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Integration of Environmental Considerations at Different Levels of
Decision Making

Annex B: Energy Sector

B.1.1 Stakeholder Analysis

The Energy Sector in its narrowest sense may be defined as including:
public electricity and heat production and distribution; production of oil and gas; petroleum refining; the manufacture of solid fuels-coke; and other energy industries which include specific auto-production of electricity and heat. Of these public electricity and heat production is by far the most important.

Energy production and consumption falls into two main types:

electricity - generated from fossil fuels (gas, coal) and renewables. This is used as a factor of production in all economic sectors, residential and transport users;

heat - mainly produced from natural gas or fuel oil and used for many purposes (e.g. space heating, heating water, industrial processes) by domestic users, industry and commercial. 85% of heat is produced in combination with power (combined heat and power - CHP).

At the macro level the key government actor is the Danish Energy Agency which sets the policy framework and targets at the national level and provides fiscal incentives for sustainable energy production and consumption.

At the meso level key actors include the Council for Sustainable Energy which is an independent advisory body to the government and the Parliament, and a consultative body on the national level with responsibility for promotion of energy conservation and efficiency and the use of renewable energy, and launching new ideas and debate. Other meso level actors are the Electricity Saving Trust (established in 1997) which aims to encourage the substitution of electrical heating by district heating or heating with natural gas in households and the public sector and the ‘regulator’ of the newly de-regulated energy companies. Municipalities and housing associations may also be considered meso level actors in the energy sector since they are actively involved in setting procurement policies for energy efficient products and for the fuel mix of energy supply to new developments. They also have a role as energy consumers.

At the micro level the market based actors are the utilities and consumers.

The current ownership structure of the Danish electricity sector is complex with heat and power generators being partly owned by municipalities and partly by the consumers. All distribution companies have a so called public service ‘obligation to supply’, to supply consumers that do not have the possibility to choose their own supplies. This consists of a minimum package of services at a set price’ overseen by a ’public regulator’. On the other hand, distribution companies have the obligation to buy the cheapest electricity. Deregulation of the sector as a result of the 1999 Electricity Reform will see a concentration of productive capacity in the hands of two commercial producers. The Danish electricity market is too small to contain additional producers. Competition in the Danish electricity sector will come from abroad.

Consumers of energy comprise all economic actors including industry, transport and other service providers and households. The latter includes both individual homeowners and owners of apartments who may take decisions more collectively through housing associations. The motivation of individual households also reflects the age of the housing, type of housing (with very different incentives for individual houses and apartments) and the age and income level of the residents (with pensioners singled out as a group requiring particular financial support to make energy efficient choices). Individual investors are also becoming an important target group in Denmark for raising finance for developing renewables, particularly wind turbines.

B.1.2 Key Environmental Issues

The key drivers determining levels of energy use are:

	economic growth;
	the growth in passenger and freight distances travelled, especially by road;
	structural economic changes between sectors of different energy intensity in the economy (ie energy consumed per unit of output);
	fuel type and efficiency of use for power generation and heating;
	social behaviour in relation to energy savings.

The key environmental issues associated with energy production, transmission, distribution and consumption are:

	climate change and acidification - mainly associated with fossil fuel use in electricity generation, process heat and transport and their impacts on human health, materials, crop and ecosystem productivity;
	fugitive emissions including: emissions from oil transport, storage, refining, transmission and distribution of oil products, venting and flaring;
	waste generation from coal fired power generation;
	land use and landscape issues principally associated with production and transmission of conventional power and with renewable energy sources such as energy coppicing, biofuels and wind turbines; and
	water pollution and abstraction due to power generation.

