2021-06-24-IMF-Fiscal_Policies_for_Achieving_Finland_s_Emission_Neutrality_Target_48页_1mb

Finland has committed to achieving emissions neutrality by 2035, with sectoral targets for electric vehicle adoption, phasing out coal power, and reducing oil-based heating. Despite it being the first country to introduce a carbon tax in 1990, existing carbon pricing mechanisms (carbon tax, fuel taxes, and EU ETS) vary significantly across sectors and fuels, and insufficient to meet national goals. This IMFunworking Paper proposes strengthening carbon pricing to €125 per tonne by 2030 as the core strategy, coupled with sectoral revenue-neutral mechanisms called feebates to maintain fiscal balance while promoting cleaner energy transitions.

Key recommendations emphasize scaling and harmonizing carbon pricing through surcharges to reach target prices, accompanied by embedding carbon tax within broader fiscal reforms including reduced labor taxes. Transportation should adopt fuel-based feebates to encourage low-emission vehicles and phase out petroleum-based heating with fiscal incentives.Industry should apply output-based feebates to foster clean production without competitiveness concerns. Residential buildings will benefit from energy efficiency measures and electricity conservation. Finland should diversify climate actions using forestrycarbon storage fee-bates and deploy revenue-neutral solutions for agriculture avoiding complex trade complicates.

Carbon pricing reforms would impose manageable burdens on households (estimated at about 0.9 percent of consumption), which can be adequately addressed using revenue recycling through labor income tax rate reductions. The analysis also suggests medium to high leakage rates (estimated at 0.2), emphasizing the need to mitigate competitiveness concerns through border carbon adjustments once the carbon pricing framework is in place.