By Petteri Orpo, Minister for Finance, Finland
According to the International Monetary Fund (IMF), Climate change increases poverty and conflicts, as well as migration pressure.
It’s time to act. In terms of scale, the solution to the climate crisis is an exceptional challenge in the history of humankind. Emissions must be reduced quickly in all sectors of the economy.
That’s why it’s important to reduce emissions in the smartest way possible – proactively and cost-effectively.
Economists have developed a formula that meets the criteria for smart climate policy: include the costs of pollution in prices. The idea is simple but effective – increase the price of the production of things we want to reduce. This also creates an incentive to develop and invest in low-emission solutions.
Finland has been a pioneer in carbon pricing. In 1990, we became the first country in the world to introduce a carbon tax. Taxation based on carbon dioxide emissions steers energy production and transport towards using fuels that produce fewer emissions; the system is simple, cost-effective and easily understandable for both companies and consumers.
The majority of sectors in the Finnish economy are regulated by the EU’s emissions-trading scheme, the aim of which is to steer those in industry and energy production towards zero emissions. Emissions trading ensures that emissions are reduced at a steady pace. However, climate targets require faster and more profound change. Currently, emissions trading does not cover all sectors. Furthermore, the price of emissions does not correspond to the damage caused by pollution and this means that the price signal is insufficient.
EU member states try to counteract the consequences with national solutions, thus making the system even more complicated and expensive.
Ministers of Finance use economic instruments to steer the economy. We can use taxation to influence consumer and company decisions, and the budget to manage cash flows in the public sector.
One example of this is Finland’s car taxation, in which cars with lower emissions are taxed less than those with higher emissions.
I want to promote climate action by making carbon pricing part of the taxation roadmap, which the government began preparing last autumn. I also intend to work with the other Nordic countries to strengthen carbon pricing in the European Union and regionally.
Effective and simple regulation would make climate policy more predictable for companies and consumers. The regulation implemented in this way is also less expensive.
Addressing climate change requires global co-operation and global solutions. Expanding carbon pricing will promote growth in the market for low-emission products and fair competition for Finnish companies offering low-carbon solutions.
In April, during the Spring Meetings of the International Monetary Fund and the World Bank Group I intend to actively promote carbon pricing and engage in discussions with countries and stakeholders from around the world on how to take this important issue forward during 2018 and beyond.
Finland has the opportunity to be a pioneer and trailblazer in terms of implementing smart and cost-effective climate policy.
Now that Finland’s economy is developing in a positive direction, we should use the improved outlook wisely so that the economy can grow in a sustainable manner for decades to come.