Nordic-Action-Group-Mission-Statement by Global Utmaning

NORDIC ACTION GROUP ON CLIMATE AND ENERGY

MISSION STATEMENT 9 OCT 2012

Draft 9 October 2012

NORDIC ACTION GROUP FOR ENERGY AND CLIMATE

MISSION STATEMENT 1. BACKGROUND The world is facing several pressing problems: i.

The climate problem. CO2-emissions are on the rise and there is little prospect of limiting the global temperature increase to two degrees Celsius. ii. The resource problem. A rapidly growing world population with increasing consumption puts great pressure on the world’s limited resources. iii. Weak economies. Many industrialized countries are characterized by low growth or are even in recession. The result is high unemployment, and in particular youth unemployment. The situation requires strong and collective political action. But it is a problem that interests among key stakeholders do not converge. Today there is no prospect of successful international agreements being reached in the foreseeable future. This was made clear by the COP15 meeting in December 2009 and this year’s Rio+20 meeting followed the same trend. The EU, too, faces difficulties in garnering support for effective joint action. The energy efficiency directive was indeed adopted, but in an attenuated form, making it difficult for the EU to reach its target of a 20 percent improvement to energy efficiency by 2020. The hope has been that it would be possible to reach a wide-spanning global agreement on climate change. This hope is now lost on a distant horizon. The hope then turned towards the EU's Emission Trading System (ETS) to create a new norm. But time has shown that the ETS has not lived up to the role that it was intended for. With CO2 prices at a very low level, the system has lost its power. A successful transformation to non-fossil production and consumption demands a gradually rising price of CO2. The shale gas revolution in the U.S. has led to the U.S. now approaching energy self-sufficiency. All things being equal, this reduces the United States' interest in contributing to major international climate agreements. For the U.S. it means that cheap natural gas now increasingly displaces coal in electricity production – a significant improvement in terms of CO2-emissions. In Europe, it is unlikely that a similar development will occur. Therefore, Europe/the Nordics must find their own solutions. When it is difficult to achieve consensus among a broad group of stakeholders, the question arises of whether it is possible for a small group of countries, such as the Nordic countries, to take the lead. The EU is plagued by public deficits and debt problems in Southern Europe. In coming years these problems will come to control the speed of the transition and the development of the EU. The Nordic countries, meanwhile, have sound public finances. It is therefore both possible and appropriate for the Nordic countries to set more ambitious energy and environment agendas, something that in turn would be beneficial to growth and employment. 1

Draft 9 October 2012 The Nordic countries share a common view of the importance of strong action on matters concerning climate, energy and the environment. The Nordic countries have furthermore often distinguished themselves by adopting important common positions and policies in key areas. The development of the Nordic welfare model and common positions in the UN are some examples of this. Today the Nordic countries are seen as a pioneering region in the area of energy, environment and climate. This is a profile that can be strengthened further. The exsisting 2020 targets set as EU goals can for example be challenged to be more ambitious since some of these targets most likely will be met many years ahead of 2020. The Nordic energy system has many unique characteristics of vital importance for the entire European energy system such as very low CO2 emissions, large penetration of renewable energy and large remaining potential, large potential for pump storage and 70 percent of the entire hydro storage capacity of Europe. As a consequence, the Action Group will have a clear focus on concrete Nordic-European cooperation. Increased exchange within the energy area will require huge efforts of mutual understanding on both sides. Even if this is a Nordic initiative on a Nordic platform, the overall business model for productive exchange will have to be European. Increased transmission capacity will help extend European as well as Nordic energy markets. The Action Group has at its core a number of high-profile Nordic companies. The Action Group believes that by moving ahead with new initiatives on energy and the environment, the Nordic countries can address several concerns at the same time: reduce climate and environmental impacts and strengthen the Nordic business climate. An important prerequisite for this to happen is that the Nordic governments formulate long-term goals and obligations – for example for energy efficiency – which they can then gradually and transparently act upon. This allows both households and businesses to adjust.

