Études de l’Ifri THE ENERGY TRANSITION IN SWEDEN Michel CRUCIANI June 2016 Center for Energy The Institut français des relations internationales (Ifri) is a research center and a forum for debate on major international political and economic issues. Headed by Thierry de Montbrial since its founding in 1979, Ifri is a non-governmental and a non-profit organization. As an independent think tank, Ifri sets its own research agenda, publishing its findings regularly for a global audience. Using an interdisciplinary approach, Ifri brings together political and economic decision-makers, researchers and internationally renowned experts to animate its debate and research activities. With offices in Paris and Brussels, Ifri stands out as one of the rare French think tanks to have positioned itself at the very heart of European debate. The opinions expressed in this text are the responsibility of the author alone. ISBN: 978-2-36567-623-6 © All rights reserved, Ifri, 2016 Cover: © MrWhiterat/Shutterstock.com How to quote this document: Michel Cruciani, “The Energy Transition in Sweden”, Études de l’Ifri, June 2016. Ifri 27 rue de la Procession 75740 Paris Cedex 15 – FRANCE Tel.: +33 (0)1 40 61 60 00 – Fax: +33 (0)1 40 61 60 60 Email : [email protected] Ifri-Bruxelles Rue Marie-Thérèse, 21 1000 – Bruxelles – BELGIQUE Tel.: +32 (0)2 238 51 10 – Fax: +32 (0)2 238 51 15 Email: [email protected] Website: Ifri.org Author Michel Cruciani has been a Senior Advisor at the Centre of Geopolitics of Energy and Raw Materials (CGEMP), University Paris-Dauphine, since February 2007. He contributes in particular to studies, the organization of conferences, publications, and teaches on Renewable Energy for students following the Master’s degree in “Energy, Finance, Carbon”. Michel Cruciani graduated from the École Nationale Supérieure d'Arts et Métiers. Prior to the CGEMP, he worked for Gaz de France (Technical Services, then Economic Studies), and represented the CFDT (as a Member of the Board of Gaz de France, then as Deputy Secretary General of the Federation of Gas and Electricity), and finally worked within Électricité de France (Department of European Affairs). In these jobs, he followed the liberalization of the gas and electricity industry in the United States and in Europe, as well as the rise of environmental concerns, leading to the adoption of climate policies, a new role for nuclear energy and the promotion of renewable energy. Michel Cruciani has been associated with the work of the Centre for Energy at IFRI since 2009. Abstract Sweden has the distinction of having started several major changes to its energy supply at an early stage. The country has no fossil reserves, and so was importing increasing volumes of oil products in the years following World War II. Yet it rapidly perceived the geopolitical risks generated by such oil dependency, and so developed its nuclear capacity, enabling it to reduce quickly the role of oil in its economy after the shocks of the 1970s. Sweden has also managed to exploit its natural resources. Until the 2000s, hydropower was able to enter the market without public assistance. By contrast, wood could not have gained its current market share without a policy combining public aid for investment and penalties for competing energies. The severe economic crisis which hit the country between 1991 and 1993 led such penalties being converted into taxes, notably a tax on CO2 emissions that came into force in 1991. This helped Sweden reconstruct its tax system, to finance its social model. The challenge highlighted the country's ability to generate consensus policy guidelines. One of these guidelines was to react immediately after initial warnings about climate change. Sweden first strengthened its energy efficiency policy, structuring field actions through a national agency backed up by partner organizations in local communities to help consumers – individuals or industries – technically and economically. Sweden then adopted an unusual instrument to promote renewable electricity, namely its system of green certificates. Implemented in 2003, this system has spurred the development of the cheapest sources of renewable energy, two-thirds coming from onshore wind and one third from biomass. The cost of this support still remains remarkably moderate today. At the end of 2014, Sweden thus only used fossil fuels to provide 30% of its primary energy supplies, while renewables accounted for 52% of final energy consumption. Energy consumption per capita remains high, but relative to GDP it is exactly equal to the average for Western Europe (EU 15). Regarding emissions of greenhouse gases, the country had the lowest carbon footprint in 2013 within the EU15, both in terms of GDP and per capita use. Moreover, while environmental taxes raise the price of gas for industry substantially, they do not affect fuel prices overly. Nor do taxes prevent electricity prices from being among the cheapest in Europe, both for industry and for households. The Energy Transition in Sweden Michel Cruciani The current situation seems to be excellent. As a result, Sweden’s political leaders have chosen to keep its underlying foundations and to carry out only moderate changes. Thus, while stating their preference for renewable energy, the major political parties have found common ground to reduce tax pressures on nuclear power, since 2014. In June 2016, the Parliamentary majority and opposition parties signed an agreement to modernize Sweden’s fleet of reactors, thus further demonstrating their sense of compromise. This solution is designed to limit the rise in electricity costs and to lengthen the period available for alternative energy sources to reach maturity. In addition, the agreement extends the provisions promoting renewable power, but it also emphasizes the importance of managing the demand for capacity as well as the efficient use of electricity, giving consumers of power an active role, be they industrial or domestic users. In short, Sweden seems to have taken measure of the difficulties faced by some European countries which are already engaged in the energy transition and is trying to avoid them. Its political actors have been careful not to adopt excessively restrictive short-term goals and are content with general guidelines: they are betting on innovation to move forward. In this regard, Sweden has a major advantage, alongside the efforts made for several years, favouring research and development in a very structured way. The recent agreement consolidates these efforts. 5 Table of contents INTRODUCTION .................................................................................................. 7 AN OVERVIEW OF SWEDEN'S ENERGY SECTOR ............................................... 8 The First Steps ......................................................................................................... 8 The Turning Point of the 1990s ........................................................................... 10 The liberalization of the electricity market .............................................. 10 Taxing energy ....................................................................................... 11 Policy in favour of energy efficiency and renewable energy ...................... 13 Nuclear power policy .............................................................................. 15 THE PRESENT SITUATION ...............................................................................18 The Energy Balance ............................................................................................... 18 Supply ................................................................................................... 18 Demand ................................................................................................ 20 Greenhouse Gas Emissions ................................................................................... 22 Renewable Energy ................................................................................................. 23 Economic Issues .................................................................................................... 25 OUTLOOK AND LESSONS ..................................................................................28 The Search for New Answers ............................................................................... 28 Reducing greenhouse gas emissions further ............................................ 28 Increasing the share of renewables further .............................................. 30 Lessons for the Whole of the European Union ................................................... 36 Taxing CO2 emissions ............................................................................. 37 Provisions favouring renewable energy .................................................... 38 Research and development efforts .......................................................... 39 CONCLUSION ....................................................................................................40 Introduction Sweden regularly receives praise for its energy model, considered reliable, competitive, and low in greenhouse gas emissions. Two recent reports devoted to this country by the International Energy Agency have applauded measures taken over the last twenty years to strengthen the security of supply and reduce the impact of the energy system on the environment, while applying a very liberal regulatory framework. For its part, IFRI has therefore wanted to analyze the Swedish