than land-based wind power installations study answers two research questions: [15]. Other major renewable-energy technologies that have (i) Which are the key policies to promote new renewable- potential in Finland are solar and biomass energy pro- energy-production technologies? duction [16]. This study does not compare the regulative (ii) How could Finland promote new renewable-energy or economic contexts of different energy policies unless technologies so that they become commercially otherwise specified. This means that policies used in dif- viable? ferent kinds of market-oriented economic systems will be included in this study. However, their usability will be Research question (i) is answered in Section 1. The answer evaluated in the ‘Conclusions’ section if recommendations is based on a literature review. The literature review is fo- are based on them. cused on previous research on market failures of new tech- This article does not cover technology-specific research nologies, especially in renewable-energy technologies and unless specifically mentioned. Instead, this article fo- renewable energy production. The other part of the litera- cuses on issues that come from energy markets and low ture review focuses on previous research on how different technological maturity in general. Obstacles constraining policies will affect technologies and businesses that are renewable-energy technologies from entering the en- not yet commercially viable due to low technological ma- ergy market can be viewed from three perspectives: (i) turity. Research questions are linked so that the answer to the research, development and deployment perspective, the first research question will give several base assump- (ii) the market-barrier perspective and (iii) the market- tions that the solutions of the second research question transformation perspective [17]. This article focuses on all will be based on. Research question (ii) will be answered those perspectives. The third perspective will be covered in Section 2 based on several methods. A  law and economics by viewing the market and policy incentives for energy and method will be used to determine how current policies how to promote market transformation. affect the commercial viability of new renewable-energy This article focuses only on the phase in which new technologies in Finland. To be specific, the used method technology is already developed. Several developed tech- is a normative theory of regulation, focusing on analysing nologies might still require test sites to increase techno- how particular regulation affects achieving specific goals logical maturity or increase production to scale up to [21]. The practical legal dogmatic method is used to ana- become commercially viable due to economics of scale or lyse current legislation and restrictions set by it without technological maturity issues. To clarify, this study does further systemizing it [22]. The last section of this study cover inventions that have not been tested and thus have includes conclusions and discussion. Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 450 | Clean Energy, 2021, Vol. 5, No. 3 There exists relatively recent literature by Pilpola official sources will be used to determine the goal of a and Lund [23] on how different energy-development certain policy as well as to determine the general goals scenarios would affect energy markets in Finland. Their of the Finnish energy policy. research implies that there are several risks in the case of dominance of a few energy sources. However, their paper does not address the impact of national energy 1 Energy policy and new energy policies. There are other studies from Finland addressing technologies issues in Finnish energy policy [24] or risks that devel- 1.1 Externalities opment in energy markets poses without policy inter - vention [25]. However, these studies are from the early The invisible hand of the market might not make envir - 2010s, which means that the energy system has dras- onmentally friendly innovations succeed commercially. tically changed since the EU emissions trading scheme Several market failures force a state to make market inter - (ETS) is forming energy markets even more. Several ventions to promote technologies and businesses that renewable-energy technologies have become more com- generate more welfare, taking into account market effect- mercially viable and the structure of energy markets is iveness, environmental issues, sustainability and even changing. A  study about Finnish national energy policy social issues [29]. The market failure that is mostly ‘respon- in the current era in energy policy would therefore add sible’ for climate change is externalities [30]. Externalities to the existing literature. have been the main barrier in preventing technologically There are several studies on how technology-neutral mature renewable-energy technologies from entering the energy policies can generate undesired outcomes: energy market [17]. In EU policy, the existence of market Carton [26] has studied how the principle of tech- failure is agreed to be so obvious that market failure in the nology neutrality has led to biomass combustion in the renewable-energy market is presumed to exist until other - Netherlands, but otherwise technology-neutral energy wise proven [31]. Sometimes externalities are divided into policies and their impacts in specific market areas have positive and negative externalities. Positive externalities not been discussed extensively lately. Technology neu- mean that one actor’s actions positively affect other actors’ trality itself has gained much attention in the literature. positions [32]. A negative externality is one feature of the For example, Verbruggen and Lauber [27] have assessed ‘tragedy of commons’ [33]. In this study, the term ‘externality’ how renewable-electricity support instruments affect refers to a negative externality unless otherwise stated. the energy markets, and they have assessed how dif- Externalities mean that certain environmental costs of ferent policy instruments affect different technologies production are not reflected in the market cost of the com- with different technological and commercial maturity. modity, which means that a customer does not have to pay In the case of negative externalities and energy policies, the full price for the commodity. Still, the price is subsidized there is an excessive number of previous studies. It has by others that bear the cost of external impact [17]. On a been recently proposed by Paukku [28] that in the EU more theoretical point, externalities can be defined in the and Finland, the primary tool to prevent climate change following way: external effects are present whenever a is not removing externalities from fossil energy pro- firm’s production function depends in some way on the duction, but giving incentives to produce more renew- amounts of the inputs or outputs of another firm [34]. able energy via subsidies and other promoting policies. The commercial viability of renewable-energy technolo- This study aims to extend the literature that assesses gies has been heavily linked to market distortions in the whether removing externalities has actually lost popu- energy sector, mainly externalities, but also including sub- larity in energy policy. sidies for fossil fuels [35]. Economic efficiency prescribes There are three further sections in this study. The that externality costs should be apportioned to their Section 1 contains a literature review on energy-policy causes [36]. This internalization must be done by the gov- issues. Four issues are addressed: externalities, en- ernment, as private actors have no incentives to do so [37]. ergy subsidies, technology neutrality and uncertainty. This can be done using the so-called Pigouvian tax, which Externalities, technology neutrality and uncertainty are means tax set at the level at which all pollution costs are addressed as they have a crucial role when designing assigned to the goods or product produced [38]. There are energy policy. Literature on energy subsidies is also ad- also other possible ways to internalize externalities, but dressed as its effects are widely analysed in the litera- their advantages and disadvantages in energy produc- ture and it can be used to address several challenges in tion are partly unclear [37]. Internalizing externalities is energy policy. Based on this literature, two aspects of not alone sufficient policy to achieve energy transition as Finnish energy policies will be discussed in Section 2: there are energy users who undervalue energy costs and energy taxation and energy subsidies. In Section 2, the therefore are less likely to react to rising energy prices [39]. Finnish energy policy is evaluated through its ‘hard’ This suggests that a combination of policies is required to tools, meaning practically laws and the national budget, achieve an energy transition. as they are the main tools for how the policymaker The role of externalities in policies has been stated can affect energy markets. Policy documents and other quite often and at relatively high levels; e.g. the EU climate Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 Paukku | 451 policy has been based on the idea of dealing with exter- footprint of imports are likely to increase [51]. Based on the nalities. The European Parliament has given a resolution draft for new guidelines, this EU policy will not change in which states that externalities that distort competition the near future [52]. are major factors preventing investments for areas bene- Previous literature suggests that it is an economically ef- ficial for the environment and climate policy, others being fective energy policy to refund part of funds collected from public subsidies for environmentally harmful action [40]. increased energy taxes or ETS for industries that suffer The basis of EU policies has been that, despite taxation most from increased energy prices [53]. In Finland, the sec- and ETS, a residual market failure remains in the energy tors that are evaluated to be at risk of losing market shares markets due to externalities [31]. due to the effect of the ETS on electricity prices are defined Due to the need to assign the costs of pollution to by the energy cost of unit value added. According to the tax act polluters, the so-called polluter-pays principle has been for electricity and other fuels 8 a §, ‘laki sähkön ja eräiden the main principle in environmental law and policy for polttoaineiden valmisteverosta (1260/1996)’, from now on several decades [41]. This policy has been acknowledged Act (1260/1996) 8 a §, if the energy taxes that the company in several high-level policy documents, like the Rio dec- pays or that are included on energy goods that they bought laration and Article 191 of the Treaty on the Functioning are >0.5% of the company’s unit value added, the company of the European Union (TFEU) [42]. This principle is also is eligible to have these taxes partly refunded. The esti- mentioned as the main principle in several recent policy mated yearly cost of this energy subsidy is 235 M€ [54]. This papers [43]. If the polluter-pays principle is applied to subsidy is based on combining the polluter-pays principle fossil fuels, it means that their use is taxed based on with competitiveness concerns [55]. These taxes and re- harmful environmental effects, mostly CO emissions. funding part of taxes back are coming to an end in Finland This could lead to two things compared to a baseline in upcoming years. These subsidies for energy-intensive scenario in which tax is not applied: an increase in de- industries are harmful to the environment. Therefore, they mand for energy sources where tax is not applied and are abolished, but the electricity tax is simultaneously cut a medium-term decrease in overall energy demand [44]. down to compensate for the same amount of money to all The latter would also be beneficial for achieving climate industries using electricity [56]. targets, and it could also mean more energy-efficient Several economists view a carbon tax as the best tool to technologies and processes. Both effects combined lead effectively decrease CO emissions [57]. However, the role to reduced CO emissions when the price of fossil fuels of the polluter-pays principle compared to other policy increases due to markets or taxation or other means tools in EU policy has been declining for two decades as [45]. There is a relatively strong consensus that the price it has not been seen as the best solution for current envir - elasticity of energy demand exists, and it is negative, onmental issues due to the harm it causes to international meaning that when energy prices rise, energy consump- competitiveness without other complementary policy in- tion decreases. However, the magnitude of elasticity struments [28]. Although the EU ETS promotes polluter- varies greatly depending on the assumptions and models pays and carbon pricing, Member States are allowed to used [46]. promote renewable energy production and energy transi- Several energy-intensive sectors are quite vulnerable tion with state aids, which is not traditionally compatible to the cost increase that ETS causes due to international with the polluter-pays policy [28]. The decline of the prin- competition and high energy share in total costs [47]. The ciple started late in the 1990s in order to implement meas- European Commission has estimated which sectors could ures for protecting the environment going beyond existing suffer heavy damages and listed them as energy-intensive mandatory requirements or preserving the competitive- sectors [48]. Previous studies show that the increase in en- ness of the industries when imposing new environmental ergy prices does not affect the price of end products on a requirements [58]. A  carbon tax, which represents the larger scale. This was argued to be due to a small energy polluter-pays principle, is not considered a viable solu- share in the total cost [49]. In the EU, the Commission has tion to be implemented nationally, as it strongly affects estimated that it is impossible to pass increasing energy international competition and is politically unpopular [59]. costs onto product prices in a few sectors without signifi- The EU Commission has based several policies based on cant market-share loss [50]. Therefore, there are political this view; e.g. the ETS scheme has been restricted for sev- needs to compensate energy-intensive sectors. This is eco- eral energy-intensive sectors. In addition, the EU has set nomically justified by the carbon-leakage reasoning. The minimum energy tax levels for certain energy products, Commission uses the term ‘carbon leakage’, meaning ‘an like coal and natural gas, to reduce CO emissions [60]. increase in global greenhouse-gas emissions when com- However, even if the Commission proposed so, the energy panies shift production outside the Union because they taxation in the EU is not linked to CO emissions as some cannot pass on customers’ cost without significant market Member States strongly opposed it based on their worries share loss’ [50]. There are several estimations about how about their competitiveness [61]. large this carbon leakage is in different carbon prices. Still, Externalities can also be solved without meddling with it is evident that increasing carbon pricing and the carbon pricing. It is quite common that states have adopted a Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 452 | Clean Energy, 2021, Vol. 5, No. 3 regulatory framework that forces some market players to market failures [71]. In the EU, the economic justification buy some renewable energy. In Europe, such systems have for granting aid is correcting market failures [72], although