For the decision analysis described in Section B1.4 we have focused on two inter-related sustainability decisions for this sector:

Increasing production and supply of renewables by energy companies Reducing household emissions of Green House Gases by reducing overall energy consumption

B.1.3 Framework for Market Based decisions

Danish energy policy, as set out in Energy 21, aims to stabilise energy consumption and increase the use of renewable energy sources and combined heat and power production. Key drivers behind Danish energy policy are energy security, the EU electricity and natural gas directives and environmental objectives. Goals outlined in Energy 21 are:

	to reduce CO2 emissions by 20 % compared to the 1988 level by 2005.
	renewables should contribute to around 35 % of total primary energy supply in 2030 (235 PJ). (1) Currently renewables accounts for about 9 % of the total energy demand, coming mainly from wind and biomass. The implied target is a 1 % per year increase to 2030. Energy 21 stresses renewable energy as a priority research area. The Danish programme for the Development of Renewable Energy (DPRE), established in 1991, aims to provide support for the development and implementation of renewable energy technologies. In 1996 grant payments under the programme amounted to DKK 65 million. (2)DPRE is supplementary to the Danish Energy Research Programme (ERP). The framework for renewables is also set by the Electricity Reform Agreement, 1999 which provides for substantial modification of the support for renewable energy from subsidies to a market based scheme.
	a greater use of biomass and 2-300,000 ha of energy crops (3) are expected to contribute 145 PJ annually by 2030.(4) This is expected to lower Denmark’s total CO2 emissions by around 12.5 %. The Biomass Agreement outlines the future use of biomass. Electricity utilities are obliged to use 1.2 Mt of straw, 200,000 tonnes of wood chips and 200,000 tonnes of either straw, wood chips or willow chips annually by 2000. (5) This represents 6 % of the total consumption of coal.
	CHP is a key element of the CO2 emissions reduction strategy. By 1998, 50 % of the electricity generated for domestic supply was produced as CHP. The bulk of the country’s future heat demand and electricity consumption is expected to be covered by CHP, including district heating plants running on biomass.

Other policy tools which currently set the framework for decision making in relation to reducing demand for conventional energy sources and increasing supply of renewables are summarised in Table B1.1 and Table B1.2 respectively.

Table B1.1 Tools which provide the macro framework for demand reduction decisions in the energy sector in Denmark

Tool	Aims and description
Regulation	Inspection of oil burners used in central heating systems by authorised firms since 1997; the initiative is supported by an information campaign with the objective of increasing energy efficiency in new buildings by 50% by 2005. Since 1992 energy management and annual reporting on energy consumption have been mandatory in every government building. Local energy managers must be appointed by every institution. Mandatory individual metering of all buildings since 1997.
Energy Labelling Schemes	Energy labelling for domestic appliances (fridges, freezers, washing machines, dishwashers, office equipment, lighting, electric motors, process ventilation, pumps, boilers and technical insulation) in line with EU programme. Energy arrows inform consumers of electricity consumption of different appliances (developed by utilities). Voluntary scheme for other products gives a label to the best products on the market, updated on an annual basis
Energy labelling of buildings	Since 1997 mandatory audits and labelling of small buildings (1,500 m2) by the vendor prior to sale.
Guidance	Building Code 1995 sets limits for heating and ventilation systems. Future changes aimed at ambitious energy efficiency targets (45 kWh per m2) are expected to enter into force by 2005
Subsidies	Grants for energy saving investments in central government buildings financed from a tax of 5% on government energy consumption. The annual yield of this tax is around DKK 50 million. subsidies for energy savings in pensioners dwellings compulsory energy conservation pool financed by contributions based on consumption at county and municipal level being considered. Subsidies for installation of water borne central heating in housing erected before 1950. Some 65000 dwellings to be connected over 10 years. Electricity Conservation scheme: investment grants for heat saving or support for development of supplementary sources of energy, with a particular focus on switching electric heating in areas with district heating and natural gas supply. Financed for fixed amount levy on household and public sector energy consumption. Annual total of DKK 100 million.
Reporting	Introduction of green accounts at county and municipal level is being considered. More detailed, frequent and graphic reporting of individual household consumption on electricity bills.
CO2 quota system	Power companies will be allocated a specific emissions cap within the framework of a total cap of 23 million tonnes of CO2 for 2000, falling to 20 million tons in 2003. Over the following three years the total will drop by 1 million tons annually. For each ton of CO2 by which a company exceeds its quota it will penalised $5.60. Unused amounts may be banked and applied to the following year. The quotas will be tradable within Denmark only but the government hopes that over the next few years the system can be expanded at least to the Baltic region. The measure aims to support combined heat and power (co-generation) which is widespread in Denmark by taking account of the amount of heat produced when calculating a plant’s CO2 emissions.
Energy efficiency subsidies	Subsidies are granted for the development and implementation of energy efficiency appliances and products with a focus on dwellings and the public sector. Subsidies will also be granted for marketing and procurement of energy efficiency products.
Negotiated Agreements	Voluntary agreements on energy efficiency will be negotiated with trade organisations, housing associations etc for specific products and technologies.
Purchasing policies	‘Buying clubs’ are drawing up stringent requirements related to energy efficiency, price, materials for products and then guaranteeing contracts to the best performing manufactures. From 1997 housing associations have been encouraged to take this route on energy efficiency.

