EUROPEAN COMMISSION Brussels, 4.10.2021 SWD(2021) 284 final COMMISSION STAFF WORKING DOCUMENT Analysis of the recovery and resilience plan of Finland Accompanying the document Proposal for a COUNCIL IMPLEMENTING DECISION on the approval of the assessment of the recovery and resilience plan for Finland {COM(2021) 624 final}



Table of contents 1. Executive summary 2. Recovery and resilience challenges: scene-setter 2.1. Macroeconomic outlook and developments since the 2020 country report 2.2. Challenges related to sustainable growth, cohesion, resilience and policies for the next generation 2.3. Challenges related to the green and digital transition Green dimension Digital dimension 3. Objectives, structure and governance of the plan 3.1. Overall strategy of the plan 3.2. Implementation aspects of the plan 4. Summary of the assessment of the plan 4.1. Comprehensive and adequately balanced response to the economic and social situation 4.2. Link with country-specific recommendations and the European Semester 4.3. Growth potential, job creation, economic, institutional and social resilience, European Pillar of Social Rights, mitigating the impact of the crisis, and social territorial cohesion and convergence 4.4. The principle of ‘do no significant harm’ 4.5. Green transition 4.6. Digital transition 4.7. Lasting impact of the plan

4.8. Milestones, targets, monitoring and implementation 4.9. Costing 4.10. Controls and audit 4.11. Coherence 5. Annex



1.Executive summary The COVID-19 pandemic has had a major impact on Finland, albeit less severe in terms of output, jobs and public finances than in many other EU Member States. After a fall of 2.8% in 2020, economic activity is expected to recover robustly by 2.7% and 2.9% respectively in 2021 and 2022, on the back of a swiftly recovering domestic demand supported by favourable employment and wage growth developments. After a fall by 1.5% in 2020, employment is expected to rise by about 1% each year over 2021 and 2022 as the recovery gathers pace, even though employment growth is likely to remain more sluggish in sectors that were more affected by the crisis. While government finances have been negatively affected by the COVID-19 crisis (with a general government deficit of 5.4% in 2020), the situation has been improving faster than initially expected and in 2021 the deficit is forecast at about 4.7% of GDP. Finland is expected to receive approximately EUR 2.1 billion in non-repayable support from the Recovery and Resilience Facility, with a magnitude equivalent to about 1% of 2019 GDP. Finland did not request any loans. Its recovery and resilience plan consists of 57 measures (18 reforms and 39 investments) within 13 components structured around four policy areas: (1) green transition, (2) digital transformation, (3) employment and skills, research, development and innovation, support to companiesand (4) social and healthcare. The Finnish plan submitted on 27 May pursues the general objective of the Facility to promote the Union’s economic, social and territorial cohesion, with the green and digital dimension featuring prominently. The plan includes major reforms such as the implementation of the health care reform to improve access to social and health services and the reform of the public employment services (the so-called “Nordic model of public employment services”) to increase the employment rate. Landmark investments include support schemes in energy transmission/distribution and in new energy technologies, in low-carbon hydrogen and in the decarbonisation of industry. This is coupled with a prominent focus on the digitalisation of public administration and businesses, with investments in key digital technologies, connectivity, and the digitalisation of the railways network (Digirail – Digirata project). The structural challenges identified in the framework of the European Semester, including in the relevant country-specific recommendations, are addressed well. The plan is expected to contribute to effectively addressing a significant subset of challenges identified in the country-specific recommendations of 2019 and 2020 or in other relevant documents officially adopted by the Commission under the European Semester and is consistent with Council Recommendation on economic policy in the euro area adopted by the Council on 13 July 2021. Important reforms include the updated Climate Change Act and the ongoing continuous learning and social and healthcare reforms. Measures to boost employment, as well as measures to enforce anti-money laundering and to support the establishment of a positive credit registry are also included in the plan. Furthermore, the plan includes the two planned Important Projects of Common European Interest (IPCEIs) on microelectronics and hydrogen. Finland’s recovery and resilience plan covers comprehensively the six pillars structuring the scope of application of the Recovery and Resilience Facility, with an appropriate overall balance across pillars. Finland’s plan has a strategic focus on the challenges of the green (1) and digital transition (2), respecting the minimum allocations set in the Regulation. As regards, smart, sustainable, and inclusive growth (3), the measures proposed are consistent with the government’s declared objective to raise the employment rate to 75%, while contributing to the implementation of the European Pillar of Social Rights, especially principles on gender equality, equal opportunities, active support to employment, inclusion of persons with disabilities, education, training and life-long learning and equal access to healthcare. As regard social and territorial cohesion (4), an area where Finland fares better than most of its EU peers, proposed measures are expected to positively contribute to cohesion and convergence by addressing existing regional differences in provision of public services, including digital public services. To promote wider coherence across instruments, notably with the European Cohesion Policy Funds, a balanced territorial allocation of resources is encouraged. Regarding health, and economic, social, and institutional resilience (5), the proposed measures address the specific challenges caused by the COVID-19 pandemic, but they also focus on more long-term structural reform of improving equal access to care with the aim of making Finland’s social and healthcare system more cost-effective and resilient. Regarding policies for the next generation (6), another area where Finland fares better than many of its peers, the plan aims to increase the availability of study places to support reaching the government’s new tertiary education attainment target. At the same time, the plan also supports the acquisition of labour market relevant skills, which is key to maintaining the employability of the labour force in an increasingly digital and green economy. This is expected to be achieved by supporting continuous learning, including through more integrated digital platforms and online services. The increase in higher education study places is also expected to contribute to employability, as those places are introduced mainly for sectors experiencing labour shortages. The measures in Finland’s recovery and resilience plan are expected to effectively contribute to the green transition and address the challenges resulting thereof. Green investments feature prominently in the plan. At 50.1%, the plan largely exceeds the 37% target, with investments focussing on clean energy technology and infrastructure, decarbonising industry, supporting the circular economy, electric vehicle charging and reducing emissions of the building stock. The plan is expected to significantly advance the decarbonisation and energy transition objectives as set out in its National Energy and Climate Plan, including Finland’s ambitions to reach carbon neutrality by 2035. The recovery and resilience plan ensures for each reform and investment that no significant harm is done to any of the six environmental objectives within the meaning of Article 17 of Regulation (EU) No 2020/852. With respect to digital transformation, even though Finland has become a world leader in digital transformation, continued efforts are needed to roll out high-speed broadband and to improve other digital infrastructure with a view to rationalise transport networks and maintaining economic activity in remote areas. The plan contains several measures that are expected to contribute to the digital transition and to address challenges resulting thereof in a lasting manner. According to the Commission estimates, digital expenditure would reach 27% of the total plan, with an emphasis on digital infrastructure, developing the quality and availability of communications networks, on the digitalisation of rail services and on fostering innovation in advanced digital technologies and business take-up. Other investments support the ongoing reform efforts in the employment, social and healthcare domains, with a strong focus on the transformative potential of digitalisation (e.g. upskilling and re-skilling, the digitalisation of employment and social and healthcare services and in support of secure, interoperable information exchanges between competent authorities in the field of financial supervision and anti-money laundering). This is complemented by investments in key digital technologies such as 6G, AI and quantum computing. In terms of lasting impact, the implementation of the envisaged reforms and investments is expected to bring about structural changes to the public administration that will improve its effectiveness and efficiency. With dedicated support to the green transition, new low-carbon solutions for the economy could accelerate the growth of emerging sectors, thus further creating opportunities for economic growth. The focus on digitalisation is expected to raise productivity in the long term. Reforms in active labour market policies, in accordance with the Nordic model of public employment services, are potentially strong drivers in raising both labour supply and improving the employability of jobseekers and under-represented groups in the labour market. The reform of social and healthcare services is expected to increase Finland’s resilience in the long term. Finland has established an adequate structure to implement the plan and to monitor and report on its progress. The proposed milestones are clear and realistic and reflect the lifecycle of the measures. The proposed indicators for measuring achievement of targets are relevant, acceptable and robust. With the proposed milestones and targets, the results stemming from the implementation of the plan can be satisfactorily monitored and tied to disbursements. Finland has provided cost estimates for all concerned measures in the plan. The cost estimates and supporting documents broadly comply with the principles that costs must be justified, reasonable, plausible and commensurate. The cost breakdowns are generally satisfactory, yet they show varying degrees of detail and depth of calculation. Considering the economic and social impact of the plan, it is considered that the plan is in line with the principle of cost efficiency. The audit and control systems, coordinated by the Ministry of Finance, are assessed as adequate. According to the plan, the Ministry of Finance (MoF) is responsible for coordination, control and audit, preparation of payment requests, and issuing the management declaration. Remaining gaps are addressed in two dedicated milestones to be completed by Finland before the submission of the first payment request under the recovery and resilience plan and at the latest by 31 December 2021. Finally, Finland’s recovery and resilience plan presents strong coherence. The structure within components is clear and meaningful. The link between reforms and investments is well established with measures supporting and reinforcing each other. Reforms and investments across components are well aligned. For example, under component P2C2, reforms and investments planned under the “Digital businesses – Real Time Economy programme”, under “Virtual Finland” and under “Accelerating key technologies (microelectronics, 6G, artificial intelligence and quantum computing)” share with RDI funding measures considered under P3C3 the same objective of increasing the country’s productivity and competitiveness. Similarly, the digitalisation of the services under “Virtual Finland” pursues a very general objective of the Finnish plan to create new digital services and replacing existing processes, such as in several measures planned under policy areas 3, especially the “Streamlining of work- and education-based immigration and recruitment of international talents”, and 4, in particular the development of digitalised social and healthcare services. The measures’ objectives are also well embedded in European and national initiatives such as the government programme.