been implemented in Germany, where network operators the role of this reasoning had been diminishing during the are required to purchase a certain amount of renewable 2010s [73]. State aid is seen as an acceptable policy solution energy and the producers are chosen by an auctioning against market failure in energy markets as taxation and process [62]. Probably the largest purchase quota system the ETS have not fully internalized all greenhouse-gas- has been adopted in China, which has been increasing emission costs for energy prices [31]. renewable-energy supply and demand rapidly [63]. The effects of renewable-energy subsidies are widely Although this policy is efficient for increasing renewable analysed in the literature [57]. An important note is that energy production, it is not alone sufficient for decreasing subsidies are not alone a satisfactory permanent solu- greenhouse-gas emissions [64]. tion: as long as the costs of greenhouse-gas emissions are Taxation is not the only way to address externalities; not included in the fossil-fuel prices, renewable-energy they can also be addressed with subsidies [65]. The na- subsidies will generate significant welfare losses due to tional decision margin for the taxation of carbon emissions their high price [74]. A  subcategory of energy subsidies, in energy production might be relatively small as EU pol- namely tax incentives, has not been an effective way to icies are more focused on subsidizing than increasing costs increase renewable energy production, being a rather ex- with taxation, the ETS or other tools [66]. Due to differences pensive and unfocused tool [57]. Tax subsidies are hard to between several Member States, it is unlikely that energy design to effectively increase environmental protection taxation will be harmonized to be more CO-based in the due to their effectiveness depending on the cost struc- future. As the polluter-pays principle has been partly for - ture and cost-effectiveness of produced goods [75]. Poorly gotten due to its adverse effects on competitiveness [28], designed energy subsidies can cause excessive competi- other means to promote renewable energy production need tion, overcapacity and state financial stress [76]. However, to be analysed. Renewable energy production will increase renewable-energy subsidies are a cost-efficient tool when when renewable-energy-production profits are higher than addressing market failures related to technology [74]. profits from fossil energy production. If the price for produ- Renewable-energy subsidies might, in some cases, be the cing fossil energy cannot be raised higher than renewable only tool to avoid high social costs when the price of fossil energy production in a politically acceptable way, the price energy rises [77]. Policy recommendations for energy sub- for producing renewable energy needs to be lowered. This sidies recommend subsidies to be decreasing over time, can be achieved through a subsidy policy. competitive and reasonable [76]. These points from pre- vious literature can be synthesized as: renewable-energy subsidies should be grants rather than tax advantages. 1.2 Energy subsidies They should be designed to promote energy technology Internalizing the negative externalities might not be a development. They should be decreasing over time, and sufficient tool to achieve energy transition, and so com- they should encourage competitiveness and effectiveness. plementary tools are often used. As increasing fossil-fuel The profitability of renewable energy had been long de- costs is politically unpopular due to its adverse effects on pendent on public subsidies like feed-in tariffs, tax credits international competitiveness, politicians might be willing and power purchase agreements [59]. Even now, renew- to focus more on subsidy policies. Another reason that able energy production in Finland requires production might affect implementing the polluter-pays principle is subsidies to become more common [78]. Significant atten- the lobbying power of fossil-fuel industries. However, this tion had been given to production subsidies, although the is likely to change when the economic significance of re- role of investment subsidies could be substantial for some newable energy production increases [67]. Previous studies technologies. From a theoretical viewpoint, compared to also suggest that price increases are not an effective way taxation and operating subsidies, investment subsidies to develop new technology and markets, but subsidies are not a cost-efficient tool to assess problems where costs are also needed [68]. It has also been stated that price in- and prices are continuously changing. They cannot be ef- creases are not an effective tool alone, but they need other ficiently adjusted to the equilibrium level when prices and supportive policies to achieve energy transition effect- costs vary [79]. However, previous studies from Finland ively [39]. Due to the nature of EU state-aid rules, the sub- suggest that operators prefer investment subsidies over sidies in Finland can be divided into investment subsidies, production subsidies and tax relief, as investment sub- production subsidies and other subsidies [69]. The ‘other sidies are seen as more stable and reliable for long-term subsidies’ group covers subsidies without long-term oper - investments as production subsidies, and tax levels can ational significance, such as subsidies for labour costs in be easily changed when policymakers change. However, one-time projects and small de minimis subsidies. State aid these results are partly controversial to findings in other is a widely used and accepted tool to correct market fail- EU countries [80]. ures, especially negative externalities [70]. In the previous Energy-consumption subsidies are an effective literature, state aid is seen as an effective tool to correct tool for changing energy-consumption patterns [81]. Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 Paukku | 453 Energy-consumption subsidies are often used in order In most cases, the reason for giving up a technology- to improve the situation of those consumers with low neutral-policy approach is promoting technologies that purchasing power [82]. Consumption subsidies might not are seen to have the greatest long-term potential [27]. Due be effective in promoting technological change in renew- to this, EU policies are, in principle, technology-neutral but, able energy production [83]. Nevertheless, consumer sub- in some instances, designed to favour certain technologies sidies do still play a significant role in the energy transition. due to their greater long-term potential [92]. On the other First of all, there are several consumption subsidies for hand, giving up a technology-neutral approach even partly fossil fuels, which increase their consumption. Due to this, has significant disadvantages. If a policy focuses on a par - removing those subsidies would decrease their consump- ticular technology or technologies, this will hinder and tion at least locally, although possibly affecting the global create uncertainty for developing all other related tech- market price of those fuels and thus increasing their con- nologies [93]. Different technologies have different sus- sumption somewhere else [84]. The second reason is that tainability issues, advantages and disadvantages, making they can help consumers with lower purchasing power to it undesirable to promote one technology over others, re- overcome energy transition and thus increase the political gardless of how technologically neutral the policy favouring acceptability of those subsidies [82]. this particular technology is [67]. One practical example of this is wind power, which has extremely fluctuating energy production and requires other energy sources or energy 1.3 Technology neutrality storage to balance production and demand. A technology-neutral approach for promoting re- One viewpoint for energy policy is that policymakers newable energy might not lead to the best results. cannot pick a technology that will generate the most wel- Regulatory actions needed to encourage technology de- fare to society, but they have to promote all technologies pend highly on technological maturity [94]. There is a risk aiming for similar goals [15]. A technology-neutral policy can in all technology-neutral policies that technology with the be defined as a policy that sets goals but does not specify greatest short-term potential will emerge victorious at the the exact means of how to achieve them [85]. A technology- cost of technology with greater long-term potential [26]. neutral-policy approach is stated to be more effective than If all renewable-energy-production technologies are pro- policies promoting one technology in some instances, moted in the same way, there is no guarantee that tech- such as vehicles using alternative fuels [86]. There are two nology or technologies that will emerge victoriously will goals for technology neutrality. The first one is cost-effect- generate the most welfare to society. In addition to this, a iveness, as the most effective technology should be the poorly designed technology-neutral policy might lead to a one delivering the results [87]. This goal is based on the case in which, more generally, more harmful technology assumption that different technologies can be unprob- emerges victorious [26]. One reason for this is that tech- lematically equated under a single market mechanism, nology neutrality tends to favour more mature technolo- leading to cost-effective equilibrium [26]. The other one is gies [27]. that the technology-neutral approach promotes techno- logical development and creates positive externalities [85]. Due to its cost-effectiveness, it has been stated in Finnish 1.4 Uncertainty national energy strategies that financial-steering instru- ments should be based on technology neutrality and the Another issue for renewable-energy development is uncer - ranking of economic priorities [88]. There are, however, tainty. The role of uncertainty in the regulatory environ- high risks related to technology neutrality. If a few energy ment has been recognized as one factor that significantly sources gain dominance, the energy transition will become affects the investment decisions of all economic actors much more costly and harder to achieve [23]. [95]. As renewable-energy investments for developing tech- Despite its name, technology neutrality does always af- nologies are high-risk investments, governmental support fect different technologies in different ways, and therefore is often needed to speed up these investments [77]. Higher true neutrality might not be achievable in any policy [89]. uncertainty affects investment decisions more, and there As technology-neutral policies aim to favour some set of are several factors increasing the uncertainty of renewable technologies put on the level playing field, some technolo- energy production. To promote renewable energy efficiently, gies in this set might be more advantageous than others policies need to be stable and long-term [77]. If investment and therefore create excess profits [90]. Even if the ma- would have substantially less value under an alternative turity levels of the technologies are the same, technology regulatory scheme, investments are greatly hindered [96]. neutrality tends to favour different products or services Due to this, several subsidy programmes are set for a long over others. In addition to this, technology neutrality tends and fixed time to ensure investment profitability [97]. In to favour lower-quality solutions that might have less addition to policy-related uncertainty, the policymaker long-term potential but high market readiness [27]. When can affect how other uncertainties, like market-demand a lock-in effect might occur, the regulator should be careful uncertainty, affect the investment decision. This can be when adopting a technology-neutral approach [91]. done using policy tools to increase the profitability of an Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 454 | Clean Energy, 2021, Vol. 5, No. 3 investment or to reduce uncertainty from demand, such as results when permit requirements for a particular type of increasing the market demand [98]. Stability in renewable- action are not yet established at a national level [108]. energy policy boosts the technological development and viability of renewable-energy-production technologies [99]. Even if economists often prefer adjusting measures 2 Current policies and legislation based on the market situation, empirical evidence shows 2.1 Energy taxation that even too frequent subsidy or tax-evaluation processes effectively hinder new investments [100]. Current renewable-energy-promotion policies can be div- Uncertainty can be linked to a policy or policymaker. ided into two groups: energy taxation and subsidy policy. Previous studies suggest that in regions with a history of The EU regulation highly affects both policies, but although substantial policy changes, introducing long-term policies Europeanization has highly influenced environmental and does not boost investment in regions with more stable pol- energy policy, national policymakers still make the final icies [96]. This might be one major explanatory factor for decision when it comes to renewable-energy promotion why several investors in Finland prefer investment sub- [109]. Europeanization means that national policies and sidies over production subsidies. legislation become more similar to EU policies and regu- One key tool to reduce risks related to renewable- lation [69]. As taxation cannot be addressed without also energy investments and increasing technological develop- covering subsidy issues due to the EU state-aid regulation ment is public financing. As public actors can take risks [110], this section begins with tax policy and then moves independently of the business cycle and take into account forward to subsidy policies. At the end of this section, a the public-good viewpoint, the role of public finance for brief note about administrative policies and issues is developing new technology further can be significant [59]. discussed. Public finance has previously played an important role It is possible to implement the polluter-pays principle in mobilizing private cash flows for renewable energy, to energy taxation in the EU countries, which means that and the role is not diminishing [101]. In addition to large externalities can be taken into account in energy taxation. energy-production sites, the role of public finance can also The EU energy tax directive sets only minimum tax levels be remarkable in small-scale on-site production, which for specific fuels, which are loosely based on the carbon would not be effectively financed through credit markets content of the fuel [111]. These minimum levels are barely [102]. Furthermore, potential greenhouse-gas-emission re- applicable in Finland as national taxes are much higher; duction from publicly funded alternative-energy projects e.g. the minimum tax required by the energy directive for is seen as relatively high [103]. Thus, public finance can gas oil used for heating is 2.1 cent/l in EU [112] and Finland significantly boost technological development with high has set the correspondent tax level for fuels under CN code risk but also high technological, environmental and social 2710 for 75.28 cent/l [113]. relevance [104]. Energy taxation in Finland has been primarily based One other issue affecting renewable-energy devel- on environmental viewpoints since 1989 when the scope opment is the administrative process, especially the en- of energy taxation was widened to reduce environmental vironmental permit system. The goal of the traditional damage caused