BACKCASTING ENERGY EFFICIENCY FUTURES OF THE EUROPEAN UNION Case studies of Finland and Germany Master’s thesis in Futures Studies Author: Ellinoora Leino-Richert Supervisors: Adjunct professor Jyrki Luukkanen Professor Petri Tapio Adjunct professor Jarmo Vehmas 23.5.2017 Turku Turun kauppakorkeakoulu • Turku School of Economics The originality of this thesis has been checked in accordance with the University of Turku quality assurance system using the Turnitin OriginalityCheck service. Table of contents 1 INTRODUCTION ................................................................................................. 9 1.1 Importance of energy efficiency ............................................................................ 9 1.2 Objectives and research questions ...................................................................... 11 1.3 Thesis outline ...................................................................................................... 12 2 ENERGY EFFICIENCY ......................................................................................... 13 2.1 Definitions .......................................................................................................... 13 2.2 Energy policy in the European Union ................................................................... 15 2.3 Global energy visions and scenarios .................................................................... 18 2.4 National energy plans and visions for Finland and Germany ................................ 21 2.4.1 The official plans and scenarios for Finland .......................................................... 23 2.4.2 The official plans and scenarios of Germany ........................................................ 25 3 THEORETICAL FRAMEWORK ............................................................................. 28 3.1 Scenarios ............................................................................................................ 30 3.2 Backcasting vs. forecasting .................................................................................. 32 3.3 Environmental Kuznets Curve ............................................................................. 35 3.4 De-linking / Decoupling ....................................................................................... 38 3.5 Decomposition analysis ...................................................................................... 44 4 METHODOLOGY ............................................................................................... 47 4.1 EuroLinda Model ................................................................................................. 47 4.2 Data gathering and scenario framing ................................................................... 51 5 ENERGY SCENARIOS FOR FINLAND ................................................................... 54 5.1 Finland BAU ........................................................................................................ 54 5.2 Structure of economic growth: industry vs. service ............................................. 60 5.3 Energy sources: non-renewable vs. renewable .................................................... 62 6 ENERGY SCENARIOS FOR GERMANY ................................................................. 65 6.1 Germany BAU ..................................................................................................... 65 6.2 Structure of economic growth: industry vs. service ............................................. 70 6.3 Energy sources: non-renewable vs. renewable .................................................... 73 7 RESULTS ........................................................................................................... 76 7.1 Finland ................................................................................................................ 76 7.1.1 Energy efficiency targets vs. Finland BAU ............................................................. 76 7.1.2 Energy efficiency targets vs. other scenarios ....................................................... 79 7.1.3 EKC and de-linking ................................................................................................ 81 7.2 Germany ............................................................................................................. 82 7.2.1 Energy efficiency targets vs. Germany BAU .......................................................... 82 7.2.2 Energy efficiency targets vs. other scenarios ....................................................... 85 7.2.3 EKC and de-linking ................................................................................................ 86 7.3 Intensity scenarios for Finland and Germany ....................................................... 88 8 DISCUSSION ..................................................................................................... 90 8.1 Summary of the key results ................................................................................. 90 8.2 Methodological considerations ........................................................................... 96 8.3 Conclusions ......................................................................................................... 97 REFERENCES ............................................................................................................ 99 APPENDIX .............................................................................................................. 115 List of figures Figure 1. Decoupling energy production from GDP in the EU reference scenario. Source: European Commission 2016f. ............................................................................. 18 Figure 2. Finland positioning with Germany in energy efficiency of four sectors. In the graph 1.0 corresponds to the three best countries and 0 to the three countries with the lowest performance in the Odyssee-Mure study. Source: Odyssee-Mure 2017a. .................................................................................................................. 22 Figure 3. The complementary relationship of the research approaches. ........................................ 29 Figure 4. Scenario typology. Source: van Notten et al. 2003, 426; modified by the author. ......... 31 Figure 5. The idea of backcasting. ................................................................................................. 33 Figure 6. An inverted U-shaped Environmental Kuznets Curve. .................................................. 36 Figure 7. Degrees of de-linking and re-linking. Source: Vehmas et al. 2003b, 31. ....................... 40 Figure 8. De-linking (and re-linking) and EKC. Source: de Bruyn 2000, 64; modified by the author. ................................................................................................................. 42 Figure 9. Linkages of different calculation modules in the LINDA model. Source: Luukkanen et al. 2015, 871. ....................................................................................................... 49 Figure 10. Total and sectoral GDP growth in Finland BAU in 1990-2030. .................................. 55 Figure 11. Total and sectoral energy consumption in Finland BAU in 1990-2030. ...................... 59 Figure 12. Total power plant capacity in Finland BAU in 1990-2030. ......................................... 59 Figure 13. Total and sectoral GDP growth in Finland (industry vs. service scenario) in 1990- 2030. ................................................................................................................... 61 Figure 14. Total and sectoral energy consumption in Finland (industry vs. service scenario) in 1990-2030. .......................................................................................................... 62 Figure 15. Power plant capacity in Finland (non-renewable vs. renewable scenario) in 1990- 2030. ................................................................................................................... 64 Figure 16. Total and sectoral GDP growth in Germany BAU in 1990-2030. ............................... 66 Figure 17. Total and sectoral energy consumption in Germany BAU in 1990-2030. ................... 69 Figure 18. Total power plant capacity in Germany BAU in 1990-2030. ...................................... 70 Figure 19. Total and sectoral GDP growth in Germany (industry vs. service scenario) in 1990- 2030. ................................................................................................................... 72 Figure 20. Total and sectoral energy consumption in Germany (industry vs. service scenario) in 1990-2030. .......................................................................................................... 73 Figure 21. Power plant capacity in Germany (non-renewable vs. renewable scenario) in 1990- 2030. ................................................................................................................... 75 Figure 22. Development of energy intensity in Finland BAU. ...................................................... 77 Figure 23. Improvement of energy efficiency in Finland BAU. .................................................... 77 Figure 24. Energy consumption targets and Finland BAU scenario. ............................................ 78 Figure 25. Energy savings by 2020 in Finland BAU. .................................................................... 79 Figure 26. Development of energy intensities in all