Even before the 1973 oil crisis, energy was a major concern, and Finland had started energy-saving programs meant to cut dependence on imports and to maintain export competitiveness. Nevertheless, the country had one of the world's highest per capita rates of energy consumption. The cold climate required that the Finns expend about a quarter of their energy supply for space heating, while the relatively long distances separating Finland's settlements required heavy fuel use for transportation. The importance of energy-intensive processing industries, including not only the lumber, pulp, and paper sectors but also the minerals and basic metals sectors, further expanded the country's energy needs. In the late 1980s, Finland consumed about 30 million tons of oil equivalent per year, distributed among solid fuels (15 percent), liquid fuels (40 percent), and electricity (45 percent), which put annual per capita consumption at 0.6 tons of oil equivalent--about 50 percent higher than per capita consumption in the United States.

Domestic sources could cover only about 30 percent of total energy demand, and imported energy supplied the remainder. In 1986 the government estimated that, even assuming continued efforts at conservation, energy demand would grow by at least 1 percent per year during the 1990s and that demand for electricity would grow even faster. By the late 1980s, policy makers faced important choices in their efforts to maintain secure supplies of electricity and other forms of energy. Four major goals governed policy decisions: increasing the use of domestic energy sources, providing for possible import shortages, expanding electricity production, and improving conservation programs.

The state played a strong role in energy management. The government used state-owned energy enterprises and price controls to influence both production and consumption. The state owned the most important energy supply enterprises, including Imatran Voima, the largest electricity producer, which managed the national electricity distribution grid; Kemijoki, a hydropower concern; Neste, which controlled the import, refining, and distribution of petroleum and natural gas; and Vapo, a producer and distributor of peat and other domestic fuels. Another major policy tool was the control of energy prices, either directly or by means of taxes and tariffs.

Finland's main domestic energy sources were hydroelectric power, peat, and wood. By the late 1980s, the country's large hydroelectric potential had been thoroughly tapped, except possibly for the rivers protected by environmental legislation. Nevertheless, hydroelectric production could still be increased by renovating existing installations and by building additional plants at secondary sites. Encouraged by investment subsidies and by the results of state-funded research, Finland had begun systematic exploitation of its peat reserves. Peatlands covered more than one-third of Finland's surface area, but in the mid1980s only about 5 percent of this area was being used. The government hoped to more than double peat output by the year 2000. Wood was widely used for heating in rural areas, especially after the oil price increases of the 1970s; it was even more important for the forest industries, which used waste wood to supply about 60 percent of their energy needs.

Despite increased use of domestic energy sources, the economy depended on imports of petroleum, coal, natural gas, uranium, and electricity. Observers expected that this dependence would get worse in the 1990s and beyond as consumption increased. Moreover, the fall in world petroleum prices, starting in the early and mid-1980s, had made oil imports more competitive and thus might delay investments in domestic energy sources.

The Soviet Union was traditionally Finland's main energy supplier, providing petroleum, natural gas, electricity, uranium, and even nuclear fuel reprocessing services. Energy products played an important role in Finnish-Soviet trade, accounting for about 80 percent of Soviet exports to Finland. The decline in world petroleum prices in the 1980s meant that Finland had to increase the volume of petroleum imports from the Soviet Union in order to maintain the level of sales to the Soviet market. To respond to the resulting oversupply of crude petroleum, Neste began refining oil for export. Finland's imports of Soviet natural gas transited a pipeline to the southeastern part of the country, with branches leading to the Helsinki and the Tampere areas. In the late 1980s, Finland participated in discussions regarding the construction of a Nordic gas pipeline network that was designed primarily to transport Soviet gas to other Nordic countries but that might also carry Norwegian gas to Finland.

The Finns reduced their dependence on Soviet energy by patronizing other suppliers. For example, during the late 1980s, the Finns began importing coal not only from Poland and the Soviet Union but also from the United States, Colombia, and Australia. Coal imports had declined in the late 1970s as a result of rapid increases in the generation of electricity from nuclear plants, but they rose again by the mid-1980s to some 5 million tons per year. Finland also purchased electricity from Sweden, and the Finns were interested in finding other sources for electricity imports.

To reduce further their vulnerability to cutoffs of foreign energy supplies, the Finns also undertook an energy stockpiling program. Informed observers believed that the country maintained stocks sufficient to supply it for six months, which compared favorably with stockpiles held by other industrial countries.

Experts predicted that Finland would face an electricity shortage by the mid-1990s, unless additional generating capacity came into operation by then. Electricity consumption had grown faster than energy use as a whole during the 1980s, largely because more and more households had switched to electric heating. In the late 1980s, most observers expected that demand would rise by 2 to 3 percent per year until the year 2000. Finland's growing needs for electric power spurred attempts to increase domestic generating capacity, which in early 1986 had reached 10,700 megawatts. In the late 1980s, hydroelectric plants supplied approximately 30 percent of total electric power. Finland produced about 41 percent of its electricity at four nuclear power plants built between 1977 and 1980: two Swedishmade , 660-megawatt, boiling-water reactors on the island of Olkiluoto; and two Soviet-made, 440-megawatt, pressurized-water reactors at Loviisa. Conventional thermal plants accounted for another 22 percent of electricity production, and imports from neighbors covered the remaining 6 percent.

In early 1986, the Ministry of Trade and Industry prepared a plan for the 1990s that called for increasing installed electrical capacity by about 2,700 megawatts by the year 2000. About 1,200 megawatts of the new capacity was to come from small plants scattered around the country. Another 1,500 megawatts would have to come from large plants--peat-fired, coal-fired, and nuclear. According to the plan, Finland could either import another 500 megawatts from the Soviet Union or further expand nuclear capacity.

In the spring of 1986, the Eduskunta almost approved the plan, including the construction of a fifth nuclear plant. Public reaction to the nuclear disaster at Chernobyl in the Soviet Union froze consideration of nuclear power, however, and induced a complete review of energy policy. Public pressure caused the government to replace the proposed plant with coal-fired plants. Despite this setback to the nuclear industry, informed observers believed it probable that Finland would increase its nuclear capacity in the 1990s, once public opposition had died down.

Since the 1970s, the government has made considerable efforts to spur energy conservation. Domestic energy prices have been maintained at realistic levels--gasoline prices were among the highest in all European countries--encouraging the public to conserve. The government raised energy efficiency standards for home construction and renovation, cutting energy use for heating by 30 to 40 percent over a decade. Finland pioneered the development of district heating, which used otherwise-wasted energy from power plants. Observers predicted that this efficient source of domestic heat would supply half the country's homes by the year 2000. Environmentalists believed that further energy savings could be achieved that would reduce the need for building more power plants, but mainstream opinion supported continued increases in energy production to support economic growth. Yet no matter how much Finland conserved, the country would still need to import large amounts of energy and would face difficult tradeoffs between the benefits and the risks and costs of various energy options.

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Source: U.S. Library of Congress