by certain energy sources [114]. In add- environmental regulation has been to minimize the harm ition to this, energy taxation has been based on the CO caused to the environment and people, not to promote intensity of the energy source since 1990 [115], long before different projects [15]. In other countries, environmental such policies were suggested and abolished due to political regulation demands are even considered to prevent change reality [61]. Since 2018, carbon taxation has not been based in the energy system due to hindering renewable-energy on how much CO is released while burning hydrocarbon projects [105]. In Finland, these administrative issues are fuels, but on life-cycle greenhouse-gas emissions of energy considered to be greater in low-maturity technologies sources. According to the European Commission, the pre- developing quickly because technology might develop fur- vious taxation system gave an unfair advantage to certain ther during the administrative process or during the oper - fuels, and therefore it had to be altered [116]. This means ation of the site, and the permit process is too stiff to adapt that externalities are taken into account in the taxation, to these technological changes [15]. In recent history, the but the extent to which this is done needs to be further permit process has been developed to make it faster and evaluated. cheaper to obtain different permits while still maintaining In Finland, the general act for excise taxation is a high level of environmental protection [106]. However, ‘valmisteverotuslaki (182/2010)’; however, this act covers previous studies from Finland also suggest that local en- mostly administrative issues, and the actual tax rules for vironmental permit officers’ lack of knowledge about new energy taxation are in special laws. There are two of these renewable-energy technologies and lack of guidance from particular laws governing renewable-energy taxation officials hinder especially small-scale renewable-energy in Finland. One act is for liquid fuels, ‘laki nestemäisten projects governed by municipal environmental permit polttoaineiden valmisteverosta (1472/1994)’, from now on officials [107]. Furthermore, other studies from Finland Act (1472/1994), and Act (1260/1996) is for electricity and suggest that the permit process might create unexpected other fuels. The base principle for taxing fuels is similar Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 Paukku | 455 to those for liquid and other fuels. Three different taxes [128]. One-quarter of the energy consumed in Finland is are carried from these fuels: (i) energy tax based on the en- consumed in the form of electricity [129]. This means that ergy content of the fuel—the more energy gained by using a significant part of electricity consumption is under the the fuel, the higher the tax is; (ii) carbon tax based on the EU ETS and not under energy taxation. Instead, electricity life cycle of the CO emissions of the fuel; and (iii) strategic taxation is based on how electricity is used: industrial use stockpile fee to cover costs from funding strategic stockpiles has a significantly lower tax rate—0.703 cents/kWh versus of these fuels [117]. This energy taxation system, which 2.253 cents/kWh of other uses [130]. The level of tax for is partly based on taxing carbon content and partly en- industrial users will be lowered in the near future due to ergy usage, is similar to the one that Sweden has adopted, the goal to abolish energy subsidies for energy-intensive which is stated to be a compromise between environ- industries [56]. This is stated to increase the role of the mental and fiscal goals [118]. polluter-pays principle in energy production [131]. A carbon tax is one implementation of the polluter-pays Even if electricity production is not carbon taxed, it is principle. For other than liquid fuels, the carbon tax is the included in the EU ETS [132]. This means that all energy- largest tax component [113]. The carbon tax is around one- production installations that exceed certain rated thermal third of the overall tax from liquid fuels, while the energy input must have greenhouse-gas-emission permits, and tax is the largest tax component [119]. The only hydrocarbon they must surrender allowances equal to the total emis- fuels that are free from carbon taxes are biofuels that sions of the installation yearly [133]. The EU ETS is a meet sustainability criteria set in the RES Directive [120] cap-and-trade system. ‘Cap-and-trade’ means that the according to the ‘Laki biopolttoaineista ja bionesteistä maximum number of emission allowances decreases each (393/2013)’ act and that are made from waste according to year and firms can trade allowances with each other [134]. Act 1472/1994 2  § paragraph 27 b.  This is due to the fact Due to the ETS directive, it is forbidden to allocate free al- that biowaste would decompose and produce greenhouse- lowances for electricity production, which means that the gas emissions in any case, and using this waste for en- industry must pay for all CO emissions produced. Thus, ergy production does not increase overall greenhouse-gas the polluter-pays principle is applied in the whole EU [135]. emissions [121]. However, the price level of emission allowance is relatively This taxation system means that using more CO - low, at between 20 and 35 €/t in 2020, which is quite a lot intensive fuels is more expensive, which is a straightfor - below the OECD recommendation. Even though the OECD ward implementation of the polluter-pays principle. As recommendation can be criticized, several studies and offi- taxation is also based on the life-cycle emissions of fuels, cial sources state that the emission-allowance price might the CO emissions and overall damage by fuels are taken be too low, especially compared to the target of 30 €/t an- into account sufficiently. Of course, taxation also has fiscal ticipated when the system was adopted in 2008 [136]. needs and therefore part of the taxation is based on the en- ergy content of the fuel. Also, a sufficient level of a carbon 2.2 Energy subsidies tax could be discussed. The Organisation for Economic Co-operation and Development (OECD) has estimated that Energy subsidies can be used to compensate that part of a sufficient carbon-price level could be between 30 and the energy policy that compensating externalities do not 60 €/t [122]. The current CO tax for heating fuels used in cover. Energy subsidies have a crucial role in Finnish en- energy production is 53 €/t in Finland [116]. The tax for CO ergy policy. Energy subsidies are mentioned in the gov- from traffic fuels is currently 77 €/t [123]. According to the ernment programme, just after tax measures. According OECD estimation, the Finnish carbon tax for fuels is close to the programme, subsidy programmes will transfer from to the social costs of carbon. It needs to be noted that this operating aids to investment and research aids for new is not a country-specific estimation, and there are no es- energy technologies [137]. State-aid regulation is heavily timations about the social costs of greenhouse-gas emis- Europeanized, as a general prohibition of state aid is in- sions in Finland. Therefore, there currently exists no better cluded in the founding treaties of the EU [69]. TFEU article measure to be used in policy analysis of carbon pricing. As 107(1) states that state aids are forbidden unless other - all carbon-pricing tools are quite sensitive to uncertainty wise stated later on in the same article. Most of the envir - related to climate-change models, their usage in policy ad- onmental aids are granted based on the exception set in vising is limited [7]. article 107(3)(c) in the TFEU [138]. This article states that On the other hand, the polluter-pays taxation has been aid to facilitate the development of certain economic ac- implemented only partly in the Finnish energy policy. The tivities or certain economic areas, where such aid does not carbon tax is not carried from fuels used for electricity adversely affect trading conditions to an extent contrary production [124]. This is due to avoiding overlapping policy to the common interest, may be compatible with the in- with the EU ETS [125]. It is also required in the EU energy ternal market. The Commission guidelines on state aid for directive [126]. A  similar policy has been implemented environmental protection and energy define which aids in Sweden [127]. Norway has also adopted a similar en- the Commission agrees to be compatible with the internal ergy taxation structure where a carbon tax is carried from market and therefore does not prevent granting them. all mineral products, except those subject to the EU ETS Section 3.3 of these guidelines includes requirements for Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 456 | Clean Energy, 2021, Vol. 5, No. 3 investment and operating aids for renewable energy pro- investing. This does also mean that technology develop- duction. In addition to this, the Commission has given ment might be hindered due to the lack of development, block exemption regulation, which enables granting aids which might make energy transition more difficult due to fulfilling certain criteria without notifying the Commission the lack of mature technology. As these subsidies were tar - first [139]. National subsidy programmes for renewable en- geted for developing technology and not for energy pro- ergy are based on these guidelines and block exemption duction, there were no short-term environmental effects. regulation [69]. These investment subsidies have only a limited im- According to paragraph 119 of the guidelines, invest- pact on project financing. According to decree 1098/2017 ment aid for renewable energy production can be granted 13 § and decree 145/2016 11 §, subsidies can be paid after if the general requirements stated in Section 3.2 for invest- at least a certain part of the cost of the project has been ment aid are met. One major requirement for investment paid by its own financing. This creates a need to finance a aid is the maximum aid intensity stated in paragraphs larger portion of the project without support, as the costs 77–80 of the guidelines and annex 1 of the guidelines. The must be paid before subsidies are received. The subsidy de- maximum aid intensity for renewable energy production cision with binding effect for officials might help to receive is 45–65% of investment costs, based on how big the re- funding from external sources, but making it easier to fi- ceiving company is. Therefore, the maximum intensity for nance projects is one thing to consider when developing aid granted through the bidding process is 100%. subsidy programmes in the future. Especially projects with The general act for granting state aid in Finland is higher risks and lower technological maturity might need ‘Valtionavustuslaki (688/2001)’. Two governmental de- additional support to get financing. crees were given to specify this law. The decrees are Production subsidies for renewable energy production ‘Valtioneuvoston asetus energiatuen myöntämisen yleisistä were initially granted as feed-in-tariff. Feed-in-tariff means ehdoista vuosina 2018–2022 (1098/2017)’ and ‘Valtioneuvoston that a state sets a target price for renewable energy and asetus uusiutuvan energian ja uuden energiateknologian pays the difference between the market price and the investointituen myöntämisen yleisistä ehdoista (145/2016)’. producer’s target price [142]. However, this system became In 2020, 60.75 M€ could be granted for investment aids, while rather expensive and was abolished. New wind power in- the maximum intensity was 30/40% of the total investment stallations have not been accepted for the feed-in-tariff depending on the maturity of the technology. The aid had system since 2017, when a total cap of 2500 MWA wind almost doubled from 2018 [140]. According to the decree power in the tariff was fulfilled. Other renewable energy (145/2016) 5  §, investment aid for projects that cost >5 M€ productions since 2019 have been subsidized according to can only be granted for renewable-energy technologies that the act ‘Laki uusiutuvilla energialähteillä tuotetun sähkön are novel or for renewable-energy projects with new tech- tuotantotuesta (1396/2010)’ 17 b § and 14  §. However, in- nology that have a higher risk than normal investment pro- stallations accepted for the feed-in-tariff system get pro- jects. However, for projects that cost <5 M€, investment aid is duction subsidies 12  years from the acceptance decision, granted according to decree 1098/2017 and requirements are which greatly reduces uncertainty about market prices lower. Investment aid can be granted for projects that pro- and cash flow from investment [143]. mote renewable energy and that have some new technology, The current system for production subsidies for renew- or a new site is built. Therefore, technology does not have to able energy production is called the premium system. The be new, and it is still possible to receive investment subsidies. premium system aims to divide the market-price risk be- These requirements are set in block exemption regulation tween the producer and the state. This is done by paying and aids exceeding these amounts or not meeting these re- a specific premium to the electricity producer when the quirements need to gain the approval of the Commission. electricity price is under the target price. The premium Significant investment subsidies are, therefore, currently fo- does not cover the whole difference between the market cused on projects on an experimental scale. price and the target price, which means that the producer The government’s programme states that in energy partly carries the risk [143]. It is common that the max- aids, the goal is ‘shifting the focus from production aid to imum premium and the maximum amount of electricity grants supporting investments in new energy technologies in the premium system are limited [15]. Electricity instal- and product demonstrations’ [137]. However, most of this lations accepted into the premium system are chosen aid was not used; only 27.5 M€ out of 60.75 M€ was used based on a competitive bidding process [144]. The pre- in 2019 [141]. As the aid was granted for all projects ful- mium system is partially technology-neutral for renew- filling the requirements to get the aid, the reason for the able energy, meaning that only some renewable-energy underuse of these funds was that there were not enough installations can be accepted into the system: wind power, suitable investment projects. This might be harmful to the solar power, biogas plants and certain wood-based energy government’s goal to grant more aid for new energy tech- installations can be accepted into the system according nology and technological development. Underuse means to Act (1396/2010) 7 §. In the first, and currently the only, that state resources were saved, but there were fewer pri- bidding in 2019, 1.4 TWh worth of power was taken into vate investments, assuming that private investors with in- the subsidy programme. In that bidding, all installations vestment projects eligible for aid would apply for aid when accepted into the subsidy programme were onshore wind Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 Paukku | 457 power installations [78]. This is ~2% of all energy produc- environmental processes: ‘laki eräiden ympäristöllisten tion in Finland [145]. According to 12 § of Act (1396/2010), lupamenettelyjen yhteensovittamisesta (764/2019)’. The the premium is paid for 12  years, decreasing uncertainty impacts of the act were difficult to predict, and it remains due to being a long enough time period. This system might to be seen how it will affect permit processes