Table 1: Summary of the Finnish recovery and resilience plan assessment for the 11 criteria set by the Recovery and Resilience Facility regulation (1)

Balanced Response (2)

CSRs (3)

Growth, jobs… (4)

DNSH (5)

Green target (6)

Digital target (7)

Lasting impact (8)

Milestones and Targets (9)

Costing (10)

Control Systems (11)

Coherence A A A A A A A A B A A 2.Recovery and resilience challenges: scene-setter 2.1.Macroeconomic outlook and developments since the 2020 country report The plan forecasts economic growth to rebound in 2021 following the COVID-19 triggered contraction in 2020. Real GDP is set to increase by 2.6% in 2021 after contracting by 3.3% in 2020. According to the plan, the rate of economic growth is expected to decelerate in the following years, first to 2.5% in 2022 and then to 1.5% in 2023. In this scenario, real GDP growth is expected to be mainly driven by a recovery in domestic demand. Finland’s plan forecasts inflation to remain contained, below 2%, until 2023. Against this backdrop, unemployment is expected to stay at 7.8% in 2021 before gradually falling to 6.9% by 2023. The crisis has mostly affected the young and the long-term unemployed. Once the economic recovery takes hold, the demand for labour is forecast to increase, especially in services sector. The employment rate is forecast to reach 73.2% in 2023, which is above its 2019 level of 72.5%. This increase is partly due to the economic recovery and the shrinking working age population. In terms of fairness, Finland remains a relatively equal society, with inequality below both the EU average and the average in advanced economies. Overall, Finland performs relatively well in terms of social inclusion, ranking better than the average of the European Union for most of the indicators used for the principles of the European Pillar of Social Rights. The gender employment gap and the share of early leavers from education and training remain below the EU average. The share of people at risk of poverty or social exclusion (11.6% in 2019) is well below the EU average (21.1%), but low-skilled workers, migrants and persons with disabilities are more likely to be at risk of poverty or social exclusion. While the Finnish social security system has cushioned relatively well the impact of the crisis so far, its continuation could accentuate the disparities. Flagged as a vulnerability in the Alert Mechanism Report 2021, private-sector debt, already high before the crisis, is expected to increase further. As aggregate demand fell, companies increased their liquidity needs to bridge the crisis period. Household debt remains above its prudential level. The banking sector remains well capitalised and stable. Due to abundant liquidity, interest rates remain low and there is no immediate pressure to reduce the private-sector debt. The economic slump due to the COVID-19 pandemic caused a marked fall in government revenue and a rise in government spending. Together with the cost of related fiscal measures, the crisis pushed the general government deficit to 5.4% of GDP in 2020. Measures adopted in seven supplementary budgets in 2020 amounted to about 3% of GDP, or EUR 7.1 billion. They included spending on healthcare and public safety, but the bulk of the measures was designed to support the economy. Companies were offered targeted subsidies and tax deferrals and the government extended the unemployment benefit schemes to facilitate short-term layoffs. The emergency fiscal measures, together with the pre-existing tax-benefit system, have cushioned about 3/4 of the shock.￼ The government also made new investments in transport, research and education. It extended public guarantees and took other measures to support liquidity in the economy, amounting to about 20% of GDP. In 2021, public finances still incur costs of the pandemic. The government continues some measures related to the pandemic, in particular the support for businesses and employees. The health-related costs, such as testing for COVID-19, also continue. Furthermore, the government is expecting to incur some losses from its loan guarantees. According to the plan, public finances are forecast to remain in deficit by about 4.7% of GDP in 2021. In 2022, the public health situation is expected to normalise, and economic growth should help improve public finances. The general government deficit is projected to decrease below the Treaty reference value of 3% of GDP, assuming no policy change. The public debt ratio increased by around 10 percentage points in 2020, reaching 69.2% of GDP, driven by the general government deficit and measures that are not factored into the deficit, such as tax deferrals, loans and recapitalisations. The debt ratio is projected to reach 71.6% of GDP in 2021. Finland is currently assessed as facing low fiscal sustainability risks in the medium term and medium risks in the long term. The Commission’s S0 indicator signals a high risk of fiscal stress in the short term, i.e. in the coming year. This stems from the sharp deterioration of public finances in 2020 and the resulting surge in financing needs, reaching 18% of GDP. However, Finland is currently benefiting from advantageous access to financial markets, with negative yields and oversubscriptions on government short- and medium-term debt securities. The ‘AA+’ sovereign rating given by the three major credit rating agencies and the historically low sovereign spreads mitigate the short-term risks. Moreover, financing needs are expected to fall to around 15% of GDP in 2021 and 14% in 2022. Low risks in the medium term reflect the fact that, under the baseline assumptions adopted in the Commission’s debt sustainability analysis, the government debt would peak at 71% of GDP in 2021 and fall close to 60% of GDP in 10 years’ time. Alternative scenarios, both favourable and unfavourable, broadly confirm these low risks. However, Finland has a high stock of government guarantees, which are a source of potential fiscal cost in the event they are called in. Finally, the assessment of sustainability risks in the medium and long term does not yet fully incorporate the impact of reforms and investments under the RRF. These are expected to support potential growth, mitigating debt sustainability risks. The macroeconomic scenario underpinning Finland’s plan is slightly more cautious than the latest Commission 2021 spring forecast. The Commission 2021 summer forecast expects real GDP in Finland to grow by 2.7% in 2021 and 2.9% in 2022. Like the Finnish authorities, the Commission considers domestic demand to be the main factor generating growth in the recovery. The biggest difference lies in projections of gross fixed capital formation, with the Commission forecasting a rebound in 2021 and the Finnish authorities forecasting a contraction. Inflation projections are similar, but Finland makes more cautious labour market projections for 2021. The forecasts of the general government deficit and debt made by the Commission are similar to those set out in Finland’s plan up to 2022 (noting that the Commission’s forecast does not go beyond 2022). The macroeconomic scenario set out in the plan relies on plausible macroeconomic assumptions. The macroeconomic scenario set out in Finland’s recovery and resilience plan is based on the independent forecast of the Economics Department of the Ministry of Finance published in May 2021. Though it is slightly more cautious than the Commission’s forecast, it provides a similar scenario of economic recovery, after which growth gradually reverts to its long-term potential rate. The macroeconomic and fiscal outlook continues however to be affected by high uncertainty related to the COVID-19 pandemic and its economic consequences. Table 2: Comparison of macroeconomic developments and forecasts

2.2.Challenges related to sustainable growth, cohesion, resilience and policies for the next generation Finland is one of the most advanced economies in the EU and a front-runner in digital technologies and clean energy innovation. Nevertheless, the country faces major challenges, in particular falling productivity after its electronics sector contracted and a low employment rate in comparison with its Nordic neighbours. Reasons for this include skills mismatches, the complex benefit system, which creates barriers to taking up work, and health-related reasons. Investment remains low compared to its EU peers, excluding the construction sector. Smart, sustainable and inclusive growth The impact of a structural shift away from manufacturing to services has affected Finland’s aggregate productivity. Total factor productivity has stalled for several years and remains below that of Finland’s Nordic peers. At the same time, low investment in areas that most support productivity growth (machinery and equipment, including information and communication technology equipment, and intellectual property products) could hinder the return to higher potential growth. The low level of productive investment is expected to continue to be a drag on productivity, and therefore on non-cost competitiveness. In terms of research, development and innovation, Finland’s productive investment is narrowly concentrated, with an increasing gap between the most productive firms and the least productive. In parallel, there is potential for further increasing cooperation between academia and businesses. Equally, there seems to be scope to improve productivity growth by providing further incentives for business start-ups and support their access to finance and by supporting the severely hit touristic sector in line with Finland’s Tourism Strategy to be the most sustainably growing tourist destination in the Nordic countries. Labour shortages, especially in the information and communication technology sector, risk becoming an obstacle to investment and growth. With a shortage of high-skilled domestic employees, Finland also needs to attract high-skilled labour migrants in addition to implementing reskilling and upskilling measures. The key challenges are to facilitate international recruitment, streamline and expedite the application process for residence permits and provide integration services.

