Legal Alert – Finnish Government Proposes Prohibition of Coal by 2029 and Subsidy for Early Phase-out by 2025

Finland may become one of the first countries to prohibit the use of coal as the Finnish Government announced on 10 April 2018 that it will submit a proposal to the Parliament whereby coal would be banned in energy production from 2029 onwards. In addition, the Government intends to propose a subsidy for companies agreeing to phase out their coal use by 2025. The aim of the prohibition is to reduce the amount of greenhouse gases resulting from heating and thereby bolster efforts to fight climate change.

Subsidy for “early birds”

The planned subsidy for companies that choose to cease using coal by 2025 would amount to EUR 90 million, and it is planned to be divided into two parts:

The planned subsidy would be financed by cutting the planned renewable energy subsidy under the proposed tender-based premium system so that the total amount of energy production for which a subsidy can be granted would be lowered from the original 2 TWh to 1.4 TWh.

Expected impacts of the coal prohibition

In practice, the planned scheme would involve redirecting a part of the planned subsidy for renewable electricity production to renewable heating. This would affect the wind power sector in particular, since the planned tender-based subsidy system is considered to favour wind power plants over other electricity producers.

As a result of the coal prohibition, district heating prices are expected to rise by up to 20% in cities where coal is currently used in heating, i.e. mainly in the metropolitan area as well as in Vaasa and Turku.

Next steps

The Government’s intention is to submit a legislative proposal prohibiting the use of coal to the Parliament during the next autumn session. Before that, legislative proposals are usually subjected to a round of commentary elicited from public authorities and interest groups.

Except for the lowering of the amount of subsidised energy production from 2 TWh to 1.4 TWh, the Government does not, at this point, propose any major amendments to the previously submitted government proposal concerning the new tender-based renewable energy subsidy system.

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