Table B1.2 Tools which provide the macro framework for promotion of renewables in the energy sector in Denmark

Tool	Aims and operation
Regulation	The Heat Supply Act requires municipalities to draw up heating plans including district heating. Renewable local energy sources (straw, biogas, forestry residues, waste incineration etc) have to be considered.
Green electricity certificates	An important new development in the electricity reform of 1999 is the development of a market in green certificates, which represent the production of green energy. Utilities have an obligation to purchase green certificates. The most efficient (competitive) renewable energies are encouraged to develop through the price system. If the consumer/distribution companies of electricity do not fulfil their quota, a penalty of 0.27 DKK/kWh is levied.
Green taxes	Taxes and tax concessions on different sources of energy aim to restore the price imbalance between fossil fuels and non-fossil fuel energy.
Subsidies	Subsidies are paid to generators of electricity from renewables which act as compensation for the automatic levying of the CO2 tax on all electricity. For a period still to be specified, the following fixed tariffs apply to power generated from biomass: Biogas plants: 0.33 DKK/kWh Local biomass plants: 0.27-0.33 DKK/kWh For biogas and biomass plants erected during 2000,2001 and 2002, a fixed tariff of 0.5 DKK/kWh will apply for 10 years. In addition an electricity production subsidy of 0.17 DKK/kWh is available. In 1996 support in subsidies amounted to DKK 276 million for wind power and DKK 122 million for biomass.
Obligation to purchase green energy	The current system of state subsidies for wind power is to be replaced by an obligation on consumers and energy distributors to obtain up to 20% of the energy they use from renewable sources. The only exception will be large users who will face this obligation for only up to 100 GW of electricity. The Danish Energy Agency does not expect it to be fully functional until 2003.
Buy-back rates for wind generated electricity	Fixed prices have been set in the electricity reform in 1999, for wind energy sold to the grid
Reporting and awareness raising	Council for Sustainable Energy responsible for major awareness raising campaigns and events
Subsidies for households	Subsidies are offered to replace an oil boiler with a biomass boiler. The subsidy for the biomass boiler varies from 10 to 30% of the investment. In 1996 the Danish Energy board granted a total of 128 million DKK.
Danish Programme for Development of Renewable Energy	Established in 1991, it aims to provide support for the development and implementation of renewable energy technologies to fulfil national energy plans. In 1996 grant payments under the programme amounted to DKK 65 million. Support is given to development of technologies, dissemination of information and investment subsidies are granted for the purchase of straw and wood pellet boilers, small scale biogas plants, solar panels, heat pumps etc. DPRE is supplementary to the Danish Energy Research Programme.
Development and Demonstration Programme for Renewable Energy	Investment subsidies are offered to spur the dissemination of commercially available technologies. The subsidy varies between 15-30% of the construction costs. In 1996 a total of 71 million DKK was spent on investment subsidies. Subsidies for demonstration of pre-commercial technologies amounted to 56 million DKK.
Renewable Energy Island	The island of Samsoe with 4,400 inhabitants will have its entire energy supply based on renewable energy, including the transport sector. The programme will be financed from the existing grant schemes.

B.1.4 Decision Flow Analysis

Decision flow analyses were completed for the energy sector for individual households and energy generators in relation to climate change and demand management, specifically reducing energy demand and greenhouse gas emissions. The results are presented in Tables 1.3 and 1.4 and discussed below.