Social and territorial cohesion The shrinking workforce is expected to soon affect Finland’s growth potential. Therefore, raising the employment rate to levels comparable to its Nordic neighbours remains a major structural challenge. There is a need to integrate many groups of people into the labour market, especially low-skilled workers, workers close to retirement, people with a migrant background, people with partial work capacity and persons with disabilities. Past employment measures have encountered some challenges, mainly due to the fragmentation of services. At the same time, the COVID-19 crisis has hit hard the most vulnerable groups in the workforce. Beside short‑term action to re-integrate people who have lost their jobs due to the crisis into the labour market, Finland needs to take measures to reduce structural unemployment. The causes of unemployment appear also gender and age-specific. While the gender pay gap remains above the EU average, the homecare allowance has some negative impact on taking up work, mostly by women, and may hinder enrolment to formal childcare. A key challenge will be to simplify the social benefit system, while maintaining its capacity to reduce poverty and inequalities. The complex and fragmented benefit system creates barriers to take up work. It also lacks the flexibility to combine part-time income with benefits. Key political decisions on the direction of the reform are yet to be taken. Investment in digitalisation is necessary to improve IT systems and procedures in the social benefit system. Territorial cohesion remains a challenge, with an evident regional divide between the capital and the less developed region of North and East Finland. In terms of GDP per head, the Greater Helsinki region performs well above the EU average (144%) in 2019 and 1.5 times higher than the weakest North and East region, where GDP per head corresponds to 93% of the EU average. However, regional rates of people in employment and unemployed have continued to converge in recent years, also during the pandemic. While the level of dispersion of NUTS2 regional employment rates has remained low, according to national statistics, some job market challenges remain at regional level, mainly regarding workforce availability in growth sectors.3 In North and East Finland, the current demand for jobs and investment is less favourable than in the rest of the country. It will be important to ensure that investments included in the plan enable lagging regions to catch up with the rest of the country. Health, economic, social, and institutional resilience In the fast-ageing Finnish society, the costs of healthcare, especially long-term care, are forecast to weigh increasingly on public finances and therefore to pose risks to the long-term sustainability of the social and healthcare system. Equal access to healthcare is a key challenge, due to long waiting times for municipal primary healthcare and specialised care for people who do not have occupational healthcare or private health insurance. The level of out-of-pocket payments is also higher than the EU average, affecting vulnerable groups. A reform of the social and healthcare system has been recently adopted, after having been on the government’s agenda for a long time. The aim is to improve cost efficiency and equal access to services. Consolidating the management of both social and healthcare services from fragmented and often financially weak municipalities at a higher level of governance could improve both efficiency and access. Moreover, existing regional disparities with the availability of health workforce indicate a heightened risk of labour shortages within the next decade. Demand for long-term care is also projected to increase in the coming decades driven by the ageing of the population. Due to decentralisation, the interoperability of electronic patient records is not always sufficient. Investments could support the consolidation and integration of the healthcare IT systems, contributing thereby to efficiency, the smooth flow of information and cross-sectoral medical cooperation. The private-sector debt-to-GDP ratio remains above the threshold for the macro-imbalance procedure and prudential levels and is high compared with other EU Member States. The private-sector debt-to-GDP ratio rose further to 155.1% of the GDP in 2020 due to the crisis. Banks remain financially stable, with strong capital positions and a solid record of debt servicing. Nevertheless, recent liquidity measures have allowed banks to take on more risks. Moreover, some companies from the hardest hit sectors might go bankrupt, which could lead to an increase in the ratio of non-performing loans. The swift establishment and implementation of the announced credit registry could strengthen the stability of the financial system. In parallel, effective supervision and enforcement of the anti-money laundering framework needs to be strengthened. Effective supervision requires increased human resources of the supervisory authority, training of employees and appropriate procedures to apply the risk-based approach more effectively. There is also room to improve some aspects of the business environment such as permits and the level of entrepreneurship, labour market institutions, liberalisation of trade in the pharmacy sector, administration of value added tax and strategic planning by amending the Land Use and Building Act. Policies for the next generation, children and young people, including education and skills. Although education in Finland remains among the best in the EU, there are signs that performance and fairness in the Finnish education system are deteriorating. The level of basic skills remains comparatively high but has worsened in recent years. Results from the PISA 2018 survey show a statistically significant decline of performance in science. The proportion of 15-year-old students underachieving also increased, even though remaining below the EU benchmark level of 15% for each subject area. In addition, the difference in reading performance between immigrants and non-immigrants students is the largest in the EU. At the same time, regional differences in key education indicators are increasing. The take-up of early childhood education and care remains low by international comparison, and there are shortages of teachers in special education and kindergartens. Reskilling and upskilling are key to maintaining the employability of the labour force and ensuring that supply matches the demand for future skills in an increasingly digital and green economy. Finland has the highest uptake in adult learning in the EU, though participation is concentrated among high-skilled employees. To avoid aggravating the socio-economic situation of the most vulnerable groups in the wake of the COVID-19 crisis, it will be key to address the skills mismatches and digital divide, particularly by ensuring that disadvantaged learners have access to quality education and training. Investment could support more training and post-secondary education initiatives in the green and IT sectors. In parallel, reaching a higher post-secondary education achievement target will require making sufficient university places available, in line with employment expectations in each sector and region. Finally, there is a need for more women to enrol in ICT studies, to both mitigate gender inequalities and respond to labour shortages. 2.3.Challenges related to the green and digital transition Green dimension The recovery and resilience plan should contribute to the green transition and at least 37% of the financial allocation needs to contribute to climate objectives. The measures in the plan should contribute to achieving the 2050 climate neutrality objective, and the 2030 energy and climate targets, taking into account Finland's national energy and climate plan (NECP). They should also contribute to meeting environmental targets for waste, water, pollution control, sustainable mobility, biodiversity protection and restoration, marine and water resources, and support the transition to sustainable food systems as well as to a circular economy as appropriate, while ensuring that nobody is left behind. Finland has set an ambitious target to achieve carbon neutrality by 2035 and become the world’s first fossil-free welfare society. Achieving these targets will require a comprehensive set of policies and measures that will affect the whole economy. Finland’s economy is one of the most energy-intensive in the EU. Transport, energy and housing are the main sectors in Finland with scope for reductions in energy-related greenhouse gas emissions. Peat is still a major source of energy in remote and sparsely populated areas. Phasing out peat could notably contribute to Finland's goal of achieving carbon neutrality by 2035. Substantial investment is required to achieve the planned transformation to carbon neutrality. Greenhouse gas emissions Finland is one of the EU Member States with the lowest greenhouse gas (GHG) emissions per capita. Between 1990 and 2019, Finland’s GHG emissions fell by 23% (or by 21% when including land use, land use change, and forestry). Finland has adopted or is on track to adopt ambitious climate policies, including an overhaul of the Climate Change Act, an overhaul of energy taxation, a roadmap for achieving climate neutrality, a roadmap for sustainable transport taxation, and a roadmap for fossil-free transport. The country has also benefited from significant renewable resources, with renewable energy sources representing about 40% of energy end-consumption, particularly originating from bioenergy, hydropower, wind power, ground heat, and solar electricity. Finland is likely to meet its EU commitments but will need to adopt and implement additional policy measures to achieve its national objective of carbon neutrality by 2035. Finland’s 2030 target for greenhouse gas emissions not covered by the EU emissions trading system (non-ETS) is to achieve a 39% reduction compared to 2005 levels, as set in the Effort Sharing Regulation (ESR). Without additional measures, non-ETS emissions would only fall by 24% by 2030. Finland has so far reduced its emissions by 14% since 2005. Non-ETS emissions account for 53% of total GHG emissions in Finland, compared to 59% at EU level. Finland also intends to use some of the flexibility provided for under the ESR, including flexibility between the ETS and the ESR sector. It would use the maximum amount, i.e. 2% of 2005 emissions per year or 6.9 million tonnes CO2 equivalent. The current long-term objective for 2050 is to reduce Finland's GHG emissions by 80-95%, and the final plan aims to achieve carbon neutrality by 2035 and becoming carbon negative soon thereafter. Based on Finland’s projections, the Commission estimates in its assessment of Finland’s 2020 National Energy and Climate Plan (NECP) that the information provided in the decarbonisation plan, existing and planned policies and measures, together with the indicated use of flexibilities, could be sufficient for Finland to meet its target. If implemented, the additional policies planned may yield significant emission reductions, which are particularly needed in transport; a smaller impact is expected in the buildings sector. The NECP states that it is possible for Finland to avoid creating any land use, land-use change, and forestry debits, but does not clarify how and does not provide projections. It puts an emphasis on bioenergy but does not cover in depth the sustainability of biomass or the impact on the carbon sink. Finland acknowledges that the NECP requires an update to factor in the ambitious 2035 carbon neutrality target, and that several policies and measures need to be prepared, adopted, and implemented to ensure consistency with the new target. However, the policies and measures presented in the NECP are not sufficiently quantified to ascertain whether Finland will meet its EU commitments and national objectives. Energy efficiency