for new be cost-efficient as it is competitive and, therefore, an ef- installations [151]. There are some suggestions stating fective way to increase renewable energy production. It that permit processes should be more adaptive for tech- does also provide information about the production costs nologies that are developing during the administrative of energy. processes [15]. As permit processes have undergone sig- However, the system can be criticized for two issues. nificant changes in the near past, new recommendations First, subsidies might be paid to installations that would for permit processes cannot be made before impact as- have been built even without subsidies. Of course, state-aid sessment of the new legislation. requirements apply for these aids and, according to the EU regulation, state aid should not be granted for projects that 3 Conclusions and policy implications would have been done without state aid [139]. However, evaluating whether state aid is necessary or only cosmetic Increasing the market viability of renewable energy can is complicated in many cases, and the necessity for the aid be examined from two major viewpoints. The first one is is based on some assumptions stated in the guidelines. how externalities are taken into account in energy pro- Therefore, some projects that would have been completed duction. This means practically how the costs of CO and in any case might receive aid [146]. There are no estimates other greenhouse gases are considered in energy costs. on how large a portion of aid could go to projects that would The goal of several policies is to follow the polluter-pays prin- be completed in any case, as it would require knowing the ciple, which means that the actor who causes the pollution investor’s profitability calculations and assumptions, and should also bear its costs. In the case of greenhouse-gas there are no previous studies on the subject. emissions, this is often done with carbon taxes or the ETS. The main criticism is based on the technology neu- However, there are also externalities in renewable- trality of the policy. The current policy view on technology energy technologies. For example, some technologies neutrality only promotes the most mature technology, burden the energy system more due to the variation in namely onshore wind power. This policy might hinder the their energy production. Other technologies cause signifi- development of less mature renewable-energy technology, cant conflicts with neighbours or other stakeholders, and and it might also fail to account for the long-term potential others are required to solve the greenhouse-gas-emission of different technologies. Sweden has adopted different problems and profitability issues that a specific industry, strategies to give subsidies for specific energy sectors, like biogas plants, could do for agriculture, but alone they namely solar and biogas [147]. From 2021, Sweden is not are not enough to make a significant change in energy pro- granting any production subsidies for onshore wind power duction. Due to this, it is not likely possible to choose one [148]. Norway adopted the same strategy earlier [149]. technology that could solve climate change and energy The current strategy in Finland is likely to promote short- transition alone, and it is necessary to promote the devel- term renewable-energy capacity relatively cost-effectively. opment and commercial maturity of several renewable- This has led to a situation in which production subsidies energy technologies. are granted by tendering to the most cost-effective renew- The other issue is how technology neutrality affects pol- able energy production [16]. As all production subsidies go icies aimed to increase renewable energy production and to onshore wind power, there are fewer incentives to invest technological development. Technology neutrality tends in renewable energy production other than wind power as to favour more mature technologies. Therefore, policies less mature technology makes it harder to make profits. aimed to be technology-neutral for some renewable-energy- This hinders technological development as investments production forms might promote only one technology, which in other technologies are reduced. Even if the current goal in the worst case might be commercially mature enough to is to shift the focus of aid to technological development prosper without policies aimed to promote it. On the other and new installations, this might not help technologies hand, policies that aim to promote technologies that are not to become commercially viable as long-term support for yet commercially mature must also create enough certainty business operations is not provided. The EU state-aid regu- in order to encourage investment. Certainty can be achieved lation would not prevent focusing on the production sub- with long-term policies that ensure at least some profit- sidies for less mature technologies and therefore speed ability level for investments made for this technology. up their development to commercially viable energy- Research question (i) was: Which are the key policies to production options [150]. There are even country-specific promote new renewable-energy-production technologies? Key studies from Finland, suggesting that the high dominance policies are policies that account for externalities and of a few energy sources would be a costly scenario and en- follow the polluter-pays principle to raise greenhouse-gas- danger achieving 2030 and 2050 climate goals [23]. emission prices high enough to correspond to the soci- Administrative processes have been developed in recent etal costs of such emissions. The most important of these years. In 2019, a new act was given about combining certain policies are carbon taxes and the ETS. The EU ETS is an Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 458 | Clean Energy, 2021, Vol. 5, No. 3 EU-level policy. However, national governments can imple- Tax incentives for greener energy production are quite ment policies on greenhouse-gas emissions that comply common all over the world. In Finland, the current na- with the polluter-pays principle through carbon-based tional policy is to tax energy production based on the taxation in sectors not covered by the EU ETS. carbon intensity of the fuel used, leaving renewable energy There are some political difficulties in implementing sources outside this tax. These carbon-based tax incen- the polluter-pays principle. Energy transition creates social tives for renewable energy production also promote tech- tensions due to changing economic and social frameworks nologies with higher maturity and lower subsidy needs [152]. Some relevant issues are energy poverty and afford- and, therefore, might become expensive if not actively ability, which might be increased due to increasing electri- assessed when technological maturity develops. This ac- city prices via carbon pricing [153]. This might be a politically tive assessment does not comply well with the need for challenging option due to the importance of carbon-based long-term policies to increase high-risk renewable-energy economic actions on regional economics and employment investments. in several areas [154]. The EU Just Transition Fund aims to However, these polluter-pays policies have limits due alleviate the economic, environmental and social costs of to their adverse effects on competitiveness and political the transition to climate neutrality, especially in territories unpopularity. Therefore, other means are needed to pro- suffering the heaviest impacts of transition [155]. In 2021, mote renewable energy. There are market failures related Finland will spend 1.5 billion euros for just transition and to the maturity of some renewable-energy technologies. get 1.5 billion euros from the Just Transition Fund, which The long-term policy recommendation is to address these might soothe the impact of climate transition [156]. Other issues with subsidy policy. Subsidies are an effective policy key policies are policies that increase the technological when addressing market failures related to the market or development of several renewable-energy technologies to technology, but they are an expensive permanent solu- improve their commercial maturity and create a sustain- tion. Therefore, using subsidies to enable technology de- able energy system based on several energy sources. velopment or a short-term increase in renewable energy Research question (ii) was: How could Finland promote new production is an effective policy instead of permanent renewable-energy technologies so that they become commercially production subsidies. However, subsidy programmes need viable? The first part was implementing the polluter-pays to be long enough to reduce uncertainty and to promote principle more broadly than it is currently implemented. high-risk investments and technology, and commercial Increasing greenhouse-gas-emission taxation is an effective maturity development. long-term policy, but it is not politically popular in the EU or It is quite clear that policymakers cannot choose winning Finland due to competitive issues. Currently, the price that technology. Therefore, the most cost-efficient policy is most the ETS sets for greenhouse-gas emissions is close to the likely a policy that only specifies the goal and incentives but does OECD recommendation, as the price has risen in 2021. not specify the means to get there. This is called a technology- Finland is using carbon-based taxation of energy neutral policy. However, technology-neutral policies require production, which can be seen as an effective tool for a more sophisticated approach to avoid other policy failures. decreasing greenhouse-gas emissions. National taxes for As technology-neutral policies more effectively promote more fuels are based on the energy content and carbon inten- mature technologies, a technology-neutral policy might pro- sity of the fuel. These greenhouse-gas-emission taxes for mote technologies that are overall less beneficial for society. For these fuels are high compared to the OECD recommenda- example, the current production subsidy policy in Finland is tion. Therefore, usage of these fuels follows the polluter- partly technology-neutral. Certain renewable-energy technolo- pays principle as greenhouse-gas-emission costs are gies can participate in bidding processes in which subsidies transferred to the user. One-quarter of energy production are granted to installations that require the fewest subsidies. is outside of this polluter-pays taxation, as electricity pro- However, this bidding process does not promote less mature duction is not based on the carbon intensity of the fuels technologies; all subsidies were granted to onshore wind power used. However, these fuels are under the EU ETS, which is due to its technological maturity compared to those of other based on the carbon intensity of fuels and the market price technologies that could participate in the bidding process. As a of carbon, which has fluctuated in previous years. result, the average premium from the 2019 auction was 2.49 €/ These policies are similar to those adopted in other MWh—significantly less than previous subsidies, at around 5% Nordic countries. This policy choice gives significant ad- of previous subsidy levels [78]. vantages for fossil fuels due to externalities and, due to Subsidies granted to onshore wind power can be criti- this, some policy measures are needed to correct this ad- cized on several points. First of all, wind power will soon, vantage. One effective policy for promoting renewable en- or it has already, become commercially viable without sub- ergy production would be a tax policy that taxes electricity sidies. Increasing subsidies might increase onshore wind production partially or entirely based on greenhouse-gas energy production, but some of that subsidy is likely to be emissions. This policy could even be cost-neutral if the granted to projects that would have been completed in any carbon tax would be adjusted over time to compensate for case. Another point for criticism is that achieving the most the increasing share of renewable energy production and cost-efficient energy transition requires several renew- rising of the EU ETS prices. able energy sources. Politicians cannot pick the winning Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 Paukku | 459 Publications of the Ministry of Economic Affairs and technology, but subsidies could be focused on less mature Employment, 2017, 4/2017, 4. technologies, such as excluding onshore wind production [2] European Parliament. Resolution on climate change—a European from energy subsidy programmes. strategic long-term vision for a prosperous, modern, competitive and The other Nordic countries have abolished production climate neutral economy in accordance with the Paris Agreement. subsidies for onshore wind power, as onshore wind power is 2019/2582 (RSP) paragraphs 6–8. becoming more and more commercially viable. They are fo- [3] European Council. Conclusions, 12 December 2019 on climate cusing on production subsidies for energy technologies that change, the MFF, the Conference on the Future of Europe, EU rela- tions with Africa, the WTO, Turkey and Albania EUCO 29/19 para- are not that commercially viable. It needs to be noted that graph 2. these other Nordic countries have significant energy sur - [4] European Parliament. Resolution on climate change—a European pluses, while Finland is consuming significantly more energy strategic long-term vision for a prosperous, modern, competitive and than it produces [157]. This makes comparing energy pol- climate neutral economy in accordance with the Paris Agreement. icies a bit more difficult, and similar policies might not be vi- 2019/2582 (RSP) paragraph 28. able in Finland. The majority of renewable-energy subsidies [5] European Commission. Commission staff working paper. Analysis granted are these production subsidies, which are mostly of options beyond 20% GHG emission reductions: Member State re- sults. Brussels, 1.2.2012 SWD(2012) 5 final p. 27. granted for onshore wind power. A  small minority of sub- [6] European Commission. Communication from the Commission: a sidies are investment and technology subsidies. The current roadmap for moving to a competitive low carbon economy in 2050. government aims to change the weight of subsidies, which COM(2011) 112 final, p. 4. would be beneficial in the long run. However, using only [7] van den Bergh JCJM, Botzen WJW. Monetary valuation of the technology-neutral policies is not viable in the long term, as social cost of greenhouse gas emissions. Ecological Economics, technological maturities are very different. Therefore, using 2015, 114:33–46. several other policies to promote several goals simultan- [8] Nordhaus WD. Revisiting the social cost of carbon. Proceedings of the National Academy of Sciences of the United States of America, eously would most likely lead to better results. 2017, 114:1518–1523. Production subsidies are not that effective for several [9] Fankhauser  S. The social costs of greenhouse gas emis- renewable-energy technologies with high uncertainty. sions: an expected value approach. The Energy Journal, 1994, Investment subsidies are probably a preferable solution 15:157–184. for less mature technologies as they reduce uncertainty [10] Programme of Prime Minister Sanna Marin’s Government much more effectively. For more mature and commercially 10 December 2019. Inclusive and competent Finland: a so- viable technologies, production subsidies granted in the cially, economically and ecologically sustainable society. 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How could Finland promote renewable-energy technology innovation and implementation?