A key question for households is what type of property to buy, whether to buy or rent a house or apartment, old or new, energy efficient or not. The key parameters in making this decision are:

	The availability of old and new energy efficient houses and apartments on the market. This will reflect building regulations and guidelines for new housing, the energy efficiency policies of builders, architects and housing associations. The average life span of the housing stock and the frequency with which housing is renovated and refurbished and how building codes apply to older buildings.
	Awareness of energy issues by house buyers, renters, vendors and landlords. This will depend on the extent that everyone involved in the housing chain understands energy conservation, its relation to climate change and to the costs of building, refurbishing and heating a dwelling. The extent to which individual apartments in blocks are separately metered and billed according to energy usage is also important.
	Affordability. When comparing the potentially high costs of undertaking energy conservation measures, households will take into consideration the capital costs of the works, the tenure (whether they own or rent the property) and how long they expect to be there. They will then consider the likely pay back time and the expected impact on the sale price and ease of sale. The cost of capital works can be influenced by the availability of grants and tax breaks for carrying out the works and offering EcoMortgages and other financial incentives for the purchase of energy efficient housing.

Another key decision for households is what type of fuel or electricity to use. This is affected by the following parameters:

	Availability of green fuels or district heating. This will be affected by infrastructure for producing and distributing renewable electricity and district heating and ease of connection in a given area. This is likely to be a major framework condition for the success of integrating environmental considerations into energy choices.
	Awareness of energy choices, which will be affected both by wider awareness raising of energy issues and the extent to which municipal and commercial energy providers make their customers aware of the options.
	Cost. If green electricity is available its price will depend on the source of energy (with only energy from waste and biomass being comparable in price to conventional sources), the pricing policies of the energy providers and any government subsidies for the production of renewables energy or price support to consumers . In the US and UK a small niche market is developing of consumers who are prepared to pay a 5-10 % premium over the normal tariff for the purchase of renewables.
	Reliability of supply. Renewable sources are less likely to suffer from negative perceptions of poor quality or reliability than some other environmentally preferred goods or services (such as public transport or low energy appliances).
	Habit. An important parameter affecting environmentally sound purchasing decisions where consumers have the necessary knowledge, access to products or services and the correct pricing incentives may be inertia and a lack of willingness to change established behaviour. This is less likely to be a factor for renewables or district heating than for other ‘green’ consumables where for many the market and acceptability of products has yet to be firmly established.

Having made the decisions about the energy efficiency of housing and the type of energy supply householders are also faced with the decision of what type of household appliances to buy. Their choices will reflect the following parameters:

	Availability. The availability of low energy appliances on the market. This will be affected by legislative requirements on producers, wholesalers and retailers of appliances.
	Cost. This will be affected by the market conditions on the supply side, the additional costs of producing energy efficient products and whether any higher costs are passed on to the consumer. Consumer choice will reflect the actual price differential, how long the appliance is expected to last and the expected pay back time.
	Perceived quality. This will depend on consumer’s awareness of energy saving as an issue, and the extent of knowledge about the attributes of the appliance relative to conventional ones. This parameter can be impacted by awareness raising campaigns, eco labelling or energy consumption labelling of products and provision of point of sale advice and advice helplines.

Decisions about how much energy to use reflect the type of property and appliances and lifestyle decisions about how much heating, lighting and space heating is required. These choices are affected by all of the same parameters as above and in particular price, awareness and information about energy use and opportunities for sharing of some facilities (eg washing machines and dryers in apartment blocks).

The key framework conditions affecting how households integrate environment into their day to day decisions are probably the availability of green power and products, the price differential between these and conventional products and their general awareness. The major instruments which have been used to affect these decisions to date include economic instruments (mainly subsidies for the domestic sector), ecolabelling of household appliances (fridges, freezers, washing machines etc) and energy efficiency advice to homeowners supported by a legal requirement to undertake an energy audit and subsidies to undertake the necessary works to make houses energy efficient .

Table B1.3 Households Look here!

Table B1.4 Energy generators Look here!

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(1)International Energy Agency, 1998

(2) Danish Energy Agency Brochure: ‘Energy Research and Development in Denmark’. 1996

(3)Current wood resources are likely to be exhausted in 2000, but a programme of afforestation is taking place. Increased production of bioenergy, including energy crops, will be required to meet demand for biomass after 2005.

(4) European Energy Crops interNetwork: http://www.btg.ct.uwente.nl/eeci/archive/biobase/B10101.html

(5)Danish Energy Agency, 1999

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