Royal Academy of Engineering Sciences – Recommended Energy Plan

Sweden needs to secure its energy supply on competitive terms for industry, while at the same time reducing greenhouse gas emissions. This is a challenging vision, but Sweden is in a good position from which to proceed. Sweden already has climate-friendly electricity production and our industries are energy-efficient and adapted to meet high environmental standards. Sweden is also in a position to have an impact and make its voice heard internationally on the climate and energy issue.

But transforming the energy system requires major investment and will take a long time. That is why the rules of the game need to be stable; in other words, we need a long-range and predictable energy policy. Broad political agreement on energy policy would be a step in the right direction. The most important climate goal is to curb the increase in greenhouse gases in the atmosphere. Improving energy efficiency, renewable energy and the continued use of nuclear power are means of achieving this goal, as is the introduction of carbon capture and storage (CCS) technology. This goal is in line with the EU’s so-called 20-20-20 objective. To achieve this goal, our politicians must choose wisely and cost-effectively, i.e. begin with the measures that lead to the most climate benefits for the money. Otherwise energy consumers will have to pay dearly, our industries will become less competitive and we will risk losing jobs to other countries.

The most cost-effective way of reducing greenhouse gas emissions is using so-called market-based mechanisms which set a “market price” on emissions. Emissions trading is one such market-based mechanism. Carbon tax is another example. The result of these measures is that fossil fuels and electricity produced from fossil fuels are charged with higher costs. This is not the case for electricity and heating from carbon-neutral energy production, which therefore become more competitive. But if this system is to work in an optimal way, we need a global market – and we are not there yet. Market-intervention control mechanisms, such as subsidies, charges and regulations, may be effective in the short term, but increase uncertainty and distort competition. In reality we will need to have a mix of market-based and market-intervention control mechanisms.

The energy policy of the future should be based on carbon tax and emissions trading. These can be complemented by market-intervention control mechanisms, but it is important that the start and end dates for such control mechanisms are made clear in advance. Improving energy efficiency is a cost-effective way of achieving lower greenhouse gas emissions. There are areas here where Swedish industry is far ahead of the pack; areas such as the electrification of vehicles, building and operating district heating networks, energy efficiency improvement within industry and better use of residual heat.

There are many opportunities for greater efficiency in buildings throughout Sweden. Property owners are key here. But companies working with energy consulting and energy efficiency also have an important role to play. Investing in renewable energy is one way of reducing greenhouse gas emissions. But it is important to aim for a reasonable level to get the most climate benefits for the money. Sweden already has the largest percentage of renewable energy in Europe – around 40 percent, compared to the European average of around 10 percent. The Government’s goal is to increase the percentage of renewable energy to 50 percent by 2020; the opposition party’s goal is slightly higher, at 53 percent.

Plans in place to achieve these goals include expanding wind power up to 30 TWh. This would require Swedish electricity consumers to subsidise the expansion to the tune of SEK 10–15 billion per year through the electricity certificate system. It is unlikely, however, that wind power will be expanded to the extent planned, but instead as and when reserve power and the power grid are expanded. The figure would then be significantly lower than 30 TWh. A reasonable expansion of wind power (equivalent to about half of the planned 2020 goal) would mean using more resources for measures with a better climate effect, e.g. the introduction of electric vehicles.

In addition to wind power we also want to highlight the renewable energy potential offered in the form of hydropower and bioenergy. Energy tax is high; the Swedish government collects SEK 68 billion on oil and SEK 40 billion on electricity every year. One question to ask the Summary 9 politicians is if, and in such a case how, they will make up for the reduction in tax revenues from oil as we move into a fossil-free society.

In addition to reducing the impact on climate change, there are clearly several other factors shaping Sweden’s energy and climate policies. One aspect may be that Sweden wants to serve as a model internationally. Other factors are securing the energy supply, geopolitical considerations, and Sweden’s current account and economic policy. The transition to a sustainable society involves significant opportunities, both for manufacturing and service sector companies aimed at the Swedish market as well as for export companies.

Energy Crossroads is aimed at decision-makers who are in a position to influence energy policy. The main idea has been to use analysis and discussion to identify the measures that provide the most climate benefits for the money. We have identified five areas – or directions – which we believe are the most important.

Direction 1. Prioritise energy efficiency Prioritise energy efficiency as the overall energy policy instrument. Sweden can save 15 TWh by improving energy efficiency with the control mechanisms currently in place. With “market pricing” for emissions the most cost-effective measures will be implemented first. Instead of detailed regulation and costly initiatives, we will have a long-term reduction in total energy consumption. Energy efficiency improvement is also saleable internationally, profitable from a public finances perspective and a concrete concept for energy consumers. There is still great potential for the use of residual heat by our industries, for both internal and external use.

Direction 2. Invest in measures that are the most beneficial for the climate Increasing the percentage of energy we get from renewable sources does not automatically lower greenhouse gas emissions. We should increase the percentage of renewable energy, but a forced expansion would be unreasonably expensive. If implemented with today’s support systems, the renewable energy objective and today’s plans for expanding wind power up to 30 TWh would be costly for Sweden’s electricity consumers unless alternative financing is found. Expanding wind power requires investment in the power grid, expanding reserve power (hydropower) and raising subsidies. Expanding wind power too much could lead to surplus electricity and wind power exporting – paid for by Sweden’s electricity consumers. There are more cost-effective ways of reducing greenhouse gases. The renewable energy goal should steer us towards reducing the use of fossil fuels – not a one-sided investment in a single climate-friendly alternative.

Direction 3. Invest in electric vehicles Make Sweden a pioneer in electric vehicles. The demand for fossil fuels will continue to be high. Fully applying the emissions trading system would force up prices and would be a tough blow for our industries’ ability to compete. We therefore propose adding market-intervention measures in the transport sector to stimulate a faster phasing out of fossil fuels. We should invest in electric vehicles and plug-in hybrids which could reduce the amount of carbon dioxide from private cars by 20 percent.

Direction 4. Continue to use nuclear power Preserving nuclear power is probably the single most important measure to reduce costs to reach the climate policy goals. Also, nuclear power meets a number of criteria that are very valuable for industry. Access to secure basic power is of utmost importance. Nuclear power and hydropower will continue to be the foundation of this basic power and will ensure long-term competitive electricity production. The future of nuclear power is a tough issue for society. But the choice between using or not using nuclear power in Sweden and other European countries where nuclear power is being debated again is one of the most important choices to be made in setting climate policy.

Direction 5. Prepare for a warmer climate The EU’s 20-20-20 goal, the agreement by the G8 nations to reduce greenhouse gases by 50 percent by 2050 and a new climate agreement in Copenhagen are all political instruments aimed at reducing emissions. But unfortunately there are few indications that the current emissions trend will be broken any time soon. Despite international efforts and initiatives, it will be difficult to reduce the amount of greenhouse gases in the atmosphere over the next 20 years. For this reason, while implementing the most powerful climate measures possible, Sweden needs to prepare for a warmer climate. More research is needed into the consequences of an increase in temperature and the indirect effects in the form of migrating populations, water shortages and disease.

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