2. PURPOSE The Nordic countries have not only been forerunners in developing an energy system with low CO2emissions, they have also been able to create new industries and new jobs in the process. Being early adopters, they have created industrial development beyond the direct jobs associated with installing and servicing. Well-known examples are wind turbines from Denmark, new transmission solutions from Sweden, biomass equipment from Finland and the solar industry in Norway. The Nordic Action Group on Climate and Energy is comprised of free-standing, result-oriented industry representatives who together strive to: 

Develop a joint Nordic strategy that provides practical recommendations on both investment needs and policy implications in the Nordics in order to optimize the region’s role and positioning in the future European energy context.

Draft 9 October 2012    

Suggest how government, industries, institutions and education systems in the Nordic countries can cooperate in reaching both environmental and economic goals. Contribute to an expansion of the Nordic climate cooperation and highlight Nordic examples of best practice. Spread good Nordic examples globally and thereby contribute to the industrial development of the Nordic countries. Illustrate how sustainable development can be combined with maintained and over time increased competitiveness of the Nordic industries, e.g. through the spreading of good examples.

The Action Group will work for two years and during that time follow the ongoing efforts of European energy and climate policy, while presenting ideas and suggestions for how the Nordic countries can become leaders in creating favorable conditions for sustainable development and thus promote the long-term competitiveness of the Nordic countries. The aim is to generate policy suggestions for strategies and measures to be discussed at a high political level.

3. AREAS OF ANALYSIS The Action Group's proposals fall into five main areas: i.

THE NORDIC ENERGY MARKET IN EUROPE. The European energy system is becoming increasingly integrated. Subject to adequate transmission capabilities, the Nordic energy system has the potential to become a stabilizing force in a future European energy system. Stabilizing an increasingly intermittent power system constitutes a win-win opportunity: Europe would gain from increased transmission with the ability to use Nordic hydropower to balance its nets, and the Nordic countries would be able to import power at a lower cost when production peaks in Europe. The Nordic countries established already some years ago the world's first and most successful power market – Nord Pool. With current changes to energy production – such as an increased focus on renewable energy, including biomass – there is a need to expand the Nordic energy market, for example through more and better interconnectors. This would help to smooth out the variable production from renewable energy sources. There is also a need to harmonize the terms on the end-user market. To understand how to fully exploit the advantages of an integrated Nordic energy system with a European energy system, various aspects require analysis:

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Market integration: The Nordic power market is connected to a number of European countries. The cooperation that exists today, through Nord Pool and the internal energy market in the EU, can be developed further. The analysis should also look into the challenges of a harmonized retail market.

Draft 9 October 2012 

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Consequences of intermittency: European power production will gradually shift to less stable energy sources including wind and solar power. The systemic aspects of a more intermittent power system, technically and economically, should be investigated. Transmission capacity needs: Attracting investments in the power sector will become increasingly challenging given current constraints in transmission capacity. Proposals on policies and investments in power transmission should therefore have high priority. Consumer power. Developments in solar technology, battery development, bio mass and the evolution of energy efficient appliances mean that the consumers are increasingly able to control their own energy consumption. The implications of this for an integrated Nordic energy system may become substantial. It should be noted that the Nordic countries have great bio mass potential compared to the rest of Europe

ii. ENERGY EFFICIENCY. Energy efficiency has the potential dual effect of decreasing energy costs while simultaneously mitigating emissions of greenhouse gases. But energy efficiency cannot be looked upon in isolation; the overall CO2-efficiency of the energy system must be kept in mind. Renewable energy will, for instance, not always be produced when it is most needed and for this reason smarter energy use including storage is increasingly important. Heat pumps can reduce the energy consumption dramatically and also offer storage possibilities, district heating can offer CO2-neutral production and potentially also storage. An overall system approach can give guidance to the most cost efficient solution towards an overall CO2-neutral system. EU member countries have, through the energy efficiency directive, agreed to improve energy efficiency through national targets. Such an agreement was difficult to reach and the following compromise was therefore accepted: “Each member state will be obliged to set an indicative national energy efficiency target, based on either primary or final energy consumption, primary or final energy savings or energy intensity. All in all, the directive should result in a 17 per cent improvement in energy efficiency compared to the 20 per cent target, to which measures will also contribute.”1 A large part of the energy consumption goes to the heating and cooling of buildings. More energy efficient buildings would allow for substantial energy savings and would also create job opportunities in many industries. In a situation where the EU can achieve only limited progress in this direction, the Action Group suggests that the Nordic countries go further and set more demanding standards for both new and existing buildings, and support new technologies like fuel cells. The Action Group proposes that the Nordic countries stick to the target of reducing energy consumption in buildings by 30 percent by 2020. It is further proposed that all new buildings be

EU Commission: Energy Efficiency Plan 2011.