Achieving climate neutrality by 2035 will require making substantial investment in electricity networks and in the energy efficiency of buildings. Strong interconnections between Finland, the other Nordic countries and the Baltic States are needed to ensure a well-functioning electricity market in the whole region and to increase the projected contribution of renewable energy to the energy mix. This requires additional investment in the electricity sector. Finland’s national contribution for energy efficiency in 2030 is set at 25 Mtoe of final energy, translating into 34.8 Mtoe of primary energy consumption. In its NECP, Finland explains the contribution made by heavy industries with a high-energy intensity (such as pulp production, biorefineries and data centres) to the expected GDP growth. However, it does not specify which policies and measures would mitigate the likely increase in energy use. The NECP describes policies and measures beyond 2020, targeting all sectors. Finland has included in its NECP measures for the transport sector (transport fuel taxation, promoting modal shifts, rail infrastructure investments), agriculture and waste heat. However, energy efficiency is not the main objective of some of these measures and some have already been implemented. Due to the lack of an underlying methodology, it remains unclear whether these measures would provide a sufficient contribution to energy savings to meet the overall energy saving target . The Long-Term Renovation Strategy 2020-2050, submitted in March 2020, has a strong focus on the decarbonisation of buildings. It aims at reducing CO2 emissions of the building stock completed by 2020 by 90% by 2050, and at cutting the energy consumption of residential and non-residential buildings by half by 2050. Measures included in this strategy include new legislation to support the implementation of energy efficiency policies, voluntary agreements among companies and, in the public sector, update of the Energy Performance Certification scheme. Further measures include subsidies and incentives to support and stimulate deep renovation, the promotion of smart energy systems, demolition of unused/vacant buildings, and accessible funding and financial instruments allocated to energy efficiency building renovations projects. Finland aims at making the building stock highly energy and resource efficient and carbon neutral by 2035 and having all buildings (residential and non-residential) with an energy class C or above by 2050. Legislation has been adopted to abandon coal use in energy production as of 2029. Central government and municipalities will cease using oil heating by 2024, and in residential buildings, oil heating will be abandoned by 2050 . Share of renewables in energy mix Finland is one of the EU Member States with the highest share of renewables in energy consumption. The share of renewable resources in final energy consumption was 43.1% in 2019, already above its 2020 target of 38%. The major contributor to that achievement is heating and cooling with a renewable share of 57.5%, while electricity has a share of 38.1%. The main sources for renewable electricity are hydropower and solid biofuels (1240 and 1059 ktoe, respectively) while wind energy provides 505 ktoe out of the total generation of renewable energy sources of 2903 ktoe. The major growth for the last ten years has occurred for wind and, to a certain extent, solid biofuels, while the share from hydropower has remained mostly constant. Finland aims to contribute to the EU’s 2030 target for renewable energy by reaching 51% of renewable sources in gross final consumption of energy. This contribution is in line with result calculated using the formula in Annex II to Regulation (EU) 2018/1999 on the Governance of the Energy Union and Climate Action (the ‘Governance Regulation’) setting out the national contributions for the share of energy from renewable sources. Continuous monitoring of progress and possibly additional policies and measures might be needed to ensure the achievement of Finland’s 2030 target. In recent years, the generation portfolio of Finland and its neighbouring countries have undergone significant changes. The decommissioning of conventional thermal power plants at a time where there has been a significant increase in onshore renewable energy production increased the congestion on existing electricity interconnections with Sweden and challenged the adequacy of the electricity system. The increase in transmission capacity with Sweden is identified as a Project of Common Interest (PCI) under the Trans-European Energy Networks Regulation and is progressing well. In view of the ambitious national target for renewable energy and the ongoing regional cooperation under the High-Level Group on Baltic Energy Market Interconnection Plan (BEMIP HLG) on offshore renewable energy grid development in the Baltic Sea, Finland should pursue investments that reinforce the internal grid to accommodate the expected onshore and offshore renewable energy capacity in a coordinated approach. Biodiversity and zero pollution For a green recovery, Finland should invest more in making the transition to a circular economy. The investment needs include improving eco-innovation, new circular business models, eco-design, and encouraging SMEs to stimulate behavioural change. Further investments in the waste sector are also needed. Finland needs to step up action to ensure compliance with the recycling targets for the post-2020 period, including reducing the high level of incinerated waste (59% in 2017). Public and private investments are needed for waste prevention, product reuse, separate collection as a precursor of quality recycling and recycling. Moreover, projects rolling out digital solutions for improved waste data collection, reporting and waste management would be crucial, as would capacity-building projects for municipalities to put into practice the necessary waste management reforms. Despite Finland’s overall good environmental performance, further improvement of air and water quality and support to biodiversity-related measures is needed. This is key to achieving the biodiversity targets under the EU Biodiversity Strategy for 2030 (30% improvement in the conservation status of 30% of protected habitats and species and restoration targets). In particular, the transition out of peat extraction and further promotion of biodiversity-friendly sustainable forest management and low-impact harvesting technologies in the forestry sector would be in line with Finland’s specific responsibility at EU level for the habitats and the species it hosts. Investing in restoring a range of forested and peat areas and implementing the management measures needed on the Natura 2000 network would improve Finland's overall environmental performance. Sustainable transport The transport sector accounts for 20% of total emissions in Finland. Reducing these emissions will be key to achieving the country’s carbon neutrality target. Finland has set an ambitious target of halving transport emissions by 2030, but Finland faces specific circumstances that complicate the situation: distances inside the country are large, it has a dispersed population and a cold climate with harsh winters. Moreover, public transport is fragmented, especially outside the main cities. This means there is no easy single solution to reduce transport emissions. The clear political will has not yet been translated into a comprehensive set of measures to improve the transport system. The table below gives an overview of Finland's objectives, targets and contributions under Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action.



Table 3: Overview of Finland’s climate objectives, targets and contributions National targets and contributions Latest available data 2020 2030 Assessment of 2030 ambition level Binding target for greenhouse gas emissions compared to 2005 under the Effort Sharing Regulation (%) -11% -16% -39% As in ESR National target/contribution for renewable energy: Share of energy from renewable sources in gross final consumption of energy (%) 43.08% 38% 51% Adequate (51% is the result of RES formula) National contribution for energy efficiency: Primary energy consumption (Mtoe) 32.1 35.9 34.8 Low Final energy consumption (Mtoe) 25.3 26.7 24.9 Low Level of electricity interconnectivity (%) 29% 18% Above 15% N/A Source: Assessment of the final national energy and climate plan of Finland, SWD (2020) 925 final. Digital dimension The recovery and resilience plan should contribute to the digital transition with at least 20% of the financial allocation contributing to digital objectives. The measures in the plan should, inter alia, contribute to the digital transformation of the economic and social sectors (including public administration, public services, and the justice and health systems). The objective of the measures in the plan should be to improve not only the competitiveness, but also the resilience, agility and security of companies and public actors, all while ensuring inclusiveness.

