Finland: Working group on peat proposes ways to help the sector in transition and to increase role of peat in security of supply

NordenBladet — The working group on peat, which was appointed by the Ministry of Economic Affairs and Employment, submitted its report to Minister of Economic Affairs Mika Lintilä on 31 March 2021. The report includes measures to improve the situation of peat industry operators as demand for energy peat declines sharply due to the emission allowance prices rising much faster than previously forecast.

The working group also proposes measures to ensure the security of supply in a situation where the use of peat for energy could fall by as much as 70% by 2025, as per some forecasts. According to the Government Programme, the energy use of peat is to be cut by at least half by 2030.

The transition should take place in a way that is fair and just, both regionally and socially, and that does not jeopardise the security of supply in terms of electricity and heat in Finland. The working group also explored ways in which peat, instead of burning it, could be used for innovative products with higher added value.  “The peat industry is in a difficult situation as the demand for energy peat falls dramatically due to the rising allowance prices. The working group was able to work and cooperate well. In response to the mandate, we highlight 26 measures, which focus on urgently improving the situation of peat industry operators. I hope that during the further preparation the measures will form a mutually supportive package capable of meeting the challenges. This, of course, requires political decisions,” says Timo Korhonen, Chair of the working group.

“According to the Government Programme, the reduction in peat energy use should take place in a way that is fair and just, both regionally and socially, and that does not jeopardise the security of supply in terms of electricity and heat in Finland. The working group is now proposing solutions for this recklessly rapid change to limit the damage to the peat industry. I will submit these proposals to the Government for deliberations,” Mika Lintilä says. “Ensuring the production and availability of horticultural and bedding peat is of paramount importance. For example, the production chains of wood tree seedlings and horticultural production are based on the use of peat-based substrates. In domestic animal production, bedding peat also plays a key role in maintaining animal welfare and production hygiene, and reduces the need for antibiotics,” Minister of Agriculture and Forestry Jari Leppä says.

Different ministries will now evaluate the proposals.Proposals to improve the situation of peat industry operators As the fastest and most effective measure to improve the situation of peat industry operators, the working group proposes a one-off package for them to close down their operations. In this context, consideration would be given to compensation paid in part by the State to peat producers for unsold stock; acquisition of privately owned or leased peat production areas for use by Metsähallitus; appointment of a working group to determine the level of compensation for the disposal of peat production machinery and equipment; an adjustment allowance paid to an operator who discontinues peat production, and preparation of an early retirement pension for older peat industry operators.

The second set of proposals relates to the controlled transition of peat industry companies to new business activities. According to the working group, these proposals would be less effective than the first set of proposals, but could be funded from the EU’s Just Transition Fund. These measures would include supporting new business opportunities for peat industry operators; regional measures focusing on regional vitality, promotion of employment and prevention of exclusion; a programme ‘From peat to bioeconomy, nature management and multisectoral entrepreneurship’ for peat industry operators; financial advice and support to peat industry operators; rehabilitation of personnel of peat companies; and State support for peat industry operators who are at risk of losing real property, including homes, due to bankruptcy.

Proposals relating to security of supply in energy
The proposed measures aim to maintain the possibility of producing energy peat during the transition period as, according to the working group, the use of peat as fuel should be reduced at a moderate rate during the transitional period in order to prevent a risk to security of supply. Expert consultations have clearly demonstrated that peat and wood are needed to ensure security of supply in heat production in the next few years. Other proposals related to security of supply include the definition of the minimum use of peat in energy production in different plants and its development in 2020–2030 and beyond, as well as an annual estimate of the amount of use and production required for security of supply. In addition, it is proposed that the lower limit for the tax-exempt use of peat per plant be raised from 5,000 MWh to 10,000 MWh, which would mean that only the part of production exceeding that level would be taxable. In addition, the floor price mechanism would be supplemented with a flexibility mechanism, where the tax on energy peat would be inversely dependent on emission allowance prices. As the amount of energy peat decreases in the next few years, the need for wood will grow substantially. The working group therefore proposes measures to ensure the availability of domestic forest chips, to encourage district heating companies to better prepare for exceptional situations affecting security of supply, to examine the feasibility of increasing the compensation for security stockpiling of peat, to secure areas for production of horticultural, bedding and energy peat, to examine the use of biocarbon as a fuel for security of supply and to promote non-combustion-based solutions.

The working group also proposes an aid scheme for new peat-based products with higher added value in order to promote product development and exports. The use of new products will also help the ongoing use of horticultural and bedding peat and maintain energy peat as a fuel for security of supply. The package of measures also includes proposals for sustainable use of the peat production areas that will be dismantled and for products to replace peat used for other purposes besides energy.The working group states it has not been able to assess in detail the effects that the proposed aid measures would have on State aid. These issues need to be clarified in further political preparation. The same applies to the use of the EU’s Just Transition Fund.   The working group’s report contains three dissenting opinions and one supplementary statement.