Draft 9 October 2012 required to be CO2-neutral from 2018. For the renovation of older buildings, a suggested requirement is that energy consumption after renovation should be reduced by 50 percent. The Action Group further proposes that business models be developed to allow energy savings to be reasonably distributed between owners and tenants in rental buildings. Intensified energy efficiency measures in buildings and the transport sector represent business opportunities for service providers, for instance through innovative use of communication technology. Smart transport planning models and so-called super ESCOs2 offering energy savings solutions are examples. Yet to date, business development has been limited. Immature technology and markets combined with lack of commitment to national targets are possible explanations. This analysis will examine the following issues in more detail:      

Define the main economic, technological and policy barriers to business development. Identify business models in order to spark the necessary investments and market uptake. Describe how the Nordic countries, including Nordic businesses, can act as role models in the European context. Identify employment effects. Describe how different characteristics of the Nordic countries’ power systems can impact potential energy efficiency measures. Describe how a common vision with differentiated roles and responsibilities can provide mutual benefits for the Nordic countries.

iii. THE ROLE OF RENEWABLES IN A SUSTAINABLE DEVELOPMENT PATH TOWARD 2050. Through its Roadmap 2050, the European Commission foresees an important role for renewables in a future low-carbon Europe. Ambitious renewable targets are adopted across EU member states, and a strong growth in renewable energy markets is progressing the maturing of technologies and helping to drive down costs. However, strengthening the competitiveness of renewables relative to competing conventional energy sources requires synchronized action across three dimensions: (i) Political commitment to regulatory frameworks that support industrial policy; (ii) Continued research, demonstration and technology development; and (iii) Adequate policy measures. The Nordic countries need to further intensify their renewable energy efforts. Norway and Sweden have established a common market for green certificates which could be extended to other Nordic countries. For the industry it is essential that there is confidence in the stability of the regulatory framework in the long term, and that the terms for renewable energy after a transitional period become market based. Otherwise, the risk is that the relatively cheaper gas outperforms the renewable energy (as with the shale gas revolution in the United States), or that support for renewable energy dries out in the wake of financial instability in the economies. 2

Energy Service Companies, see e.g. http://en.wikipedia.org/wiki/Energy_service_company

Draft 9 October 2012 A shift towards a higher share of renewable energy requires long term planning and investment. The analysis will look at:  

The current production and the potential for an increased share of renewable energy across the Nordic countries – present strengths and weaknesses. How technological advances and investments could be enhanced rather than hampered by the transition to renewable energy sources. Storage of energy is a case in point and a coupling between wind, electricity and the bio and transportation sectors

iv. TRANSPORTATION. One of biggest challenges in reducing CO2 emission is transportation. There is a need to transform the current transportation system to a much higher level of sustainability. There are several ways to mitigate CO-2-emission from transportation: I. II. III. IV.

Limitation of transportation needs. Increase transportation efficiency e.g. by public transportation, shipping or “road trains” Use different types of renewable fuels such as Methanole, DME, Biogas Electrification of transport combined with CO-2-free electricity generation.

The Nordic countries have already demonstrated success in all these areas. Two examples where the Nordic countries have already reached or surpassed EU 2020 targets are Norway reaching EV sales representing 5% of total car sales and Sweden attaining the 10% renewable fuel target. Both these targets have been met largely driven by suitable regulation. For this reason the Action Group proposes that the Nordic countries strive toward faster and more substantial reductions in CO2 emissions from regular cars than those stipulated in the requirements proposed by the EU. The Action Group may also suggest strict and consistent CO2emission standards, incentive/penalty schemes, supporting infrastructure development, increased public transportation, increased transport efficiency by shipping and support of new innovative technologies such as electricfication of roads. In the transport sector, too, there is a need to develop more innovative business models. Through common efforts, the Nordic countries could serve as a model for a completely CO2-free transport zone in 2030. The Action Group will look into the implications of a common strategy in terms of industrial development and employment. v. FINANCING. There is a need to put in place the right incentive structures, introduce new business models and improve existing financial instruments. If the Nordic countries proceed to take the lead and make the Nordic region "The Green Region of Europe", this should improve their attractiveness as an investment destination for foreign companies active in the Nordics. It would also encourage additional investments from Nordic companies.

