The impacts of climate change on Finland's economy


In the short term, climate change could have positive effects for some sectors of the Finnish economy. However, that could change and become negative if greenhouse gas emissions increase at today's pace in future years. The rapid progress of climate change could also make it difficult to adapt to new conditions and benefit from them. Fluctuations in the global economy and the impacts of climate change on other countries will be crucial to the development of Finland's economy.

Finland's economy is also sensitive to climate

Climate change affects different countries' economic activity in different ways, and the possibilities for adaptation are better in prosperous and developed countries than in many others. According to estimates, the focus for both populations and economic activity will move northwards globally with climate change as climate conditions become more challenging in the south [1].

The direct effects of the warming of the climate are expected to be positive at least initially for some sectors of the Finnish economy such as agriculture and forestry [2] [3]. At the moment, agriculture, forestry and fishing account for 2.7% of Finland's gross national product [4]. However, their significance for Finland's economy is greater because these primary products are used as raw materials in the forest products and food industries.

As foreign trade accounts for most of Finland's gross national product, global economic changes will probably be strongly reflected here too. From 2005 - 2008, exports accounted for an average of 32% of gross national product and then dropped to 27.5 per cent during the economic crisis of 2009. [4] As exports in 2009 fell by 24%, GNP fell by 7.8% at the same time [5]. Problems in other countries' economies can thus be readily reflected in Finland's economic success. [3]

Agriculture could benefit from warming of the climate

The share of agriculture in Finland's GNP is not that large, but its profitability is also important for the food industry, 85% of whose raw materials are of domestic origin [6]. In addition, it is often regarded as an important sector from the perspectives of self-sufficiency, security and the vitality of rural areas.

Agriculture is one of Finland's sectors of economic activity that is the most sensitive to climate. Unlike in many southern countries, it is estimated that climate change will have beneficial effects for Finnish agriculture. The longer growing seasons resulting from an increase in temperature, the move northwards of the limits of cultivation and increase in the carbon dioxide levels in the air will probably improve the profitability of agriculture. [2] Cultivation of new, more productive varieties such as maize could become profitable in Finland and self-sufficiency in protein could perhaps be improved. [7]

A sharply rising temperature could become harmful for agriculture in Finland too over time as the economic benefits start to reduce. For example, pest management costs would probably increase. Warming might also cause problems for seed production. Growth may also be limited by the location of rainfall and low fertility levels of the soil. Changes in natural conditions require the selection and breeding of varieties that suit the new conditions. Exploitation of rising temperatures and other benefits will require changes in practices first of all and possibly new patterns of investment [8].

The production problems that are possibly anticipated in other parts of the world that are currently food producers, and an increase in demand for food, could result in rising prices for agricultural produce in Finland too, which would be problematic from the consumers' perspective. On the other hand, improvements in the profitability of agriculture could be advantageous for public finances if the need for agricultural support was reduced [2].

Forestry: rapid growth and slow adaptation

Forest products make up a significant part of Finland's exports; in 2009 they accounted for about 19% of all exports [9]. In general only 30% of production is sold on domestic markets [8]. A significant part of domestic timber production today is pine (c. 50%) and fir (c. 30%) [10]. As the climate warms, birch is projected to win space from today's dominant species [11], if forestry management does not favour certain species [12]. Nowadays, birch is used in Finland in the manufacture of many quality products [13]. The possibility of reducing imports of birch and increasing the degree of processing and market value of products could increase the income of the forest products industry.

Higher temperatures and an extended growing season are projected to accelerate the growth of forests. Overall tree growth is forecast to accelerate by about 10 - 15% in southern Finland and by 25 - 35% in northern Finland during the present century in which case the availability of domestic raw material for the forest products industry will improve. [8]. Even higher growth rate projections have been presented [12]. However there may be problems for timber production caused by the slower movement of trees' warm zones northwards which would make it difficult to adapt to the new conditions (cf. Forestry). New plant diseases, forest fires and stronger storms could cause damage [14]. Particularly in southern Finland, the amount of wind damage could increase, as during the windiest part of the year, the winter, the soil would not freeze as previously, and in that case trees may be blown down more easily [12]. At the moment preparation for damage is poor as only about one third of Finland's forests are insured [15].

Figure 1. Trees blown down by a storm.

© Sirpa Pellinen

The economic effects of tree growth are unclear, because at the moment tree growth is faster than use: from 2005-2009 tree growth was 99 million cubic metres per year whereas felling was 67 million cubic metres per year [10]. However, it has been forecast that by the end of the century tree felling could be as much as 89% more than at present [12]. Changes in demand for timber, the development of forestry in Finland and elsewhere in the world, as well as the importance of commercial innovations for the economic outlook of forestry are thus difficult to forecast.

Energy needs will be reduced

Climate warming will show in energy use through lower heating costs in winter. On the other hand, cooling costs during the summer will increase, but in Finland's case, the need for air conditioning will probably remain reasonable compared with many countries further south. Finland and other northern regions will probably be among the major beneficiaries of warming as far as energy use is concerned [1] [16]. On the other hand, the efficiency of energy generation may weaken as warmer water will no longer serve the condensing needs of plants as previously [17]. Increased precipitation, however, is anticipated to increase the energy available from water power. The profitability of wind power may also improve with the lessening of frost damage.

In addition to the direct effects of climate change, the future outlook for the energy sector will be significantly affected by the kind of energy policy implemented in Finland to reduce emissions.

Buildings and infrastructure will suffer from storms

Figure 2. Protective wall on the Market Square in Helsinki.

© Riku Lumiaro

Increased rainfall, and snowfall being replaced by rainfall in winter, will probably increase river flows and floods. According to a survey of major flooding carried out by regional environmental centres, Finland has property with a total value of at least EUR 550 million across all the flood risk areas. The strengthening of winds and storms will also become expensive and the useful life of buildings is likely to become shorter. There is major storm damage in Finland these days too roughly every second or third year. Falling trees generally cause problems which the reduction in freezing of the earth also contributes to: in 2004 a single two-day storm caused EUR 5 million of losses for Fortum's electricity distribution network. Storms can also temporarily raise sea levels on the coast very quickly [14]. In addition, it is possible that thawed soil in winter may cause problems for the stability of buildings and the bearing capacity of roads and thus would affect transport. For example, even a small change in height of railways can result in major costs [1].

Snow will attract tourists to the north

As the winter snow cover in mountains reduces at many of the most popular tourist areas, the popularity of Finland's skiing centres may increase, which could bring extra income to the tourist centres of northern Finland. On the other hand, as Finland's snow line moves further north later on, it will take entrepreneurial opportunities with it. In the north, some tourism businesses may suffer from forestry as it moves further north than previously [2].

Outlook for the economy hard to project

There are no fully comprehensive estimates of the effect of climate change on Finland's economy, but cautious estimates project that the effect by midway through the present century will be slightly positive [3]. However, increasing frequency of extreme phenomena and instability of markets could change the situation rapidly. Making estimates is made more difficult by Finland's reliance on foreign trade. Favourable changes in the factors of production in Finland do not necessarily guarantee profits if the impacts of climate change are clearly negative for the global economy [18]. At its worst, global GNB is projected to decline over the long term by as much as 20% [1]. In addition, the profitability of different sectors is significantly affected by changes in demand and supply, which could move in different directions because of climate change and regardless of it.