Finland is a digital leader in the EU. It ranks overall first amongst Member States in the 2020 Digital Economy and Society Index (DESI), thanks to its excellence in the dimensions human capital (digital skills) and use of internet service. Finland performs well in the areas of digital public services and the integration of digital technologies in businesses, enabled by active cooperation between the public and private sectors and an active start-up scene. According to the 2020 European Index of Digital Entrepreneurship Systems (EIDES), Finland is the leader in terms of framework conditions for digital stand-ups, start-ups and scale-ups, and it ranks ahead of other Member States with respect to the availability of human capital . Based on EIDES, Finland ranks also among the leaders when it comes to formal institutions, regulation and taxation, including public services, but the Finland’s physical infrastructure remains a weakness with a view to promoting digital entrepreneurship. In the EU ecosystem of artificial intelligence (AI), Finland ranks 8th by number of AI players (firms, research and government institutions), hosting 3.2% of all EU economic agents, and 3.4% of AI firms. According to DESI, Finland is the most advanced on the uptake of cloud services (50% of companies, compared to an EU average of 18%) Finland has also pioneered data sharing and data spaces initiatives, in particular for health. Currently, education offer of advanced digital technologies by Finnish universities and bachelor's degrees is on average higher than in the EU. Despite the strong digital performance, productivity growth remains a challenge, which calls for further investments to address remaining connectivity gaps to fully reap the benefits of the digital transition. Continued action is needed to roll out high-speed connectivity and to improve other digital infrastructure, to rationalise logistics, improve productivity and maintain economic activity in remote areas. With an overall connectivity score of 59.2, Finland ranks ninth in the EU. Commercial 5G services are already available in the centres of the biggest cities. Coverage is good in most of the country for mobile broadband (4G), while access to broadband is limited in rural areas. Market players do not have sufficient incentives to invest in sparsely populated areas of the country. The current national broadband strategy published in 2018, the ‘Digital infrastructure strategy 2025’, envisages the construction of both optical fibre connections and wireless broadband connections. To address the challenge of stalling productivity growth, Finland will need to tackle skill shortages in the ICT sector and foster reskilling and upskilling of human capital, in particular in the area of digital skills. Finland ranks first among all Member States in the area of digital human capital, according to DESI. However, the availability of a digitally skilled workforce does not seem to keep up with the growing demand for ICT specialists. While Finland has the highest percentage of ICT specialists in the labour force in the EU, 66.2% of companies, which recruited or tried to recruit an ICT specialist, had difficulties doing so (EU average: 56.8%). In addition, gender imbalances among ICT graduates remain a challenge. Addressing these challenges through suitable investments and reforms of the educational and vocational system can help contribute to fostering stalling productivity growth in Finland. Box 1: Progress towards the Sustainable Development Goals Sustainable Development Goals and the four dimensions underpinning the Annual Sustainable Growth Strategy. The objectives of the Sustainable Development Goals have been integrated in the European Semester since the 2020 cycle. This provides a strong commitment to sustainability in the coordination of economic and employment policies in the EU. In that respect, this section outlines Finland’s performance with respect to SDGs with particular relevance for the four dimensions underpinning the 2021 annual sustainable growth strategy and of relevance to the recovery and resilience plans, namely green transition, fairness, digital transition and productivity, and macroeconomic stability, indicating possible areas where investments and reforms in line with the objectives of the RRF could further accelerate the progress on the SDGs. Green transition Finland performs well on many SDGs related to the green transition. Greenhouse gas emissions in Finland have decreased at a similar pace as in the EU as a whole (-23% in 2019 since 1990). However, Finland’s emissions in sectors not covered by the EU emissions trading scheme are still higher than the 2020 target. To achieve Finland's objective of carbon neutrality by 2035, emissions reduction measures will need to cover all greenhouse gas emissions sources. The share of renewables in gross final energy consumption was 43% in 2019, substantially above the EU average of 20%, mainly due to the use of hydropower, solid biofuels and wind. The share is expected to increase further, which would contribute to further progress on SDG 7 “Affordable and clean energy”, SDG 12 “Responsible consumptions and production”, and SDG 13 “Climate action”. The country can still improve its performance in terms of the use of circular material (SDG 11, “Sustainable cities and communities” and SDG 12, “Responsible consumption and production”). Fairness Overall, Finland performs well on the indicators measuring the fairness of society and economy. For instance, the rate of people at risk of poverty or social exclusion was 15.6% in 2019, well below the EU average of 20.9%, indicating a superior performance on SDG 1 “No poverty”. In addition, income inequalities in Finland are among the lowest in the EU (SDG 10 “Reduced inequalities”). However, high unmet healthcare needs pose a challenge. The share of self-reported unmet needs for medical care was 4.7% in 2019, notably above the EU average of 1.7%. This is a particular issue for the inactive and for the unemployed. Addressing those challenges would facilitate progress on SDG 3 “Good health and well-being”. Digital transition and productivity Overall, Finland performs well in terms of “Decent work and economic growth” (SDG 8) and “Industry, innovation, and infrastructure” (SDG 9). R&D spending in terms of GDP was 2.8% in 2019, above the EU average of 2.2%, while investment accounted for 29.8% of GDP (EU average: 22.4%) in 2019. At the same time, further investments in digital infrastructure are needed to close remaining connectivity gaps throughout Finland and thus support growth and economic activity in remote areas. Moreover, while the workforce in Finland is generally well-equipped with digital skills, shortages and gender imbalances among ICT specialists leave further scope to improve the innovative capacity of the Finnish economy, in line with SDG 4 “Quality education”. Macroeconomic stability Finland scores very well on indicators related to “Peace, justice, and strong institutions” (SDG 16), where it scores high in a global context on the perceived absence of corruption. Together with its satisfactory performance on SDG 8 "Decent work and economic growth", this contributes to a strong business environment. 3.Objectives, structure and governance of the plan 3.1.Overall strategy of the plan Finland’s recovery and resilience plan aims to provide investment support to sectors that are undergoing important reforms. Funds in the plan will help stimulate the transformation of the economy and support jobs while helping to speed up the green and digital transition. This effort is crucial to realising Finland’s ambitious carbon neutrality target and to underpinning EU climate targets. Achieving carbon neutrality by 2035 will require large investments, in particular in technology, infrastructure and research, development and innovation. The plan therefore channels approximately 50% of the funds to green initiatives. The plan is structured around four policy areas, which are made up of thirteen components. In addition to its contribution to reaching Finland’s climate targets, the plan promotes digitalisation, research and innovation, employment creation and resilience of the health care system. The plan includes measures to enable Finnish companies to participate in potential IPCEIs in the areas of micro-electronics and renewable hydrogen. In addition, it is noted that Finland presents the 800 MW electricity connector between Northern Finland and Northern Sweden as an important supporting measure to provide sufficient network capacity for the additional renewable energy that is expected to be generated in the medium to long term. The first policy area of the plan focuses on the green transition. Finland has set an ambitious goal of reaching carbon neutrality by 2035 and becoming the world's first fossil-free welfare society. The first policy area includes five components that contribute to the transition towards carbon neutrality (P1C1 – Transformation of the energy system, P1C2 – Industrial reforms and investments in support of the green and digital transition, P1C3 - Reducing the climate and environmental impacts of the building stock, P1C4 - Low-carbon solutions for communities and transport and P1C5 - Environmental sustainability and nature-based solutions). Reforms presented in these components include changes to the Climate Change Act, Energy Aid Regulation, Nature Conservation Act and Waste Act. Investment measures in these components include new energy technologies and related infrastructure, the hydrogen economy, the decarbonisation of industries, recycling of key materials and industrial side streams, reducing emissions of the building stock, including by replacing oil-based heating by low-carbon forms of heating, charging and refuelling low- and zero emissions vehicles and reducing pollution.

The second policy area of the plan aims to enable Finland to make full use of the opportunities of the digital transition. This policy area includes three components that contribute to the digitalisation of Finland's economy and society (P2C1 – Digital infrastructure, P2C2 – Accelerating the data economy and digitalisation and P2C3 – Digital security). The investment in broadband connectivity included in the first of these three components aims to increase access to high-speed connections where those are not provided on a commercial basis. This policy area also aims to invest in the digitalisation of rail services to replace the current system for traffic control, which is reaching the end of its lifecycle. Moreover, investments included in the second component of this policy area aim to foster the digitalisation of businesses and the public sector by supporting the exchange of business and financial information in standardised formats that allow for automated processing. In addition, the component includes investments in digital solutions to help Finnish companies attract foreign workers and offer their services internationally. The second component will also support research and innovation in key digital technologies with relevance for strategic autonomy and future competitiveness. Finally, the third component in this policy area aims to increase Finland’s resilience through the development of cybersecurity solutions and tackling money laundering. The third policy area of the plan aims to raise the employment rate, improve the skills levels among young people and adults in view of the twin transition, strengthen RDI intensity, and promote long-term growth, while accelerating the recovery of the sectors most affected by the COVID-19 crisis. The first component (P3C1 – Employment and labour market) aims to raise the employment rate and strengthen the functioning of the labour market. This will be done by increasing the effectiveness of the public employment services in providing job-seeking support, by activating older people through abolition of additional days of unemployment benefit (the so-called “Unemployment tunnel”), by strengthening integrated services for youth in Ohjaamo one-stop-shop centres, and by providing integrated services for people with partial work capacity in view of extending their working careers. Finland also aims to attract international talent by streamlining permit procedures for labour and education-based migration, especially in sectors suffering from labour shortages, through a reform of the Alien’s Act. The second component (P3C2 – Upskilling and continuous learning) will enhance skills and improve employment opportunities through a reform of the continuous learning system, including through more integrated digital platforms and online services, and by increasing higher education study places in sectors suffering from labour shortages. Further objectives are to reduce learning gaps, increase equality in education, and support the smooth transition between working life and education, therefore ultimately improving the employment conditions for all. Parallel, the objective is also to digitalise and modernise the Åland islands higher education and continuous learning system. To contribute to strengthening RDI intensity, component P3C3 – RDI, Research infrastructure and piloting proposes two investment packages that aim at promoting the green transition and investing in research and innovation infrastructure supporting sustainable growth and digitalisation. Finally, component P3C4 – Strengthening competitiveness and boosting growth in crisis-impacted sectors aims to raise export capabilities of the economy and digitalisation by making sector-specific investments that are based on Finland’s strengths and international market potential. It will also support the recovery and sustainable renewal of the cultural and creative industries and of the Finnish tourism industry, with the aim to increase innovation and export of services. The main objectives of the fourth policy area of the plan are to remove the backlog in provision of social and healthcare services caused by the COVID-19 pandemic and to enhance equal access to social and healthcare services across the country. This will be achieved by introducing new operating models, digital services and new approaches as well as by implementing the objectives of the social and healthcare reform (P4C1 - Strengthening access to social and healthcare services and increasing cost-effectiveness). The measures under the policy area will promote the implementation of the basic care guarantee, reduce inequalities, support earlier identification of problems and more effective prevention, and improve the quality and cost-effectiveness of social and healthcare services. A further objective is to improve the Åland islands digital social and healthcare information system. Table 4: Overview of the plan, its components and associated costs Policy Area Component Costs (EUR million) P1: Green transition P1C1: Transformation of the energy system 318.7 P1C2: Industrial reforms and investments in support of the green and digital transition 326 P1C3: Reducing the climate and environmental impacts of the building stock 110 P1C4: Low-carbon solutions for communities and transport 40 P1C5: Environmental sustainability and nature-based solutions 30 P2: Digitalisation and data economy P2C1: Digital infrastructure 135 P2C2: Accelerating the data economy and digitalisation 62 P2C3: Digital security 29.75 P3: Raising the employment rate and skills levels to boost sustainable growth P3C1: Employment and labour market 170 P3C2: Upskilling and continuous learning 107.5 P3C3: RDI, Research infrastructure and piloting 267 P3C4: Strengthening competitiveness and boosting growth in crisis-impacted sectors 94 P4: Social and healthcare services P4C1: Strengthening access to social and healthcare services and increasing cost-effectiveness 404.8 3.2.Implementation aspects of the plan Consistency with other programmes The Finnish plan provides justification for its consistency with the objectives and priorities of other initiatives, such as the National Reform Programme, the European Digital Agenda and the National Energy and Climate Plan. The proposed measures contribute to the implementation of the European Pillar of Social Rights, including the principles on gender equality, equal opportunities, active support to employment, inclusion of persons with disabilities, education, training and life-long learning, and equal access to healthcare, as well as other EU initiatives, such as the EU Skills Agenda, the EU’s flagship initiative Reskill and upskill, the Council Recommendation on Vocational Education and Training (VET) and Upskilling Pathways, and the Commission Recommendation for Effective Active Support to Employment (EASE). The measure supporting the integrated youth services is in line with the Youth Guarantee, as it will aim to prevent social exclusion of young people and improve their employment possibilities by strengthening the integrated employment, health, social and education services for young people. The Technical Support Instrument provides expertise in building capacities to implement the Plan in a number of areas such as digitalisation of the public sector, sustainable growth and innovation. Consistency with the challenges and priorities identified in the most recent euro area recommendations The Finnish recovery and resilience plan is consistent with the challenges and priorities identified in the Council Recommendation on the economic policy of the euro area (EAR).The plan addresses EAR 1 as it includes measures to strengthen the coverage, adequacy, and sustainability of health and social protection systems for all (policy area 4). Measures in the plan also address EAR 2 as they strengthen productivity and employment (policy area 3) and provide support to private investment to foster the green and digital transitions (policy areas 1 and 2), support job transitions, address labour market segmentation and address skills shortages (policy area 3). Measures in policy areas 2, 3 and 4 will strengthen the effectiveness and digitalization of public administration, the health system and public employment services, in line with EAR 3. The measures related to the data economy and information sharing will reduce the administrative burden for firms and improve the business environment. Finally, the plan contains a reform of the framework to prevent money laundering and terrorism financing, consistent with EAR 3 and 5. Governance The Ministry of Finance is responsible for the overall coordination of the plan and it acts as a point of contact with the Commission. It shall monitor the implementation progress of the plan as a central authority and in cooperation with the other ministries and bodies involved in the implementation. The Ministry of Finance shall also be responsible for control and audit and for the preparation of payment requests to the Commission, for ensuring the accuracy of the-related information and for issuing the management declarations. Various ministries and agencies are responsible for the granting of subsidies, corrective measures to be taken and recoveries related to their respective administrative branches. The Ministry of Finance will collect information on the implementation progress and on the achievement of milestones and targets from the other ministries and authorities granting the aid via a common information system. Equality The plan contains a section on gender equality and equal opportunities for all, which describes the impact of Covid-19 crisis and in particular challenges related to gender equality, which is a crosscutting general objective of the plan in line with the European Pillar of Social Rights. The actions and measures in the plan are expected to contribute to addressing the described challenges and have direct and indirect impact on gender equality and on women. The plan also includes information on expected social impacts, including on persons with disabilities, persons with mental health problems, older people and migrants. There are employment and labour market reforms dedicated to developing more integrated services, which are available and accessible to all, and address the needs of disadvantaged groups. Other measures, including the acceleration of digitalisation and improving regional availability of high-speed broadband connections, aim at facilitating location-independent work making it easier for women and men to reconcile work and family life. Consultation process The preparatory stages of the Finnish plan were marked by a substantial degree of inclusion towards regional administrations, social partners, industry and business organisations, non-governmental organisations and educational institutions. The consultations were arranged in various formats including regional and thematic events to inform the participants about the preparation of the plan and to hear stakeholder views regarding the needed funding priorities and the content of the plan. The recovery and resilience plan provides an adequate overview of the stakeholder consultations that took place between autumn 2020 and spring 2021. An inter-ministerial coordination group has consulted social partners, regional and local associations, academia, educational institutions and various civil society organisations during a regional tour, the Growth Forum and other stakeholder events. Ministries have also received written statements and proposals from organisations and individuals. In addition, researchers have been consulted on the measurement of targets. The plan also provides adequate information on involvement of various stakeholders during implementation. Communication strategy The communication strategy is embedded in the broader context of the Finnish Sustainable Growth Programme. The Ministry of Finance is coordinating the communication efforts and has already set up a network with representatives from all ministries. It has also discussed on a preliminary basis coordination in communication efforts with the Representation of the Commission. The website of the Ministry of Finance serves as a primary channel to provide continous and complete information on the preparation and the implementation. A dedicated section under the Finnish Sustainable Growth Programme informs about Finland’s recovery and resilience plan and the process. It is envisaged to provide information on the measures included in the plan, distribution of funding over time and practical information for beneficiaries. The communication involves a mix of formats, including media events and social media outreach.