Draft 9 October 2012 A key element in a long term strategy for energy investment is a technology neutral CO2-price – a CO2 price high enough to make all necessary technologies economically viable and making fossil technologies unprofitable. This price will, according to several studies, have to be at least 40 euros/ton CO2, compared to the present CO2 price level in ETS, below €10 per ton. All the Nordic countries have introduced CO2-taxation (“more taxes on what we burn, less taxes on what we earn”) and all Nordic countries are participating in the European Trading System, ETS. Thus, the Nordic Countries have established an incentive structure, promoting investment in sustainable technologies. To strengthen the price mechanism, these minimum price levels should be combined with a price trajectory for the coming ten years, giving business a stable and predictable basis for calculating profitability of investment. However, these incentive structures have to be supported by new financial instruments. The Action Group proposes that the Nordic Investment Bank add xx billion in new capital to help finance these initiatives. Furthermore, the Action Group proposes that models for how pension funds could be included in the financing of the energy conversion should be developed, for example in conjunction with the NIB.

Draft 9 October 2012 4. APPROACH Each analysis will respond to the overall challenge: how can the Nordics (as a region and through joint forces) adapt to and optimize its positioning within the future European energy context? Fig. 1 Methodological approach to the areas for analysis3

Within the illustrated analytical framework, each focus area will be analyzed in three parts:   

Overall trends and drivers to understand context. Opportunities and challenges towards the strategic direction as outlined in this paper. Investment needs and policy implications underpinning the sought direction. We will also identify specific areas where further in-depth analysis is necessary.

At the group’s next meeting on the 15th of November in Helsinki, an overview of the preliminary conclusions from the exploratory research will be presented. These preliminary findings will provide the input for an initial public communication from the group, with the working title “Nordic Energy Ways”. This paper will in turn form the basis for the dealings with the energy and environment ministers, and subsequently for contacts at the prime minister level. During the first quarter of 2013, we expect to be able to have an initial meeting with the Nordic Council of Ministers for environment and energy, i.e. the united group of Nordic energy and environment ministers. By this time the first public report should have been finalized.

Taken from “Pöyry’s contribution to Global Utmaning’s ‘the Nordic Energy Union’ initiative”, September 2012.

Draft 9 October 2012 5. PARTICIPANTS The Action Group convened for the first time on the 12-13th of June 2012. At present, the following people and organizations are represented. Additional industry representatives will be invited to participate. The group’s work is at present led by Anders Eldrup and Kristina Persson under joint chairmanship. Carl Bennet Ingrid Bonde Anders Eldrup Henrik Ehrnrooth Ulrik Federspiel Hans Tormod Hansen Anders Olsson Jukka Pertola Christian RynningTønnesen

Chairman, Getinge. CFO, deputy CEO Vattenfall Former CEO of DONG Energy, Chairman Copenhagen Cleantech Cluster Chairman, Jaako Pöyry. Vice President Haldor Topsoe A/S Regional Vice President Nordics & Russia, Pöyry Management Consulting Deputy CEO E.ON Norden CEO Siemens Denmark CEO Statkraft

GLOBAL UTMANING AND EXPERTS Christian Azar Ulf Hjertonsson Tomas Kåberger Allan Larsson Bo Normark Kristina Persson Catharina Ringborg

Professor, Chalmers University. Former Swedish Ambassador Professor, Chalmers University, Chairman of the Board Japan Renewable Energy Foundation Chair of Global Utmaning’s climate council, former Swedish Minister of Finance. CEO of Power Circle Chairperson, Global Utmaning IEA advisor, member of the board of Global Utmaning.