Clean Energy , Volume 5 (3) – Sep 1, 2021

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Abstract

Keywords: technology neutrality; commercial viability; subsidy policy; state aid; tax policy; the polluter-pays principle If technological development is not as fast as expected, Introduction the socio-economic burden of greenhouse-gas emissions Finland has set a target for a 39% reduction in greenhouse- will be much more significant. This burden is often re- gas emissions by 2030 and an 80–95% reduction by 2050 ferred to as greenhouse-gas emissions’ social cost or the [1]. The European Parliament has also made a resolution ‘social cost of carbon’ [7 ]. This social cost is difficult to cal- that the EU should lead the way to climate neutrality and culate as there are several factors to be taken into account, achieve that by reaching net-zero greenhouse-gas emis- which makes the models extremely complex [8]. Still, sions by 2050 [2]. This can be seen as an opportunity, as the traditionally, the definition includes damage that global transition will bring significant opportunities for new busi- warming causes, like agricultural damage and damage nesses and technological development [3]. Technological from sea-level rise, but also includes positive effects from development is seen as key to reducing greenhouse-gas warming, like increased agricultural output []. 9 There are emissions and therefore technology-specific strategies several models that can be used to estimate costs but, as are needed to achieve these climate-neutrality targets [4]. all these models have several restrictions, they are only Achieving net carbon neutrality requires significant net indicative for policy advice [7]. Therefore, national and investments annually in the EU for several decades [5]. EU-level technology policies are in a key position for These climate-neutrality goals are strongly tied to techno- reaching greenhouse-gas targets and reaching them cost- logical development: annual cost-reduction goals are set efficiently. At the national level, carbon-neutrality strat- to be higher during years closer to 2050 as a broader set egies keenly follow technological development and are of cost-effective technologies are anticipated to become adjusted based on the level of the current technology [10]. available [6]. Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 Paukku | 449 Economic efforts to achieve carbon neutrality are strongly not become innovations, but not new inventions [18]. linked to the cost-effectiveness of several renewable- Therefore, research and development (R&D) issues, such energy technologies [11]. This requires the innovation as innovation environment cases and R&D subsidies, are and implementation of new technologies, as well as these not covered in this study. This article focuses on possible technologies becoming commercially viable. In Finland, actions taken at the national level, covering legislation and the development of new energy-efficient technologies, using the national budget. The use of the budget covers renewable-energy technologies and business models both taxation and subsidies. Therefore, this article does is seen as a way to promote the national economy and not cover cases in which companies or other organiza- increase welfare nationally [12]. This is based on the as- tions could improve their technological development by sumption made by the European Commission that current changing their policies. This article does not cover general investments for reducing greenhouse-gas investments economic measures aimed at boosting the economy as a will determine the future competitiveness of an economy whole, such as cutting taxes or general fiscal measures. in the following decades [13]. In Finland, investments in This article covers only measures that could be imple- climate technology and low-carbon production are seen mented in Finland. Technological and commercial issues as being key to a sustainable economy in Finland, sustain- that are universal are assumed to occur in Finland, and ability covering in this case an ecologically, socially and policy solutions chosen in other countries are assumed to financially sustainable economy [14]. have a similar effect in Finland unless otherwise stated. This article focuses on several renewable-energy- One central viewpoint that is not deeply covered in this production technologies and policies that can promote article is that countries compete on renewable-energy in- those technologies. At least from the policymaker’s vestments, which reduces policy effectiveness [19]. This viewpoint, other benefits might be regional effects or in- has partially led to the subsidy race as state-aid rules have creased employment [10]. One of these renewable-energy- been relieved to increase renewable energy production and production technologies is offshore wind power. Offshore investments [20]. wind power has higher investment costs than land-based This study aims to provide information on how pol- wind power. Still, offshore wind power installations gen- icymakers could change current policies, legislation and erate more electricity due to better wind conditions and, budgets to promote new renewable-energy technologies so more importantly, create less conflict with interest groups, that they become commercially viable more quickly. This e.g. neighbours, than land-based wind power installations study answers two research questions: [15]. Other major renewable-energy technologies that have (i) Which are the key policies to promote new renewable- potential in Finland are solar and biomass energy pro- energy-production technologies? duction [16]. This study does not compare the regulative (ii) How could Finland promote new renewable-energy or economic contexts of different energy policies unless technologies so that they become commercially otherwise specified. This means that policies used in dif- viable? ferent kinds of market-oriented economic systems will be included in this study. However, their usability will be Research question (i) is answered in Section 1. The answer evaluated in the ‘Conclusions’ section if recommendations is based on a literature review. The literature review is fo- are based on them. cused on previous research on market failures of new tech- This article does not cover technology-specific research nologies, especially in renewable-energy technologies and unless specifically mentioned. Instead, this article fo- renewable energy production. The other part of the litera- cuses on issues that come from energy markets and low ture review focuses on previous research on how different technological maturity in general. Obstacles constraining policies will affect technologies and businesses that are renewable-energy technologies from entering the en- not yet commercially viable due to low technological ma- ergy market can be viewed from three perspectives: (i) turity. Research questions are linked so that the answer to the research, development and deployment perspective, the first research question will give several base assump- (ii) the market-barrier perspective and (iii) the market- tions that the solutions of the second research question transformation perspective [17]. This article focuses on all will be based on. Research question (ii) will be answered those perspectives. The third perspective will be covered in Section 2 based on several methods. A  law and economics by viewing the market and policy incentives for energy and method will be used to determine how current policies how to promote market transformation. affect the commercial viability of new renewable-energy This article focuses only on the phase in which new technologies in Finland. To be specific, the used method technology is already developed. Several developed tech- is a normative theory of regulation, focusing on analysing nologies might still require test sites to increase techno- how particular regulation affects achieving specific goals logical maturity or increase production to scale up to [21]. The practical legal dogmatic method is used to ana- become commercially viable due to economics of scale or lyse current legislation and restrictions set by it without technological maturity issues. To clarify, this study does further systemizing it [22]. The last section of this study cover inventions that have not been tested and thus have includes conclusions and discussion. Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 450 | Clean Energy, 2021, Vol. 5, No. 3 There exists relatively recent literature by Pilpola official sources will be used to determine the goal of a and Lund [23] on how different energy-development certain policy as well as to determine the general goals scenarios would affect energy markets in Finland. Their of the Finnish energy policy. research implies that there are several risks in the case of dominance of a few energy sources. However, their paper does not address the impact of national energy 1 Energy policy and new energy policies. There are other studies from Finland addressing technologies issues in Finnish energy policy [24] or risks that devel- 1.1 Externalities opment in energy markets poses without policy inter - vention [25]. However, these studies are from the early The invisible hand of the market might not make envir - 2010s, which means that the energy system has dras- onmentally friendly innovations succeed commercially. tically changed since the EU emissions trading scheme Several market failures force a state to make market inter - (ETS) is forming energy markets even more. Several ventions to promote technologies and businesses that renewable-energy technologies have become more com- generate more welfare, taking into account market effect- mercially viable and the structure of energy markets is iveness, environmental issues, sustainability and even changing. A  study about Finnish national energy policy social issues [29]. The market failure that is mostly ‘respon- in the current era in energy policy would therefore add sible’ for climate change is externalities [30]. Externalities to the existing literature. have been the main barrier in preventing technologically There are several studies on how technology-neutral mature renewable-energy technologies from entering the energy policies can generate undesired outcomes: energy market [17]. In EU policy, the existence of market Carton [26] has studied how the principle of tech- failure is agreed to be so obvious that market failure in the nology neutrality has led to biomass combustion in the renewable-energy market is presumed to exist until other - Netherlands, but otherwise technology-neutral energy wise proven [31]. Sometimes externalities are divided into policies and their impacts in specific market areas have positive and negative externalities. Positive externalities not been discussed extensively lately. Technology neu- mean that one actor’s actions positively affect other actors’ trality itself has gained much attention in the literature. positions [32]. A negative externality is one feature of the For example, Verbruggen and Lauber [27] have assessed ‘tragedy of commons’ [33]. In this study, the term ‘externality’ how renewable-electricity support instruments affect refers to a negative externality unless otherwise stated. the energy markets, and they have assessed how dif- Externalities mean that certain environmental costs of ferent policy instruments affect different technologies production are not reflected in the market cost of the com- with different technological and commercial maturity. modity, which means that a customer does not have to pay In the case of negative externalities and energy policies, the full price for the commodity. Still, the price is subsidized there is an excessive number of previous studies. It has by others that bear the cost of external impact [17]. On a been recently proposed by Paukku [28] that in the EU more theoretical point, externalities can be defined in the and Finland, the primary tool to prevent climate change following way: external effects are present whenever a is not removing externalities from fossil energy pro- firm’s production function depends in some way on the duction, but giving incentives to produce more renew- amounts of the inputs or outputs of another firm [34]. able energy via subsidies and other promoting policies. The commercial viability of renewable-energy technolo- This study aims to extend the literature that assesses gies has been heavily linked to market distortions in the whether removing externalities has actually lost popu- energy sector, mainly externalities, but also including sub- larity in energy policy. sidies for fossil fuels [35]. Economic efficiency prescribes There are three further sections in this study. The that externality costs should be apportioned to their Section 1 contains a literature review on energy-policy causes [36]. This internalization must be done by the gov- issues. Four issues are addressed: externalities, en- ernment, as private actors have no incentives to do so [37]. ergy subsidies, technology neutrality and uncertainty. This can be done using the so-called Pigouvian tax, which Externalities, technology neutrality and uncertainty are means tax set at the level at which all pollution costs are addressed as they have a crucial role when designing assigned to the goods or product produced [38]. There are energy policy. Literature on energy subsidies is also ad- also other possible ways to internalize externalities, but dressed as its effects are widely analysed in the litera- their advantages and disadvantages in energy produc- ture and it can be used to address several challenges in tion are partly unclear [37]. Internalizing externalities is energy policy. Based on this literature, two aspects of not alone sufficient policy to achieve energy transition as Finnish energy policies will be discussed in Section 2: there are energy users who undervalue energy costs and energy taxation and energy subsidies. In Section 2, the therefore are less likely to react to rising energy prices [39]. Finnish energy policy is evaluated through its ‘hard’ This suggests that a combination of policies is required to tools, meaning practically laws and the national budget, achieve an energy transition. as they are the main tools for how the policymaker The role of externalities in policies has been stated can affect energy markets. Policy documents and other quite often and at relatively high levels; e.g. the EU climate Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 Paukku | 451 policy has been based on the idea of dealing with exter- footprint of imports are likely to increase [51]. Based on the nalities. The European Parliament has given a resolution draft for new guidelines, this EU policy will not change in which states that externalities that distort competition the near future [52]. are major factors preventing investments for areas bene- Previous literature suggests that it is an economically ef- ficial for the environment and climate policy, others being fective energy policy to refund part of funds collected from public subsidies for environmentally harmful action [40]. increased energy taxes or ETS for industries that suffer The basis of EU policies has been that, despite taxation most from increased energy prices [53]. In Finland, the sec- and ETS, a residual market failure remains in the energy tors that are evaluated to be at risk of losing market shares markets due to externalities [31]. due to the effect of the ETS on electricity prices are defined Due to the need to assign the costs of pollution to by the energy cost of unit value added. According to the tax act polluters, the so-called polluter-pays principle has been for electricity and other fuels 8 a §, ‘laki sähkön ja eräiden the main principle in environmental law and policy for polttoaineiden valmisteverosta (1260/1996)’, from now on several decades [41]. This policy has been acknowledged Act (1260/1996) 8 a §, if the energy taxes that the company in several high-level policy documents, like the Rio dec- pays or that are included on energy goods that they bought laration and Article 191 of the Treaty on the Functioning are >0.5% of the company’s unit value added, the company of the European Union (TFEU) [42]. This principle is also is eligible to have these taxes partly refunded. The esti- mentioned as the main principle in several recent policy mated yearly cost of this energy subsidy is 235 M€ [54]. This papers [43]. If the polluter-pays principle is applied to subsidy is based on combining the polluter-pays principle fossil fuels, it means that their use is taxed based on with competitiveness concerns [55]. These taxes and re- harmful environmental effects, mostly CO emissions. funding part of taxes back are coming to an end in Finland This could lead to two things compared to a baseline in upcoming years. These subsidies for energy-intensive scenario in which tax is not applied: an increase in de- industries are harmful to the environment. Therefore, they mand for energy sources where tax is not applied and are abolished, but the electricity tax is simultaneously cut a medium-term decrease in overall energy demand [44]. down to compensate for the same amount of money to all The latter would also be beneficial for achieving climate industries using electricity [56]. targets, and it could also mean more energy-efficient Several economists view a carbon tax as the best tool to technologies and processes. Both effects combined lead effectively decrease CO emissions [57]. However, the role to reduced CO emissions when the price of fossil fuels of the polluter-pays principle compared to other policy increases due to markets or taxation or other means tools in EU policy has been declining for two decades as [45]. There is a relatively strong consensus that the price it has not been seen as the best solution for current envir - elasticity of energy demand exists, and it is negative, onmental issues due to the harm it causes to international meaning that when energy prices rise, energy consump- competitiveness without other complementary policy in- tion decreases. However, the magnitude of elasticity struments [28]. Although the EU ETS promotes polluter- varies greatly depending on the assumptions and models pays and carbon pricing, Member States are allowed to used [46]. promote renewable energy production and energy transi- Several energy-intensive sectors are quite vulnerable tion with state aids, which is not traditionally compatible to the cost increase that ETS causes due to international with the polluter-pays policy [28]. The decline of the prin- competition and high energy share in total costs [47]. The ciple started late in the 1990s in order to implement meas- European Commission has estimated which sectors could ures for protecting the environment going beyond existing suffer heavy damages and listed them as energy-intensive mandatory requirements or preserving the competitive- sectors [48]. Previous studies show that the increase in en- ness of the industries when imposing new environmental ergy prices does not affect the price of end products on a requirements [58]. A  carbon tax, which represents the larger scale. This was argued to be due to a small energy polluter-pays principle, is not considered a viable solu- share in the total cost [49]. In the EU, the Commission has tion to be implemented nationally, as it strongly affects estimated that it is impossible to pass increasing energy international competition and is politically unpopular [59]. costs onto product prices in a few sectors without signifi- The EU Commission has based several policies based on cant market-share loss [50]. Therefore, there are political this view; e.g. the ETS scheme has been restricted for sev- needs to compensate energy-intensive sectors. This is eco- eral energy-intensive sectors. In addition, the EU has set nomically justified by the carbon-leakage reasoning. The minimum energy tax levels for certain energy products, Commission uses the term ‘carbon leakage’, meaning ‘an like coal and natural gas, to reduce CO emissions [60]. increase in global greenhouse-gas emissions when com- However, even if the Commission proposed so, the energy panies shift production outside the Union because they taxation in the EU is not linked to CO emissions as some cannot pass on customers’ cost without significant market Member States strongly opposed it based on their worries share loss’ [50]. There are several estimations about how about their competitiveness [61]. large this carbon leakage is in different carbon prices. Still, Externalities can also be solved without meddling with it is evident that increasing carbon pricing and the carbon pricing. It is quite common that states have adopted a Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 452 | Clean Energy, 2021, Vol. 5, No. 3 regulatory framework that forces some market players to market failures [71]. In the EU, the economic justification buy some renewable energy. In Europe, such systems have for granting aid is correcting market failures [72], although been implemented in Germany, where network operators the role of this reasoning had been diminishing during the are required to purchase a certain amount of renewable 2010s [73]. State aid is seen as an acceptable policy solution energy and the producers are chosen by an auctioning against market failure in energy markets as taxation and process [62]. Probably the largest purchase quota system the ETS have not fully internalized all greenhouse-gas- has been adopted in China, which has been increasing emission costs for energy prices [31]. renewable-energy supply and demand rapidly [63]. The effects of renewable-energy subsidies are widely Although this policy is efficient for increasing renewable analysed in the literature [57]. An important note is that energy production, it is not alone sufficient for decreasing subsidies are not alone a satisfactory permanent solu- greenhouse-gas emissions [64]. tion: as long as the costs of greenhouse-gas emissions are Taxation is not the only way to address externalities; not included in the fossil-fuel prices, renewable-energy they can also be addressed with subsidies [65]. The na- subsidies will generate significant welfare losses due to tional decision margin for the taxation of carbon emissions their high price [74]. A  subcategory of energy subsidies, in energy production might be relatively small as EU pol- namely tax incentives, has not been an effective way to icies are more focused on subsidizing than increasing costs increase renewable energy production, being a rather ex- with taxation, the ETS or other tools [66]. Due to differences pensive and unfocused tool [57]. Tax subsidies are hard to between several Member States, it is unlikely that energy design to effectively increase environmental protection taxation will be harmonized to be more CO-based in the due to their effectiveness depending on the cost struc- future. As the polluter-pays principle has been partly for - ture and cost-effectiveness of produced goods [75]. Poorly gotten due to its adverse effects on competitiveness [28], designed energy subsidies can cause excessive competi- other means to promote renewable energy production need tion, overcapacity and state financial stress [76]. However, to be analysed. Renewable energy production will increase renewable-energy subsidies are a cost-efficient tool when when renewable-energy-production profits are higher than addressing market failures related to technology [74]. profits from fossil energy production. If the price for produ- Renewable-energy subsidies might, in some cases, be the cing fossil energy cannot be raised higher than renewable only tool to avoid high social costs when the price of fossil energy production in a politically acceptable way, the price energy rises [77]. Policy recommendations for energy sub- for producing renewable energy needs to be lowered. This sidies recommend subsidies to be decreasing over time, can be achieved through a subsidy policy. competitive and reasonable [76]. These points from pre- vious literature can be synthesized as: renewable-energy subsidies should be grants rather than tax advantages. 1.2 Energy subsidies They should be designed to promote energy technology Internalizing the negative externalities might not be a development. They should be decreasing over time, and sufficient tool to achieve energy transition, and so com- they should encourage competitiveness and effectiveness. plementary tools are often used. As increasing fossil-fuel The profitability of renewable energy had been long de- costs is politically unpopular due to its adverse effects on pendent on public subsidies like feed-in tariffs, tax credits international competitiveness, politicians might be willing and power purchase agreements [59]. Even now, renew- to focus more on subsidy policies. Another reason that able energy production in Finland requires production might affect implementing the polluter-pays principle is subsidies to become more common [78]. Significant atten- the lobbying power of fossil-fuel industries. However, this tion had been given to production subsidies, although the is likely to change when the economic significance of re- role of investment subsidies could be substantial for some newable energy production increases [67]. Previous studies technologies. From a theoretical viewpoint, compared to also suggest that price increases are not an effective way taxation and operating subsidies, investment subsidies to develop new technology and markets, but subsidies are not a cost-efficient tool to assess problems where costs are also needed [68]. It has also been stated that price in- and prices are continuously changing. They cannot be ef- creases are not an effective tool alone, but they need other ficiently adjusted to the equilibrium level when prices and supportive policies to achieve energy transition effect- costs vary [79]. However, previous studies from Finland ively [39]. Due to the nature of EU state-aid rules, the sub- suggest that operators prefer investment subsidies over sidies in Finland can be divided into investment subsidies, production subsidies and tax relief, as investment sub- production subsidies and other subsidies [69]. The ‘other sidies are seen as more stable and reliable for long-term subsidies’ group covers subsidies without long-term oper - investments as production subsidies, and tax levels can ational significance, such as subsidies for labour costs in be easily changed when policymakers change. However, one-time projects and small de minimis subsidies. State aid these results are partly controversial to findings in other is a widely used and accepted tool to correct market fail- EU countries [80]. ures, especially negative externalities [70]. In the previous Energy-consumption subsidies are an effective literature, state aid is seen as an effective tool to correct tool for changing energy-consumption patterns [81]. Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 Paukku | 453 Energy-consumption subsidies are often used in order In most cases, the reason for giving up a technology- to improve the situation of those consumers with low neutral-policy approach is promoting technologies that purchasing power [82]. Consumption subsidies might not are seen to have the greatest long-term potential [27]. Due be effective in promoting technological change in renew- to this, EU policies are, in principle, technology-neutral but, able energy production [83]. Nevertheless, consumer sub- in some instances, designed to favour certain technologies sidies do still play a significant role in the energy transition. due to their greater long-term potential [92]. On the other First of all, there are several consumption subsidies for hand, giving up a technology-neutral approach even partly fossil fuels, which increase their consumption. Due to this, has significant disadvantages. If a policy focuses on a par - removing those subsidies would decrease their consump- ticular technology or technologies, this will hinder and tion at least locally, although possibly affecting the global create uncertainty for developing all other related tech- market price of those fuels and thus increasing their con- nologies [93]. Different technologies have different sus- sumption somewhere else [84]. The second reason is that tainability issues, advantages and disadvantages, making they can help consumers with lower purchasing power to it undesirable to promote one technology over others, re- overcome energy transition and thus increase the political gardless of how technologically neutral the policy favouring acceptability of those subsidies [82]. this particular technology is [67]. One practical example of this is wind power, which has extremely fluctuating energy production and requires other energy sources or energy 1.3 Technology neutrality storage to balance production and demand. A technology-neutral approach for promoting re- One viewpoint for energy policy is that policymakers newable energy might not lead to the best results. cannot pick a technology that will generate the most wel- Regulatory actions needed to encourage technology de- fare to society, but they have to promote all technologies pend highly on technological maturity [94]. There is a risk aiming for similar goals [15]. A technology-neutral policy can in all technology-neutral policies that technology with the be defined as a policy that sets goals but does not specify greatest short-term potential will emerge victorious at the the exact means of how to achieve them [85]. A technology- cost of technology with greater long-term potential [26]. neutral-policy approach is stated to be more effective than If all renewable-energy-production technologies are pro- policies promoting one technology in some instances, moted in the same way, there is no guarantee that tech- such as vehicles using alternative fuels [86]. There are two nology or technologies that will emerge victoriously will goals for technology neutrality. The first one is cost-effect- generate the most welfare to society. In addition to this, a iveness, as the most effective technology should be the poorly designed technology-neutral policy might lead to a one delivering the results [87]. This goal is based on the case in which, more generally, more harmful technology assumption that different technologies can be unprob- emerges victorious [26]. One reason for this is that tech- lematically equated under a single market mechanism, nology neutrality tends to favour more mature technolo- leading to cost-effective equilibrium [26]. The other one is gies [27]. that the technology-neutral approach promotes techno- logical development and creates positive externalities [85]. Due to its cost-effectiveness, it has been stated in Finnish 1.4 Uncertainty national energy strategies that financial-steering instru- ments should be based on technology neutrality and the Another issue for renewable-energy development is uncer - ranking of economic priorities [88]. There are, however, tainty. The role of uncertainty in the regulatory environ- high risks related to technology neutrality. If a few energy ment has been recognized as one factor that significantly sources gain dominance, the energy transition will become affects the investment decisions of all economic actors much more costly and harder to achieve [23]. [95]. As renewable-energy investments for developing tech- Despite its name, technology neutrality does always af- nologies are high-risk investments, governmental support fect different technologies in different ways, and therefore is often needed to speed up these investments [77]. Higher true neutrality might not be achievable in any policy [89]. uncertainty affects investment decisions more, and there As technology-neutral policies aim to favour some set of are several factors increasing the uncertainty of renewable technologies put on the level playing field, some technolo- energy production. To promote renewable energy efficiently, gies in this set might be more advantageous than others policies need to be stable and long-term [77]. If investment and therefore create excess profits [90]. Even if the ma- would have substantially less value under an alternative turity levels of the technologies are the same, technology regulatory scheme, investments are greatly hindered [96]. neutrality tends to favour different products or services Due to this, several subsidy programmes are set for a long over others. In addition to this, technology neutrality tends and fixed time to ensure investment profitability [97]. In to favour lower-quality solutions that might have less addition to policy-related uncertainty, the policymaker long-term potential but high market readiness [27]. When can affect how other uncertainties, like market-demand a lock-in effect might occur, the regulator should be careful uncertainty, affect the investment decision. This can be when adopting a technology-neutral approach [91]. done using policy tools to increase the profitability of an Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 454 | Clean Energy, 2021, Vol. 5, No. 3 investment or to reduce uncertainty from demand, such as results when permit requirements for a particular type of increasing the market demand [98]. Stability in renewable- action are not yet established at a national level [108]. energy policy boosts the technological development and viability of renewable-energy-production technologies [99]. Even if economists often prefer adjusting measures 2 Current policies and legislation based on the market situation, empirical evidence shows 2.1 Energy taxation that even too frequent subsidy or tax-evaluation processes effectively hinder new investments [100]. Current renewable-energy-promotion policies can be div- Uncertainty can be linked to a policy or policymaker. ided into two groups: energy taxation and subsidy policy. Previous studies suggest that in regions with a history of The EU regulation highly affects both policies, but although substantial policy changes, introducing long-term policies Europeanization has highly influenced environmental and does not boost investment in regions with more stable pol- energy policy, national policymakers still make the final icies [96]. This might be one major explanatory factor for decision when it comes to renewable-energy promotion why several investors in Finland prefer investment sub- [109]. Europeanization means that national policies and sidies over production subsidies. legislation become more similar to EU policies and regu- One key tool to reduce risks related to renewable- lation [69]. As taxation cannot be addressed without also energy investments and increasing technological develop- covering subsidy issues due to the EU state-aid regulation ment is public financing. As public actors can take risks [110], this section begins with tax policy and then moves independently of the business cycle and take into account forward to subsidy policies. At the end of this section, a the public-good viewpoint, the role of public finance for brief note about administrative policies and issues is developing new technology further can be significant [59]. discussed. Public finance has previously played an important role It is possible to implement the polluter-pays principle in mobilizing private cash flows for renewable energy, to energy taxation in the EU countries, which means that and the role is not diminishing [101]. In addition to large externalities can be taken into account in energy taxation. energy-production sites, the role of public finance can also The EU energy tax directive sets only minimum tax levels be remarkable in small-scale on-site production, which for specific fuels, which are loosely based on the carbon would not be effectively financed through credit markets content of the fuel [111]. These minimum levels are barely [102]. Furthermore, potential greenhouse-gas-emission re- applicable in Finland as national taxes are much higher; duction from publicly funded alternative-energy projects e.g. the minimum tax required by the energy directive for is seen as relatively high [103]. Thus, public finance can gas oil used for heating is 2.1 cent/l in EU [112] and Finland significantly boost technological development with high has set the correspondent tax level for fuels under CN code risk but also high technological, environmental and social 2710 for 75.28 cent/l [113]. relevance [104]. Energy taxation in Finland has been primarily based One other issue affecting renewable-energy devel- on environmental viewpoints since 1989 when the scope opment is the administrative process, especially the en- of energy taxation was widened to reduce environmental vironmental permit system. The goal of the traditional damage caused by certain energy sources [114]. In add- environmental regulation has been to minimize the harm ition to this, energy taxation has been based on the CO caused to the environment and people, not to promote intensity of the energy source since 1990 [115], long before different projects [15]. In other countries, environmental such policies were suggested and abolished due to political regulation demands are even considered to prevent change reality [61]. Since 2018, carbon taxation has not been based in the energy system due to hindering renewable-energy on how much CO is released while burning hydrocarbon projects [105]. In Finland, these administrative issues are fuels, but on life-cycle greenhouse-gas emissions of energy considered to be greater in low-maturity technologies sources. According to the European Commission, the pre- developing quickly because technology might develop fur- vious taxation system gave an unfair advantage to certain ther during the administrative process or during the oper - fuels, and therefore it had to be altered [116]. This means ation of the site, and the permit process is too stiff to adapt that externalities are taken into account in the taxation, to these technological changes [15]. In recent history, the but the extent to which this is done needs to be further permit process has been developed to make it faster and evaluated. cheaper to obtain different permits while still maintaining In Finland, the general act for excise taxation is a high level of environmental protection [106]. However, ‘valmisteverotuslaki (182/2010)’; however, this act covers previous studies from Finland also suggest that local en- mostly administrative issues, and the actual tax rules for vironmental permit officers’ lack of knowledge about new energy taxation are in special laws. There are two of these renewable-energy technologies and lack of guidance from particular laws governing renewable-energy taxation officials hinder especially small-scale renewable-energy in Finland. One act is for liquid fuels, ‘laki nestemäisten projects governed by municipal environmental permit polttoaineiden valmisteverosta (1472/1994)’, from now on officials [107]. Furthermore, other studies from Finland Act (1472/1994), and Act (1260/1996) is for electricity and suggest that the permit process might create unexpected other fuels. The base principle for taxing fuels is similar Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 Paukku | 455 to those for liquid and other fuels. Three different taxes [128]. One-quarter of the energy consumed in Finland is are carried from these fuels: (i) energy tax based on the en- consumed in the form of electricity [129]. This means that ergy content of the fuel—the more energy gained by using a significant part of electricity consumption is under the the fuel, the higher the tax is; (ii) carbon tax based on the EU ETS and not under energy taxation. Instead, electricity life cycle of the CO emissions of the fuel; and (iii) strategic taxation is based on how electricity is used: industrial use stockpile fee to cover costs from funding strategic stockpiles has a significantly lower tax rate—0.703 cents/kWh versus of these fuels [117]. This energy taxation system, which 2.253 cents/kWh of other uses [130]. The level of tax for is partly based on taxing carbon content and partly en- industrial users will be lowered in the near future due to ergy usage, is similar to the one that Sweden has adopted, the goal to abolish energy subsidies for energy-intensive which is stated to be a compromise between environ- industries [56]. This is stated to increase the role of the mental and fiscal goals [118]. polluter-pays principle in energy production [131]. A carbon tax is one implementation of the polluter-pays Even if electricity production is not carbon taxed, it is principle. For other than liquid fuels, the carbon tax is the included in the EU ETS [132]. This means that all energy- largest tax component [113]. The carbon tax is around one- production installations that exceed certain rated thermal third of the overall tax from liquid fuels, while the energy input must have greenhouse-gas-emission permits, and tax is the largest tax component [119]. The only hydrocarbon they must surrender allowances equal to the total emis- fuels that are free from carbon taxes are biofuels that sions of the installation yearly [133]. The EU ETS is a meet sustainability criteria set in the RES Directive [120] cap-and-trade system. ‘Cap-and-trade’ means that the according to the ‘Laki biopolttoaineista ja bionesteistä maximum number of emission allowances decreases each (393/2013)’ act and that are made from waste according to year and firms can trade allowances with each other [134]. Act 1472/1994 2  § paragraph 27 b.  This is due to the fact Due to the ETS directive, it is forbidden to allocate free al- that biowaste would decompose and produce greenhouse- lowances for electricity production, which means that the gas emissions in any case, and using this waste for en- industry must pay for all CO emissions produced. Thus, ergy production does not increase overall greenhouse-gas the polluter-pays principle is applied in the whole EU [135]. emissions [121]. However, the price level of emission allowance is relatively This taxation system means that using more CO - low, at between 20 and 35 €/t in 2020, which is quite a lot intensive fuels is more expensive, which is a straightfor - below the OECD recommendation. Even though the OECD ward implementation of the polluter-pays principle. As recommendation can be criticized, several studies and offi- taxation is also based on the life-cycle emissions of fuels, cial sources state that the emission-allowance price might the CO emissions and overall damage by fuels are taken be too low, especially compared to the target of 30 €/t an- into account sufficiently. Of course, taxation also has fiscal ticipated when the system was adopted in 2008 [136]. needs and therefore part of the taxation is based on the en- ergy content of the fuel. Also, a sufficient level of a carbon 2.2 Energy subsidies tax could be discussed. The Organisation for Economic Co-operation and Development (OECD) has estimated that Energy subsidies can be used to compensate that part of a sufficient carbon-price level could be between 30 and the energy policy that compensating externalities do not 60 €/t [122]. The current CO tax for heating fuels used in cover. Energy subsidies have a crucial role in Finnish en- energy production is 53 €/t in Finland [116]. The tax for CO ergy policy. Energy subsidies are mentioned in the gov- from traffic fuels is currently 77 €/t [123]. According to the ernment programme, just after tax measures. According OECD estimation, the Finnish carbon tax for fuels is close to the programme, subsidy programmes will transfer from to the social costs of carbon. It needs to be noted that this operating aids to investment and research aids for new is not a country-specific estimation, and there are no es- energy technologies [137]. State-aid regulation is heavily timations about the social costs of greenhouse-gas emis- Europeanized, as a general prohibition of state aid is in- sions in Finland. Therefore, there currently exists no better cluded in the founding treaties of the EU [69]. TFEU article measure to be used in policy analysis of carbon pricing. As 107(1) states that state aids are forbidden unless other - all carbon-pricing tools are quite sensitive to uncertainty wise stated later on in the same article. Most of the envir - related to climate-change models, their usage in policy ad- onmental aids are granted based on the exception set in vising is limited [7]. article 107(3)(c) in the TFEU [138]. This article states that On the other hand, the polluter-pays taxation has been aid to facilitate the development of certain economic ac- implemented only partly in the Finnish energy policy. The tivities or certain economic areas, where such aid does not carbon tax is not carried from fuels used for electricity adversely affect trading conditions to an extent contrary production [124]. This is due to avoiding overlapping policy to the common interest, may be compatible with the in- with the EU ETS [125]. It is also required in the EU energy ternal market. The Commission guidelines on state aid for directive [126]. A  similar policy has been implemented environmental protection and energy define which aids in Sweden [127]. Norway has also adopted a similar en- the Commission agrees to be compatible with the internal ergy taxation structure where a carbon tax is carried from market and therefore does not prevent granting them. all mineral products, except those subject to the EU ETS Section 3.3 of these guidelines includes requirements for Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 456 | Clean Energy, 2021, Vol. 5, No. 3 investment and operating aids for renewable energy pro- investing. This does also mean that technology develop- duction. In addition to this, the Commission has given ment might be hindered due to the lack of development, block exemption regulation, which enables granting aids which might make energy transition more difficult due to fulfilling certain criteria without notifying the Commission the lack of mature technology. As these subsidies were tar - first [139]. National subsidy programmes for renewable en- geted for developing technology and not for energy pro- ergy are based on these guidelines and block exemption duction, there were no short-term environmental effects. regulation [69]. These investment subsidies have only a limited im- According to paragraph 119 of the guidelines, invest- pact on project financing. According to decree 1098/2017 ment aid for renewable energy production can be granted 13 § and decree 145/2016 11 §, subsidies can be paid after if the general requirements stated in Section 3.2 for invest- at least a certain part of the cost of the project has been ment aid are met. One major requirement for investment paid by its own financing. This creates a need to finance a aid is the maximum aid intensity stated in paragraphs larger portion of the project without support, as the costs 77–80 of the guidelines and annex 1 of the guidelines. The must be paid before subsidies are received. The subsidy de- maximum aid intensity for renewable energy production cision with binding effect for officials might help to receive is 45–65% of investment costs, based on how big the re- funding from external sources, but making it easier to fi- ceiving company is. Therefore, the maximum intensity for nance projects is one thing to consider when developing aid granted through the bidding process is 100%. subsidy programmes in the future. Especially projects with The general act for granting state aid in Finland is higher risks and lower technological maturity might need ‘Valtionavustuslaki (688/2001)’. Two governmental de- additional support to get financing. crees were given to specify this law. The decrees are Production subsidies for renewable energy production ‘Valtioneuvoston asetus energiatuen myöntämisen yleisistä were initially granted as feed-in-tariff. Feed-in-tariff means ehdoista vuosina 2018–2022 (1098/2017)’ and ‘Valtioneuvoston that a state sets a target price for renewable energy and asetus uusiutuvan energian ja uuden energiateknologian pays the difference between the market price and the investointituen myöntämisen yleisistä ehdoista (145/2016)’. producer’s target price [142]. However, this system became In 2020, 60.75 M€ could be granted for investment aids, while rather expensive and was abolished. New wind power in- the maximum intensity was 30/40% of the total investment stallations have not been accepted for the feed-in-tariff depending on the maturity of the technology. The aid had system since 2017, when a total cap of 2500 MWA wind almost doubled from 2018 [140]. According to the decree power in the tariff was fulfilled. Other renewable energy (145/2016) 5  §, investment aid for projects that cost >5 M€ productions since 2019 have been subsidized according to can only be granted for renewable-energy technologies that the act ‘Laki uusiutuvilla energialähteillä tuotetun sähkön are novel or for renewable-energy projects with new tech- tuotantotuesta (1396/2010)’ 17 b § and 14  §. However, in- nology that have a higher risk than normal investment pro- stallations accepted for the feed-in-tariff system get pro- jects. However, for projects that cost <5 M€, investment aid is duction subsidies 12  years from the acceptance decision, granted according to decree 1098/2017 and requirements are which greatly reduces uncertainty about market prices lower. Investment aid can be granted for projects that pro- and cash flow from investment [143]. mote renewable energy and that have some new technology, The current system for production subsidies for renew- or a new site is built. Therefore, technology does not have to able energy production is called the premium system. The be new, and it is still possible to receive investment subsidies. premium system aims to divide the market-price risk be- These requirements are set in block exemption