The plan indicates a clear commitment of the Finnish authorities to adhere to the obligations on communication as per the regulation, in particular that projects be labelled as financed by the RRF: “Funded by the European Union– Next Generation”. The Ministry of Finance has organised a communications network, in which representatives from all implementing ministries have been invited to participate. As the implementation of the plan advances, this will give rise to additional communication opportunities; it will be up to the Finnish authorities, in cooperation with the Commission, to seize such opportunities. The Ministry of Finance has committed to cooperate in communication with the Commission. State aid State aid and competition rules fully apply to the measures funded by the Recovery and Resilience Facility. Union funds channelled through the authorities of Member States, like the RRF funds, become State resources and can constitute State aid if all the other criteria of Article 107(1) TFEU are met. When this is the case and State aid is present, these measures must be notified and approved by the Commission before Member States can grant the aid, unless those measures are covered by an existing aid scheme or comply with the applicable conditions of a block exemption regulation, in particular the General Block Exemption Regulation (GBER) declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 TFEU. When State aid is present and it requires notification, it is the duty of the Member State to notify State aid measures to the Commission before granting them, in compliance with Article 108(3) TFEU. In this respect, the State aid analysis carried out by Finland in the recovery and resilience plan cannot be deemed a State aid notification. In as far as Finland considers that a specific measure contained in the recovery and resilience plan entails de minimis aid or aid exempted from the notification requirement, it is the responsibility of Finland to ensure full compliance with the applicable rules.



Security self-assessment In accordance with Article 18(4) point (g) of Regulation (EU) 2021/241, the plan indicates that risk assessment and risk management plans are prepared for several measures linked to digital capacities and connectivity. For investments in connectivity infrastructure, development environments for 6G, artificial intelligence and quantum calculations, as well as investments in cyber security exercises and trainings, the plan indicates that a risk assessment and risk management plan are prepared for each project and that security risks are addressed throughout the project’s life cycle. For connectivity investments, the plan describes the national legislative framework that takes into account the EU’s toolbox for secure 5G networks. For instance, devices that may endanger national security may not be used in critical parts of the communication networks. The plan also indicates that the realisation of cyber security requirements will be ensured for the products and services associated with the project, and that possible certification systems should be used, if necessary. Security requirements are planned to be ensured in public procurement procedures and, where necessary, personnel and company security clearance procedures should be applied. Strategic measures mentioned in the security self-assessment would need to be closely monitored during the implementation of the plan. 4.Summary of the assessment of the plan 4.1.Comprehensive and adequately balanced response to the economic and social situation The Finnish recovery and resilience plan constitutes a comprehensive and balanced response to Finland’s economic and social situation and, given the specific challenges and the size of the financial allocation, it is expected to bring an appropriate contribution to the six pillars referred to in Article 3 of the Regulation, namely (i) green transition, (ii) digital transformation, (iii) smart, sustainable and inclusive growth, (iv) social and territorial cohesion, (v) health and economic, social and institutional resilience, and (vi) policies for the next generation. The plan contains 57 measures (18 reforms and 39 investments) grouped under 13 components structured around the following four main policy areas: (1) green transition, (2) digital transformation, (3) employment and skills, research, development and innovation, support to companies and (4) social and healthcare. Both the green and digital targets are met, with the green target exceeded considerably. All pillars are covered by at least one component, while a component may contribute to several pillars. The range of actions of the plan corresponds to the one of the Facility with an appropriate overall balance between pillars. The coverage of the Finnish plan’s components toward the six pillars is summarised in Table 5. Finland submitted its National Reform Programme on 27 May 2021. The information provided in the National Reform Programme is being considered and jointly assessed in this Staff Working Document together with the Recovery and Resilience Plan.



