Executive summary


Finland’s energy and climate policies are centred on achieving carbon neutrality by 2035 while ensuring energy security, reducing energy import dependency, promoting a sustainable economy and protecting biodiversity. Finland’s Climate Change Act was updated in July 2022 with a legal obligation to reach carbon neutrality by 2035. In support of this obligation, the Act sets binding targets to reduce greenhouse gas (GHG) emissions, excluding land use, land-use change and forestry (LULUCF) by 60% by 2030, 80% by 2040 and 90-95% by 2050. The Act also requires the development of several documents defining the specific measures to achieve these targets.

Thanks to its nuclear reactors and large domestic production of renewable energy (mainly forestry solid biomass as well as generation from hydro and wind), Finland has one of the lowest levels of reliance on fossil fuels among IEA member countries. In 2021, fossil fuels covered 36% of Finland’s total energy supply (TES), the second-lowest share among IEA countries and much lower than the IEA average of 70%. Finland has no domestic fossil fuel production and all supplies of crude oil, natural gas and coal are imported. The energy intensity of the economy and energy consumption per capita are both very high due to the country’s relatively large heavy industry sector and the high heating demand from its cold climate.

The National Climate and Energy Strategy (NCES) is the key document defining the measures by which Finland will meet the European Union’s (EU) 2030 energy and climate targets and achieve carbon neutrality by 2035. Finland plans to achieve carbon neutrality by maintaining a high share of nuclear energy, increasing electricity generation and heat production from renewables, improving energy efficiency, and electrifying most energy demand across the economy. There is also a push for the development, commercialisation and cost reduction of new and emerging energy technologies to drive energy transition in hard-to-abate sectors and end uses, especially industry and heavy transport. Bioenergy plays a key role in Finland’s climate and energy policy. Forestry biomass is a key source of electricity and heat, and biofuels play a central role in supporting energy transition in the transport sector. Finland’s plan to achieve carbon neutrality also relies on increasing carbon removals from LULUCF to offset remaining emissions. 

Finland has made notable progress in moving towards carbon neutrality. It deployed the first new nuclear reactor in Europe in over 15 years, which started full operation on 16 April 2023, and has seen strong growth in onshore wind generation. However, notable challenges remain. Imported fossil fuels still account for over a third of Finland’s energy supply and some areas of the economy, such as transport and key industrial activities, remain dependant on them. Also, while LULUCF has historically offset a significant amount of GHG emissions, there has been a declining trend in carbon removal from LULUCF since 2010. In 2021, for the first time, the land-use sector was a net source of GHG emissions.

Key energy and climate polices

Energy efficiency is a pillar of Finland’s strategy to achieve carbon neutrality by 2035, lower energy bills, protect vulnerable consumers and boost energy security. As industry accounts for more than half of energy demand, energy efficiency agreements with specific action plans for industry sectors are expected to achieve the highest amount of savings from 2021 to 2030. In the buildings sector, fuel switching from oil to more efficient heating solutions drove improvements in heating efficiency. Finland is a world leader in heat pump sales. District heating (DH) plays a significant role in the country, and its supply is transitioning away from fossil fuels towards bioenergy and waste heat. Finland is also a world leader in the development of thermal storage solutions, providing flexibility to DH networks but also to the electricity sector, thanks to sector integration. In the transport sector, the performance of passenger cars has improved and the fleet of electric vehicles (EVs) roughly doubled each year from 2012 to 2021. Looking ahead, Finland aims to not increase the energy demand of the industry sector while increasing its value added, strongly raising the share of space heating from non-combustion sources and electrifying the transport fleet with ambitious targets for 2030.

Finland’s NCES and other key policy documents indicate that a strong increase in renewable energy is needed to meet the 2035 climate neutrality goal. Much of the growth in renewable electricity generation is expected to come from onshore wind generation, along with the development of Finland’s first large-scale offshore farms. Solar PV, so far only a small source of generation, is also expected to rapidly increase deployment. Wood fuels are expected to play a major role in reducing fossil fuel demand in the near future, but in the long term, the government wants to move to heating and cooling systems based on non‑combustion technologies (heat pumps, waste heat recovery and geothermal). Increased use of renewable energy by passenger vehicles is driven mainly by a biofuel obligation and, to a smaller extent, EV adoption. The government sees low-emission hydrogen and hydrogen-based fuels as better solutions than direct electrification for heavy road transport, maritime transport and aviation. There is also a notable push to increase biomethane production for use in transport and heating.

