Government submits its proposal on new Emissions Trading Act to Parliament
On 12 October 2023, the Government submitted to Parliament its proposal for a new Emissions Trading Act and amendments to the Act on Biofuels, Bioliquids and Biomass Fuels. The current Emissions Trading Act and the Act on Aviation Emissions Trading would be repealed.
The changes will implement the reform of the EU’s Emissions Trading Directive at the national level. The amendments to the Directive are based on the EU’s tighter emission reduction targets. The proposal would expand and specify the scope of application of the Emissions Trading Act to correspond with the amended Directive. The number of free emission allowances would be reduced. In addition to aviation and industrial and energy production plants, the scope of the Act would be extended to cover maritime transport. At the moment, the EU’s emissions trading system covers large industrial and energy production plants and aviation within the European Economic Area.
Emissions trading is the EU’s key policy instrument at the Union level to achieve emission reduction targets. The proposal will strengthen the financial steering that promotes the achievement of sectoral emission reductions. As a result of the amended Directive, revenues from emissions trading will increase.
The proposal also includes an obligation to report the 2024 emissions data regarding the emissions trading of new fuel distributors as well as provisions on the carbon offsetting scheme for aviation (CORSIA) adopted by the International Civil Aviation Organization and included in the Emissions Trading Directive.
A technical amendment will be made to the Act on Biofuels, Bioliquids and Biomass Fuels due to the Emissions Trading Act.
Emissions trading to cover sea transport, Finland to apply the island exemption
The scope of application of the Act would be extended to cover maritime transport, which would be gradually integrated into the EU emissions trading system as of 1 January 2024.
In accordance with the Government Programme, it is proposed that Finland apply the Directive’s island exemption for transport between mainland Finland and Åland. The exemption would cover trips of passenger car ferries with a gross tonnage of 5,000 tonnes or more. Such vessels would not have to buy emissions allowances for their emissions until 2031. The exemption would reduce the negative impacts of emissions trading on Åland’s economy and accessibility.
Stricter rules for industrial and energy production plants
The most significant changes for industrial and energy production plants compared with the current Emissions Trading Act concern the inclusion of emission-free plants primarily using biomass fuel that operate within the scope of application of the Act in the emissions trading scheme and the inclusion of waste incineration in the scope of application as regards monitoring and reporting of emissions.
It is proposed that the allocation of free emission allowances be reduced in accordance with the Directive in sectors covered by the EU’s Carbon Border Adjustment Mechanism (CBAM). The conditions for granting free emission allowances would be tightened from 2026. In future, operators would be required to demonstrate that they have taken measures to improve energy efficiency in order to obtain the full amount of free allowances.
A new support mechanism for renewable fuels in aviation emissions trading
Emissions trading already applied to air traffic will be enhanced as of 1 January 2024. The climate impact of emissions trading will be increased by phasing out free emission allowances by 2026. At the same time, the total amount of emission allowances will be reduced. A support mechanism for the use of renewable aviation fuels will be added to emissions trading system with the aim of increasing the use of more sustainable fuels and reducing emissions by narrowing the price gap between fossil and renewable fuels.
Eleonoora Eilittä, Senior Specialist, Ministry of Economic Affairs and Employment, tel. +358 295 047 235
Lyydia Ylönen, Special Adviser to the Minister of Climate and the Environment, tel. +358 50 476 1341