Table 5: Coverage of the six pillars of the Facility by the Finnish recovery and resilience plan components Green transition Digital transformation Smart, sustainable & inclusive growth Social and territorial cohesion Health, and economic, social and institutional resilience Policies for the next generation P1C1: Transformation of the energy system ● ○ ● ● ○ P1C2: Industrial reforms and investments in support of the green and digital transition ● ○ ● ● ○ P1C3: Reducing the climate and environmental impacts of the building stock ● ● ● ○ P1C4: Low-carbon solutions for communities and transport ● ○ ● ● ○ P1C5: Environmental sustainability and nature-based solutions ● ○ ● ○ P2C1: Digital infrastructure ○ ● ○ ● P2C2: Accelerating the data economy and digitalisation ● ● ○ P2C3: Digital security ● ● P3C1: Employment and labour market ○ ○ ● ● ○ P3C2: Upskilling and continuous learning ● ● ● ○ ● ● P3C3: RDI, Research infrastructure and piloting ● ○ ● ○ ● P3C4: Strengthening competitiveness and boosting growth in crisis-impacted sectors ○ ● ● ○ P4C1: Strengthening access to social and healthcare services and increasing cost-effectiveness ● ○ ● ● ○ Key: “●” investments and reforms of the component significantly contribute to the pillar; “○” the component partially contributes to the pillar Pillar I: Green transition Accelerating the green transition is the major focus of the plan. The measures supporting climate objectives account for an amount which represents 50,1% of the RRP's total allocation. This is consistent with the Finnish government’s ambitions to reach carbon neutrality by 2035. The measures in the plan are also aligned with the national energy and climate plan (NECP) for 2021-2030, especially with respect to its targets on reducing GHG emissions and on achieving carbon neutrality by 2035. Such measures include notably reforms and investments boosting the share of renewables in the energy mix, decarbonisation of industry, reducing emissions of public and private buildings and promoting low-emission forms of transport. The green transition policy area of the plan contains five components that each contribute to a different dimension of the challenges related to the green transition. This corresponds to analysis showing that emissions reduction measures will need to address all greenhouse gas emissions sources to achieve the carbon neutrality objective. The main sources of total emissions in Finland are the energy supply sector (31% of the total emissions), transport (20%), manufacturing (12%) and buildings (7%). Each of these sectors are addressed in dedicated components in the Finnish plan. The plan also includes a dedicated R&D&I component (P3C3), with over 70% of the investments earmarked to the green transition, focussing in particular on hydrogen, clean energy and high-value bioproducts as well as data analytics and social sciences related to resilience and climate change adaptation. The plan has a prominent focus on the promotion of clean energy production, with reform efforts to phase out the use of coal and a reform of energy taxation. The dedicated component (P1C1) also includes investments in new energy technologies and energy infrastructure (system integration, storage and transport). A sizable effort is made to accelerate the reduction of industrial emissions by the measures included in component P1C2. This component includes the reform of the Climate Change Act setting ambitious emission reduction targets, complemented by industry-specific roadmaps which should contribute to the achievement of the government's target of climate neutrality by 2035. Support is foreseen for the production and storage of clean hydrogen within the framework of planned IPCEIs, aimed to support investments along the hydrogen value chain as well as in carbon capture, storage and recovery. Other measures promote the direct electrification and low-carbon industrial processes in the industrial sector. The plan also steps up efforts to promote the circular economy and the use of recycled material, through a combination of reforms such as the Waste Act, as well as investments in the promotion of reuse and recycling initiatives, focussing in particular on industrial side streams such as the bioeconomy or the battery value chain. The plan contributes to decarbonisation in the built environment and in the transport sector. Component P1C3 includes reforms to legislate and finance low-carbon technologies in the buildings sector, including the replacement of oil heating in private and public buildings. Component P1C4 contributes to the reduction of greenhouse gas emissions in the transport sector by reforming the transport taxation system and by supporting the roll-out of recharging and refuelling infrastructure for cleaner forms of transport. The component promotes the construction of a private electric car charging station infrastructure, including in private buildings, the lack thereof having been identified as one of the bottlenecks that hampers the incentive for electric vehicle ownership. This is complemented by component P1C5 which focuses on environmental sustainability by modernising the Nature Conservation Act and investing in nutrient recycling initiatives. Pillar II: Digital transformation

The plan fully covers the second pillar in its different dimensions, with several components targeting the digital transformation directly or indirectly. While Finland is a world leader in digital transformation, the plan is expected to address the remaining gaps in digital infrastructure, notably high-speed broadband networks. Moreover, reforms and investments in the plan are expected to support the digitalisation of businesses, in particular SMEs, and to further enhance digital skills through a comprehensive continuous learning reform. The Real-Time Economy (RTE) programme aims to help create common solutions and structures to facilitate the exchange of digital financial data between organisations in a structured machine-readable format (such as e-invoices, e-receipts, procurement documents and financial statements), in line with the vision of a ‘real-time economy’. A sizable effort is dedicated to the digitalisation of public services. Measures range from data-driven innovation to the digitalization of rail services and smart energy systems. The introduction of the European Rail Traffic Management System (ERTMS) on the entire national network by 2040, along with the 4G and 5G-based Future Railway Mobile Communication System (FRMCS) will help ensure that rail services are fit-for-future. Other investments support the ongoing reform efforts in the employment, social and healthcare domains, with a strong focus on the transformative potential of digitalisation, e.g. upskilling and re-skilling, the digitalisation of public employment and social and healthcare services and in support of secure, interoperable information exchanges between competent authorities in the field of financial supervision and anti-money laundering. The plan also fosters research, development, and innovation in the digital domain, while supporting the development of cyber and information security. This is complemented by investments in key digital technologies such as 6G, AI and quantum computing, including through contributions to the planned IPCEI in microelectronics. Pillar III: Smart, sustainable and inclusive growth, including economic cohesion, jobs, productivity, competitiveness, research, development and innovation, and a well-functioning single market with strong SMEs The plan extensively covers the third pillar, as all components directly contribute to smart and sustainable growth. In this regard, the plan’s focus on promoting the green and digital transitions will help the economy to grow on a more sustainable path. The initiatives funded by the plan are estimated to slightly increase GDP, employment and productivity over the medium and long term. Finland is already among the best-performing EU countries as regards developing and taking up environmental technologies, and its competitiveness and trading performance can be further strengthened by the plan. Competitiveness and productivity are also expected to benefit from several other measures in the plan that support research, innovation, and development of key green and digital technologies for the future. The plan’s focus on industrial decarbonisation is likely to contribute to industry competitiveness in the medium term. A modernised and interoperable digital infrastructure will give people and businesses better access to public services and data-driven innovation and improve efficiency. At the same time, the investments in key digital technologies under component P2C2 such as Real-Time Economy, 6G, AI and quantum computing, including through contributions to the planned IPCEI in microelectronics (see above) are expected to contribute to safeguarding Europe’s competitiveness and to improving its productivity. The measures proposed under component P3C1 are expected to contribute to raising the employment rate to the declared objective of 75% and productivity, and thereby to offsetting the negative impact of the demographic challenge and improving the sustainability of public finances. The proposed measures respond to the specific challenges caused by the COVID-19 pandemic, especially for vulnerable groups, but the primary focus is on long-term structural reforms, in line with the employment priorities of the government. The adoption and implementation of the Nordic model of public employment services and the phasing out of the additional days of unemployment benefits for older people (the so-called “unemployment tunnel”) are both expected to have a positive impact on employment. In parallel, the facilitation of work- and education-based immigration is targeted at attracting international talent and should thereby contribute to both employment and productivity growth, two of Finland’s major challenges. Component P3C3 is expected to contribute to RDI intensity. It is expected to contribute to raising the share of RDI expenditure in Finland from 2,9% (2019) to 4% of GDP by 2030, while stepping up cooperation within public RDI entities and between public and private entities involved in RDI, including at international level. The package promoting green transition includes investments for supporting projects of leading companies, accelerating key sectors and strengthening competence in key sectors, and for supporting innovative growth companies. The package promoting innovation and research infrastructures includes investments for the development of local research infrastructures, national research infrastructures and innovation infrastructures. In P3C4, the plan also includes measures to help businesses, in particular SMEs, to grow and to trade goods and services across borders, with a particular focus on high potential growth sectors and targeted support to sectors hard hit by the COVID-19 pandemic, including tourism and the cultural and creative sector. These measures are in line with the objectives of the twin transition and are expected to support a well-functioning internal market and help deliver on the EU’s Industrial Strategy. Pillar IV: Social and territorial cohesion Measures in the plan also aim at addressing the regional divide and at fostering social inclusion. Under component P1C3, measures to stimulate the replacement of oil-based heating systems in private and public buildings by heating systems based on low- or zero-carbon technology are expected to temporarily boost local jobs and investment, contributing thereby to territorial cohesion. At the same time, support to the replacement of oil heaters is likely to be particularly relevant for households with limited financing opportunities. Indeed, renovations will reduce energy bills, which absorb a larger proportion of less wealthy households’ income, contributing thereby to social cohesion. Several proposed measures are expected to positively contribute to cohesion and convergence by addressing existing regional differences in provision of public services, including IT and e-government services. Increased access to and higher quality of broadband services in remote areas under component P2C1 is expected to help maintain economic activity and increase productivity with positive benefits for territorial cohesion. Moreover, digital healthcare innovations under component P4C1 have the potential to benefit people living in less densely populated areas with longer distances to access social and healthcare services. The broadband initiative (P2C1), which promotes high-speed internet access in rural areas, will also contribute to this objective. Social cohesion is promoted with all measures directly contributing to the implementation of the European Pillar of Social Rights, especially the Nordic model of public employment services and measures integrating in the labour market the young, persons with partial work capacity, and persons with disabilities. The reform of continuous learning and its digitalisation are expected to improve employment opportunities of working age people, including those belonging to under-represented groups. Improved cohesion is also expected to be achieved with the integrated one-stop-shop services for youth, and extension of the integrated work capacity and mental health services to new regions. Furthermore, improved social cohesion will be achieved with the implementation of measures that promote equal access to healthcare. Pillar V: Health, and economic, social and institutional resilience, with the aim of, inter alia, increasing crisis preparedness and crisis reaction capacity Measures in the plan are consistent with the necessity for Finland to address weaknesses in its healthcare system. While Finland has shown a general readiness to deal with the COVID-19 crisis, its health system could benefit from being made more resilient. To improve equal access to social and healthcare services, the proposed measures aim to gradually reduce the delays (or “care debt”) accumulated during the COVID-19 crisis and contribute to the implementation of the 7-day care guarantee. In parallel, investments in strengthening prevention and early identification of health problems with the help of e-services and in digital innovations for social welfare and health care, combined with the further extension of the high-speed broadband networks, are expected to contribute to addressing unmet medical needs, especially in more remote areas. As regards the risks for the sustainability of the social and healthcare system posed by the ageing population, the Finnish government has established a knowledge-based and impact-based steering group with a view to reinforce the cost-effectiveness of the system. Investments to promote the introduction of an upgraded system for monitoring the care guarantee in all health centres will contribute to this objective. Institutional resilience is expected to be fostered through the development of the residential and commercial property information system and through measures against money laundering and terrorism financing. Under component P2C2, the development of a central register for housing company loans has been planned. Information on housing company loans shall be transmitted to the planned positive credit data register, helping to address private over-indebtedness and contributing thereby to Finland’s financial stability. In parallel, component P2C3 includes a reform and accompanying investments into the effective enforcement of measures against money laundering and terrorism financing. This is complemented by investments to support the digitisation of public administration and to promote better access to data and interoperable digital infrastructure. The component also envisages actions to enhance the public sector cybersecurity capacities, which are key to detect and respond to cyberattacks. Pillar VI: Policies for the next generation, children and the youth, such as education and skills The Finnish RRP also addresses education and skills in view of the twin transition. The plan includes a reform of the continuous learning system and the digitalisation elements thereof. This is expected to ensure the acquisition of labour market relevant skills that are key to maintaining the employability of the labour force in an increasingly digital and green economy. More integrated digital platforms and online services are planned and expected to play a crucial role in this respect. At the same time, specific efforts are also made through strengthened Ohjaamos service points, a new intermediate labour market operator, an expanded work ability programme (WAP) and the expanded individual placement and support model (IPS) to facilitate the integration of young people and people with partial work capacity, including persons with disabilities, into the labour market by addressing their specific social, healthcare but also education needs. To reach the new tertiary education attainment target, the plan foresees support measures to increase the availability of higher education study places. Emphasis is placed on sectors most affected by labour shortages, including the STEM (science, technology, electronics, mathematics) sector and more specifically the information technology or IT sector. In parallel, the objective of the plan is also to digitalise and modernise the Åland islands higher education and continuous learning system. Conclusion