Finland is a world-level player in energy technology innovation. In 2020, it ranked fourth among IEA countries for government budget allocations on energy research and development (R&D) as a share of gross domestic product (GDP). The NCES and other key policy documents note that increased innovation is required to support the commercialisation and cost reduction of new and emerging energy technologies that are key to achieving Finland’s climate goals. There is a focus on finding solutions for hard-to-abate sectors and on developing new energy technologies and services with the potential for global deployment to maximise climate benefits and promote Finland’s economic competitiveness. Within the context of Finland’s climate policy, there is an intent to increase Finland’s “carbon handprint”, or positive global climate impacts, through the export of clean technology.

The government sees critical mineral mining and processing and the battery supply chain as promising areas for delivering strong economic returns while supporting a secure energy transition. Finland has large deposits of cobalt, nickel, lithium, graphite and other critical minerals and is already a major producer of several of these materials. In 2021, Finland refined around 10% of global cobalt output. Finland is home to the only producer outside of the People’s Republic of China (hereafter “China”) supplying the cobalt for lithium-ion batteries and several Finnish companies are currently expanding the production of nickel, cobalt and lithium. Finland is also active across the battery supply chain, from mining and processing of raw materials to manufacturing batteries and charging technologies, as well as battery recycling. The government aims to increase Finland’s role in the global battery supply chain through increased innovation, with a focus on developing products with higher added value. The National Battery Strategy 2025, published in June 2021, presents a road map for Finland to become a major player in the international battery industry.

Finland aims for the electricity sector to play a major role in achieving the 2035 carbon neutrality target and long-term emissions reductions. The government expects most investment in the electricity sector to be driven by market forces, but it has introduced support measures to encourage investments to reduce the carbon intensity of electricity generation further and increase the electrification of energy demand. Energy taxation has also been adjusted to make investments in low-carbon generation and electrification more attractive. The government is encouraging the transmission and distribution system operators to make significant investments to support increased low-carbon generation and electrification.

Nuclear energy

Nuclear energy plays a key role in Finland’s energy sector and is a central part of the government’s plans to achieve carbon neutrality by 2035 and reduce energy import dependence. Nuclear is the largest source of electricity generation in Finland, amounting to 33% of total electricity generation in 2021. This figure is expected to increase to more than 40% following the start of operations of the Olkiluoto 3 reactor on 16 April 2023. As of 2021, Finland had the sixth-highest share of nuclear generation among IEA member countries. It is also a global leader in nuclear waste management and disposal. The Onkalo nuclear waste disposal facility, under construction near the Olkiluoto nuclear power plant, is expected to start operating in 2025 and will be the world’s first permanent geological disposal facility for spent nuclear fuel and high-level radioactive waste.

Finland does not have any uranium mining or nuclear fuel enrichment facilities. However, Terrafame, a 70% state-owned mining company, has been working to establish a facility to produce yellow cake uranium at a mine in the Kainuu region that produces nickel and other metals for batteries. In February 2022, the government granted a uranium recovery and refining permit that allows Terrafame to produce up to 250 tonnes of uranium each year. Only minor investments and final approvals are needed before uranium production can start. Once operational, it would be the only site in the European Union mining and processing uranium.

Fossil fuels and peat

Natural gas plays a small role in Finland (6.4% of TES in 2021) compared to the IEA average of 24%. However, natural gas is a key fuel for some parts of heavy industry. Finland’s energy policy is focused on reducing the use the gas, especially following the cut‑off of gas supplies from the Russian Federation (hereafter “Russia”), formerly Finland’s main supplier. There are efforts to increase industrial electrification and efficiency and boost the production of biogas and low-emission hydrogen to help reduce natural gas demand.

