The legislative proposal by Petteri Orpo's government to promote the use of renewable fuels creates new opportunities for domestic carbon capture. In the proposal, fuel distributors would be able to fulfill their distribution obligation by funding other emission reduction efforts through a so-called flexibility mechanism.
According to the proposal, emission reductions funded by distributors must target sectors outside the emissions trading system, namely the effort-sharing sector. The flexibility mechanism's range of measures is also intended to expand to include actions within the land use sector.
The purpose of the legislative proposal is to mitigate the price increases resulting from raising the fuel distribution obligation, as the flexibility mechanism would allow emissions to be reduced more cost-effectively than by the distribution obligation alone.
The cost of emission reductions achieved through the distribution obligation has been estimated at approximately 300–1,000 euros per ton of CO2. Meanwhile, alternative emission reductions, such as afforestation projects in the land use sector or agricultural measures in the effort-sharing sector, are estimated to cost only tens of euros per ton of CO2, resulting in a significant difference in costs between the measures.
The flexibility mechanism percentage is too small
This year’s distribution obligation remains at 13.5 percent, but in the coming years, the government will gradually increase it. Next year, it will rise to 16.5 percent, to 19.5 percent in 2026 and to 22.5 percent in 2027.
Simultaneously, the additional obligation for so-called advanced biofuel fractions will increase from the current two percentage points to three percentage points next year and to four percentage points in 2026.
However, the distribution obligation percentages set by decision-makers do not reflect the full picture, as the actual distribution obligation has been higher than the target in recent years. For example, last year, the actual distribution obligation was 18.62 percent, while the target was only 13.5 percent.
Of the new distribution obligation percentages mentioned earlier, distributors could fulfill 5.5 percentage points of the obligation through other emission reduction measures in the effort-sharing sector by utilizing the flexibility mechanism. Later, 1 percentage point of this 5.5 percent could be achieved through actions in the land use sector.
The percentages outlined in the legislative proposal are a good start, but in technology-neutral efforts against climate change, the percentage points should be significantly higher. This would ensure both the effectiveness and cost-efficiency of emission reductions, as reductions achieved through the distribution obligation are considerably more expensive than those achieved by alternative measures.
Moreover, the initial exclusion of the land use sector and the later restricted percentage point allocation for it are questionable, as a ton of CO2 reduced is a ton of CO2 reduced, regardless of the source. With this restriction in the proposal, emission reductions would likely only be slowed down, as not all possible measures could be utilized, or at least not at the desired scale.
Success requires sensible implementation
The proposal estimates that with the specified percentages, the flexibility mechanism would reduce emissions in the effort-sharing sector by a maximum of 0.55 million tons of CO2. However, achieving this requires many successful steps in practical implementation.
According to the legislative proposal, the Energy Authority would approve the distributor’s application for voluntary emission reductions, which would need to meet the criteria set by law. Only verified emission reductions confirmed by an auditor would be counted toward the distribution obligation.
The Energy Authority must be provided with adequate resources for this work to prevent a well-intentioned flexibility mechanism from becoming entangled in bureaucratic hurdles. There must be a sufficient number of auditors, and the rules must be clear and consistent for all parties to ensure that distributors and companies offering emission reductions find it worthwhile to use the flexibility mechanism.
With a well-functioning system, the flexibility mechanism would offer new opportunities for genuine climate action in Finland, helping to mitigate climate change and fostering growth for sustainable, domestic carbon capture companies.
Message to decision-makers
At Carboreal, we are actively working to ensure that the legislation becomes as feasible and climate-effective as possible. Our message is being heard and for example, our chairman Janne Saarikko has addressed the issue in parliament and submitted a written statement.
In his written statement, Saarikko emphasized that the government proposal should be amended to maintain technological neutrality. This would allow the government to genuinely enable a free market within limits for various high-quality and cost-effective climate actions, without steering decisions based on ideological preferences.
Saarikko highlighted the cost-effective solutions available in the land use sector to reduce Finland’s overall emissions. To meet the 20 Mt emission reduction target outlined in this year’s climate report, the land use sector cannot be excluded from the flexibility mechanism for the distribution obligation.
According to Saarikko, the government’s proposed flexibility mechanism is a significant positive step toward effective climate actions from both a climate and economic perspective. By clearly raising the land use sector's percentage limit from the proposed 1%, the flexibility mechanism could bring even greater benefits in Finland.
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