Taking into consideration all reforms and investments envisaged by Finland, its recovery and resilience plan is expected to represent, to a large extent a comprehensive and adequately balanced response to the economic and social situation, thereby contributing appropriately to all six pillars referred to in Article 3 of the RRF Regulation, taking the specific challenges and the financial allocation of Finland into account. This would warrant a rating of A under the assessment criterion 2.1 in Annex V of the RRF Regulation. 4.2.Link with country-specific recommendations and the European Semester The plan is ambitious in providing a response to a broad set of challenges faced by the Finnish economy and society. It introduces reforms and investments aimed at strengthening the green and digital transitions, the well-functioning and inclusivity of the labour market, the resilience of and access to healthcare, and the investment in research and development. Some CSRs, e.g. resilience of the healthcare system and improved access to social and healthcare services (CSR 1.2-3 of 2020) or the establishment of the credit registry system (CSR 4.2 of 2019) are being or have been addressed to a large extent in parallel with the plan, so measures incorporated in the plan in these areas only have a complementary character. Table 6 at the end of the section presents the mapping of the selected challenges, the associated CSRs and the components of the Finnish RRP. Public finance and financial sector Efforts to improve cost-effectiveness of social and healthcare services are included in the Finnish recovery and resilience plan (CSR 1.2 2019). Under component P4C1, cost-effectiveness is expected to improve by means of the proposed investments, especially those improving data and evidence-base for decision-making, and the planned digital and phone services. Management solutions include the development and implementation of advanced knowledge management and analytics solutions. These are expected to enable a better control and national monitoring of the service packages and improve the cost-effectiveness of the service system. Finland’s plan includes reform measures related to the establishment of a comprehensive credit registry system (CSR 4.2 2019). Draft legislation setting up the already announced credit registry system is expected to be submitted to Parliament by spring 2022. In parallel, the Finnish plan entails the establishment of a central register for housing company loans. The latter register constitutes a necessary complementary element, as information on housing company loans shall be transmitted to the positive credit register, helping contain the current private over-indebtedness and fostering financial stability. Common procedures concerning the availability of administrative information on housing companies have been defined in a project carried out by the Ministry of Agriculture and Forestry and the National Land Survey of Finland, and a data distribution channel is provided from the residential and commercial property information system. Healthcare and long-term care Efforts to improve resilience and equal access to social and healthcare services are included in the Finnish recovery and resilience plan (CSR 1.2 2019 and CSR 1.2-3 2020). The elements announced in the plan are complementary to the social and healthcare reform (SOTE) adopted by the Finnish Parliament on 23 June 2021. In particular, the measures addressing the care guarantee are expected to improve equal access to social and healthcare, as they aim to change patterns, provide new, digital solutions, ensure early identification of problems, and develop low-threshold social and health services. The shortage of health workers is addressed to some extent in the plan through the digitalisation of health services. However, under policy area 3, the increase in higher education places related to sectors suffering from labour shortages is expected to have a positive impact on the shortage of health workers in the medium-term. If the proposed measures are implemented successfully as a complement to ongoing national measures, they are expected to contribute to improving equal access to social and healthcare services, and in addressing the shortage of health workers. Labour market integration and skills All measures under the P3C1 component aim to support employment and strengthen the functioning of the labour market (CSR 2.1 2019 and CSR 2.1 2020). The main objective of the component is to raise the employment rate and strengthen the functioning of the labour market. This is proposed to be done through a structural reform, a Nordic model of public employment services, and digitalisation of the public employment services by phasing out the extended unemployment benefits to older people ahead of the statutory retirement age by facilitating work- and education-based immigration, and by promoting labour market integration of young people and people with partial work capacity. The Nordic model of public employment services and the gradual removal of the additional days of unemployment benefits for older people (the so-called ‘unemployment tunnel’) include activation elements and contribute to providing incentives to accept work. However, the RRP does not include measures supporting the ongoing social security reform, mainly because it is a long-term reform that will be implemented over two government terms, and the key political decisions on the direction of the reform are not expected before 2023. Nevertheless, commitments to this reform are reflected in the narrative of the plan (Chapter 1) and in its Annex 5 (Finland’s National Reform Programme). At the same time, the setting up of the income registry, important for addressing bureaucratic traps in combining work income and social benefits, has been completed. Components P3C1 and P3C2 of the plan contribute to enhancing skills, including through streamlined processes for work- and education-based immigration and through a reform of the continuous learning system (CSR 2.2 2019). Under component P3C1, the proposed streamlining of the administrative procedures for processing residence permit applications based on work and education is aimed to attract international talent. The reform is expected to increase immigration of skilled workers and to improve the opportunities for international degree students to find employment in Finland. Consequently, the reform shall contribute to addressing labour shortages in specific sectors, notably by supplying experts, students and researchers in leading and growth sectors. The measures proposed under P3C2 are expected to contribute to the ongoing continuous learning reform to enhance skills for the labour market, especially in the context of the twin transition, including for those in the under-represented groups with low skills. The proposed increase of at least 600 new places in universities and universities in applied sciences in sectors affected by labour shortages (e.g. engineering, IT, social and healthcare professions), is expected to contribute to supporting employment of skilled workers in the long-term. A substantial part of component P3C1 is focused on improving integrated services for the unemployed and the inactive as well as on bolstering active labour market policies (CSR 2.3 2019 and CSR 2.2 2020). This is particularly the case for the Nordic model of public employment services, the one-stop-shop Ohjaamo youth services and the planned work capacity related services: the New Intermediate Labour Market Operator, the extension of the work capacity programme and of the Individual Placement and Support services for people suffering from mental health disorders as well as mental health services for individuals and work places. Investment and innovation policies Component P3C4 of the plan provides liquidity to the real economy, in particular to small and medium-sized enterprises and promotes private investment to foster the economic recovery (CSR 3.1&3 2020). The planned grants schemes in this component totally support SME development, innovation and investments needed for digital and green transition in particular on clean and efficient production and use of energy, sustainable and efficient infrastructure as well as research and innovation. In parallel, the front-loading of mature public investment projects (CSR 3.2 2020) and focusing investment on sustainable and efficient infrastructure are partially addressed. Indeed, several large investment projects (high speed line Turku-Helsinki, high speed line Tampere-Helsinki, high speed line Helsinki to national airport, completing the electrification of railways, etc.) will be financed from national budget and other EU sources (Connecting Europe Facility). Components in Policy areas 2 and 3 are part of Finland’s efforts to offset the gradual decline in research and innovation that was registered over the last decade after the setback of the country’s IT sector and address the recommendation to focus investment-related economic policy on research and innovation (CSR 3.1 2019 and CSR 3.6 2020). Under P2C2 Finland aims to fund applied RDI activities and the infrastructure supporting them, i.e. testing and experimentation environments, related to microelectronics, 5G/6G technologies, artificial intelligence or quantum technology, and thus contributing to the digital transition. Under P2C3, Finland is planning to support applied research on cyber security, with the aim to develop a platform for teaching and developing cybersecurity skills. Moreover, the objective of the P3C3 component is to contribute to strengthening RDI intensity, raising the share of RDI expenditure in Finland from 2,9% (2019) to 4% of GDP by 2030 and increasing the ambition level of RDI activities, in line with the National Roadmap for Research, Development and Innovation adopted in spring 2020. To this end, the component proposes two investment pa