Oil plays a relatively small role in Finland (21% of TES in 2021) compared to the IEA average of 35%. The NCES outlines a variety of measures to further reduce oil consumption in transport by improving efficiency and encouraging the uptake of alternative fuels. Finland’s Roadmap to Fossil-Free Transport details measures to support the government’s objective to reduce GHG emissions from transport by at least 50% by 2030 (versus 2005) and end fossil fuel consumption in transport entirely by 2045. The government views the use of liquid biofuels as a key interim strategy to limit oil consumption in transportation. Finland’s biofuels blending mandates were among the highest in the world at 19.5% in early 2022. The government plans to significantly increase them to 34% by 2030, including a sub-target of 10% for advanced biofuels. In the longer term, the uptake of EVs is viewed as the principal means of limiting oil consumption and achieving the goal of ending fossil fuel consumption in transportation.

Peat plays a small but notable role in Finland’s energy system for electricity generation and heat production. In 2021, peat accounted for 2.7% of TES and 2.9% of electricity generation. Ireland is the only other IEA country were peat plays a notable role in the energy system (2.5% of TES and 1% of electricity generation in 2021). The government aims to reduce the use of peat for energy by at least 50% by 2030. However, it is likely that the use of peat for energy will stop well before 2030, with most large-scale peat-fired plants closing or switching to other fuels between 2023 and 2026.

Addressing high energy prices

Starting in late 2021, global energy prices began to increase rapidly, especially in Europe. Price spikes and high volatility are persisting into 2023, driven by Russia’s invasion of Ukraine. In February 2022, Finland announced a range of measures to reduce the impact of higher energy prices, particularly for household electricity and heating, and for transportation and agricultural companies. According to the government, these measures will decrease tax revenues by EUR 450 million in 2022 but will not increase government spending. The government is examining how energy transition investment programmes could reduce energy costs and is preparing a loan guarantee programme to support investments by private households and housing companies in energy efficiency measures, renewable heating systems, EV charging infrastructure and the purchase of EVs.

Ending Russian energy imports

Finland has historically relied on energy imports from Russia. In 2021, Finland spent EUR 10.1 billion on energy imports, with EUR 5.3 billion going to imports from Russia. By share of spending, Russia accounted for 81% of Finland’s crude oil net imports, 75% of its natural gas, 52% of its coal and 51% of its electricity net imports. Russia accounted for 25% of wood chips imports for energy use. Finland also imported nuclear fuel from Russia in 2021, accounting for 35% of the total monetary value of the country’s nuclear fuel imports. However, following the Russian invasion of Ukraine, Russia unilaterally stopped supplying Finland with most wood products, including wood chips in March 2022, and with electricity and natural gas in May 2022.

Finland is focused on reducing any remaining reliance on Russian energy imports and ensuring secure access to energy by increasing imports from other countries and domestic renewable energy production and by reducing energy demand through energy efficiency. In line with these goals, Finland has taken several strong steps, including securing a ten‑year lease on a floating storage and regasification (FSRU) terminal capable of covering Finland’s and Estonia’s gas demand. The FSRU started commercial operations in December 2022. On the demand side, Finland launched a consumer awareness campaign in August 2022 that aims to progressively increase public understanding on how to reduce energy demand to reduce the impacts of the energy crisis driven by the Russian invasion of Ukraine. The campaign led to significant electricity savings from August to December 2022.

Key recommendations

The government of Finland should: 

  • Develop a contingency plan to achieve the 2035 net zero emissions target in case the LULUCF sector fails to deliver the needed carbon sinks.
  • Ensure that temporary measures taken in response to energy price shocks do not undermine signals for long-term clean energy decisions and investments.
  • Support increased deployment of energy storage to accelerate the integration of renewable energy and boost the resilience and flexibility of the electricity grid and heating networks.
  • Accelerate the uptake of electric vehicles with a clear plan for expanding EV charging infrastructure. Support increasing the vehicle turnover rate with a preference for EVs while encouraging less use and ownership of private vehicles by improving the infrastructure for public transport, walking and cycling.
  • Prepare an offshore wind power road map that establishes a clear regulatory regime and ambitious targets and timelines for deployment. Incentives should be considered if needed. 
  • Assess whether additional measures are needed to reduce oil consumption further to achieve the 2030 target to reduce transport emissions by 50% versus 2005.