Unintended Consequences of National Climate Policy on International Electricity Markets—Case Finland’s Ban on Coal-Fired Generation

Abstract

Finland has adopted a high profile in climate change mitigation. A national target of achieving carbon neutrality by 2035 has been declared. As a part of this, the use of coal for energy purposes has been banned from May 2029 onwards. The Nordic electricity market was a world fore-runner in creating a liberalized, multi-national electricity market in the 1990s. At present, the electricity systems of Finland, Sweden, and Norway are already very low-carbon. The Baltic countries Estonia, Latvia, and Lithuania joined the Nordic market about a decade ago. Estonian electricity production is the most carbon-intensive of all the EU countries due to the extensive use of domestic oil shale. Especially Lithuania still suffers from capacity deficit created by the closure of the Soviet time nuclear reactor Ignalina in Lithuania. This paper presents the ambitions of the EU and national level energy and climate policies and models the multi-national impacts of Finland’s forthcoming closure of coal-fired generation. We also take into account Sweden’s planned decrease in nuclear generation. We find that these national-level policies have an impact on the Baltic countries as reduced import possibilities and increasing electricity prices, and the expected rise of the EU CO2 allowance prices amplifies these. We further find that the abandonment of coal and nuclear power plants increases the net import and increases CO2 emissions in neighboring regions.