regulation tween the producer and the state. This is done by paying and aids exceeding these amounts or not meeting these re- a specific premium to the electricity producer when the quirements need to gain the approval of the Commission. electricity price is under the target price. The premium Significant investment subsidies are, therefore, currently fo- does not cover the whole difference between the market cused on projects on an experimental scale. price and the target price, which means that the producer The government’s programme states that in energy partly carries the risk [143]. It is common that the max- aids, the goal is ‘shifting the focus from production aid to imum premium and the maximum amount of electricity grants supporting investments in new energy technologies in the premium system are limited [15]. Electricity instal- and product demonstrations’ [137]. However, most of this lations accepted into the premium system are chosen aid was not used; only 27.5 M€ out of 60.75 M€ was used based on a competitive bidding process [144]. The pre- in 2019 [141]. As the aid was granted for all projects ful- mium system is partially technology-neutral for renew- filling the requirements to get the aid, the reason for the able energy, meaning that only some renewable-energy underuse of these funds was that there were not enough installations can be accepted into the system: wind power, suitable investment projects. This might be harmful to the solar power, biogas plants and certain wood-based energy government’s goal to grant more aid for new energy tech- installations can be accepted into the system according nology and technological development. Underuse means to Act (1396/2010) 7 §. In the first, and currently the only, that state resources were saved, but there were fewer pri- bidding in 2019, 1.4 TWh worth of power was taken into vate investments, assuming that private investors with in- the subsidy programme. In that bidding, all installations vestment projects eligible for aid would apply for aid when accepted into the subsidy programme were onshore wind Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 Paukku | 457 power installations [78]. This is ~2% of all energy produc- environmental processes: ‘laki eräiden ympäristöllisten tion in Finland [145]. According to 12 § of Act (1396/2010), lupamenettelyjen yhteensovittamisesta (764/2019)’. The the premium is paid for 12  years, decreasing uncertainty impacts of the act were difficult to predict, and it remains due to being a long enough time period. This system might to be seen how it will affect permit processes for new be cost-efficient as it is competitive and, therefore, an ef- installations [151]. There are some suggestions stating fective way to increase renewable energy production. It that permit processes should be more adaptive for tech- does also provide information about the production costs nologies that are developing during the administrative of energy. processes [15]. As permit processes have undergone sig- However, the system can be criticized for two issues. nificant changes in the near past, new recommendations First, subsidies might be paid to installations that would for permit processes cannot be made before impact as- have been built even without subsidies. Of course, state-aid sessment of the new legislation. requirements apply for these aids and, according to the EU regulation, state aid should not be granted for projects that 3 Conclusions and policy implications would have been done without state aid [139]. However, evaluating whether state aid is necessary or only cosmetic Increasing the market viability of renewable energy can is complicated in many cases, and the necessity for the aid be examined from two major viewpoints. The first one is is based on some assumptions stated in the guidelines. how externalities are taken into account in energy pro- Therefore, some projects that would have been completed duction. This means practically how the costs of CO and in any case might receive aid [146]. There are no estimates other greenhouse gases are considered in energy costs. on how large a portion of aid could go to projects that would The goal of several policies is to follow the polluter-pays prin- be completed in any case, as it would require knowing the ciple, which means that the actor who causes the pollution investor’s profitability calculations and assumptions, and should also bear its costs. In the case of greenhouse-gas there are no previous studies on the subject. emissions, this is often done with carbon taxes or the ETS. The main criticism is based on the technology neu- However, there are also externalities in renewable- trality of the policy. The current policy view on technology energy technologies. For example, some technologies neutrality only promotes the most mature technology, burden the energy system more due to the variation in namely onshore wind power. This policy might hinder the their energy production. Other technologies cause signifi- development of less mature renewable-energy technology, cant conflicts with neighbours or other stakeholders, and and it might also fail to account for the long-term potential others are required to solve the greenhouse-gas-emission of different technologies. Sweden has adopted different problems and profitability issues that a specific industry, strategies to give subsidies for specific energy sectors, like biogas plants, could do for agriculture, but alone they namely solar and biogas [147]. From 2021, Sweden is not are not enough to make a significant change in energy pro- granting any production subsidies for onshore wind power duction. Due to this, it is not likely possible to choose one [148]. Norway adopted the same strategy earlier [149]. technology that could solve climate change and energy The current strategy in Finland is likely to promote short- transition alone, and it is necessary to promote the devel- term renewable-energy capacity relatively cost-effectively. opment and commercial maturity of several renewable- This has led to a situation in which production subsidies energy technologies. are granted by tendering to the most cost-effective renew- The other issue is how technology neutrality affects pol- able energy production [16]. As all production subsidies go icies aimed to increase renewable energy production and to onshore wind power, there are fewer incentives to invest technological development. Technology neutrality tends in renewable energy production other than wind power as to favour more mature technologies. Therefore, policies less mature technology makes it harder to make profits. aimed to be technology-neutral for some renewable-energy- This hinders technological development as investments production forms might promote only one technology, which in other technologies are reduced. Even if the current goal in the worst case might be commercially mature enough to is to shift the focus of aid to technological development prosper without policies aimed to promote it. On the other and new installations, this might not help technologies hand, policies that aim to promote technologies that are not to become commercially viable as long-term support for yet commercially mature must also create enough certainty business operations is not provided. The EU state-aid regu- in order to encourage investment. Certainty can be achieved lation would not prevent focusing on the production sub- with long-term policies that ensure at least some profit- sidies for less mature technologies and therefore speed ability level for investments made for this technology. up their development to commercially viable energy- Research question (i) was: Which are the key policies to production options [150]. There are even country-specific promote new renewable-energy-production technologies? Key studies from Finland, suggesting that the high dominance policies are policies that account for externalities and of a few energy sources would be a costly scenario and en- follow the polluter-pays principle to raise greenhouse-gas- danger achieving 2030 and 2050 climate goals [23]. emission prices high enough to correspond to the soci- Administrative processes have been developed in recent etal costs of such emissions. The most important of these years. In 2019, a new act was given about combining certain policies are carbon taxes and the ETS. The EU ETS is an Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 458 | Clean Energy, 2021, Vol. 5, No. 3 EU-level policy. However, national governments can imple- Tax incentives for greener energy production are quite ment policies on greenhouse-gas emissions that comply common all over the world. In Finland, the current na- with the polluter-pays principle through carbon-based tional policy is to tax energy production based on the taxation in sectors not covered by the EU ETS. carbon intensity of the fuel used, leaving renewable energy There are some political difficulties in implementing sources outside this tax. These carbon-based tax incen- the polluter-pays principle. Energy transition creates social tives for renewable energy production also promote tech- tensions due to changing economic and social frameworks nologies with higher maturity and lower subsidy needs [152]. Some relevant issues are energy poverty and afford- and, therefore, might become expensive if not actively ability, which might be increased due to increasing electri- assessed when technological maturity develops. This ac- city prices via carbon pricing [153]. This might be a politically tive assessment does not comply well with the need for challenging option due to the importance of carbon-based long-term policies to increase high-risk renewable-energy economic actions on regional economics and employment investments. in several areas [154]. The EU Just Transition Fund aims to However, these polluter-pays policies have limits due alleviate the economic, environmental and social costs of to their adverse effects on competitiveness and political the transition to climate neutrality, especially in territories unpopularity. Therefore, other means are needed to pro- suffering the heaviest impacts of transition [155]. In 2021, mote renewable energy. There are market failures related Finland will spend 1.5 billion euros for just transition and to the maturity of some renewable-energy technologies. get 1.5 billion euros from the Just Transition Fund, which The long-term policy recommendation is to address these might soothe the impact of climate transition [156]. Other issues with subsidy policy. Subsidies are an effective policy key policies are policies that increase the technological when addressing market failures related to the market or development of several renewable-energy technologies to technology, but they are an expensive permanent solu- improve their commercial maturity and create a sustain- tion. Therefore, using subsidies to enable technology de- able energy system based on several energy sources. velopment or a short-term increase in renewable energy Research question (ii) was: How could Finland promote new production is an effective policy instead of permanent renewable-energy technologies so that they become commercially production subsidies. However, subsidy programmes need viable? The first part was implementing the polluter-pays to be long enough to reduce uncertainty and to promote principle more broadly than it is currently implemented. high-risk investments and technology, and commercial Increasing greenhouse-gas-emission taxation is an effective maturity development. long-term policy, but it is not politically popular in the EU or It is quite clear that policymakers cannot choose winning Finland due to competitive issues. Currently, the price that technology. Therefore, the most cost-efficient policy is most the ETS sets for greenhouse-gas emissions is close to the likely a policy that only specifies the goal and incentives but does OECD recommendation, as the price has risen in 2021. not specify the means to get there. This is called a technology- Finland is using carbon-based taxation of energy neutral policy. However, technology-neutral policies require production, which can be seen as an effective tool for a more sophisticated approach to avoid other policy failures. decreasing greenhouse-gas emissions. National taxes for As technology-neutral policies more effectively promote more fuels are based on the energy content and carbon inten- mature technologies, a technology-neutral policy might pro- sity of the fuel. These greenhouse-gas-emission taxes for mote technologies that are overall less beneficial for society. For these fuels are high compared to the OECD recommenda- example, the current production subsidy policy in Finland is tion. Therefore, usage of these fuels follows the polluter- partly technology-neutral. Certain renewable-energy technolo- pays principle as greenhouse-gas-emission costs are gies can participate in bidding processes in which subsidies transferred to the user. One-quarter of energy production are granted to installations that require the fewest subsidies. is outside of this polluter-pays taxation, as electricity pro- However, this bidding process does not promote less mature duction is not based on the carbon intensity of the fuels technologies; all subsidies were granted to onshore wind power used. However, these fuels are under the EU ETS, which is due to its technological maturity compared to those of other based on the carbon intensity of fuels and the market price technologies that could participate in the bidding process. As a of carbon, which has fluctuated in previous years. result, the average premium from the 2019 auction was 2.49 €/ These policies are similar to those adopted in other MWh—significantly less than previous subsidies, at around 5% Nordic countries. This policy choice gives significant ad- of previous subsidy levels [78]. vantages for fossil fuels due to externalities and, due to Subsidies granted to onshore wind power can be criti- this, some policy measures are needed to correct this ad- cized on several points. First of all, wind power will soon, vantage. One effective policy for promoting renewable en- or it has already, become commercially viable without sub- ergy production would be a tax policy that taxes electricity sidies. Increasing subsidies might increase onshore wind production partially or entirely based on greenhouse-gas energy production, but some of that subsidy is likely to be emissions. This policy could even be cost-neutral if the granted to projects that would have been completed in any carbon tax would be adjusted over time to compensate for case. Another point for criticism is that achieving the most the increasing share of renewable energy production and cost-efficient energy transition requires several renew- rising of the EU ETS prices. able energy sources. Politicians cannot pick the winning Downloaded from https://academic.oup.com/ce/article/5/3/447/6347951 by DeepDyve user on 17 August 2021 Paukku | 459 Publications of the Ministry of Economic Affairs and technology, but subsidies could be focused on less mature Employment, 2017, 4/2017, 4. technologies, such as excluding onshore wind production [2] European Parliament. Resolution on climate change—a European from energy subsidy programmes. strategic long-term vision for a prosperous, modern, competitive and The other Nordic countries have abolished production climate neutral economy in accordance with the Paris Agreement. subsidies for onshore wind power, as onshore wind power is 2019/2582 (RSP) paragraphs 6–8. becoming more and more commercially viable. They are fo- [3] European Council. Conclusions, 12 December 2019 on climate cusing on production subsidies for energy technologies that change, the MFF, the Conference on the Future of Europe, EU rela- tions with Africa, the WTO, Turkey and Albania EUCO 29/19 para- are not that commercially viable. It needs to be noted that graph 2. these other Nordic countries have significant energy sur - [4] European Parliament. Resolution on climate change—a European pluses, while Finland is consuming significantly more energy strategic long-term vision for a prosperous, modern, competitive and than it produces [157]. This makes comparing energy pol- climate neutral economy in accordance with the Paris Agreement. icies a bit more difficult, and similar policies might not be vi- 2019/2582 (RSP) paragraph 28. able in Finland. The majority of renewable-energy subsidies [5] European Commission. Commission staff working paper. 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Journal

Clean EnergyOxford University Press

Published: Sep 1, 2021

References