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Integration of Environmental Considerations at Different Levels of Decision Making

4. Analyzing framework conditions in the sector

4.1 Introduction

This section describes the framework conditions within which market based actors are making their day to day production and consumption decisions.

In preparing a full description of the framework conditions sectoral agencies will need to consider the following points:

	Competitive Context established by the EU or supra national organisations. The regulatory and competition context for producers, wholesalers and retailers and the extent to which they can make more sustainable choices without contravening trade rules or European directives.
	Institutional Capacity at central, local and Non Governmental level for supporting progress towards integration in terms of providing the support or regulatory bodies, staff expertise, finance, promotional schemes and campaigns etc.
	Market Structure and market opportunities for more sustainable consumption and production, in particular the size, age and number of producer and retailer organisations.
	Sustainability awareness of the key issues facing consumers and producers; the extent to which they have information on the key sustainability issues in the sector, what their own impacts are and how they can take direct actions to make more sustainable decisions.
	Willingness to act. Where businesses or individuals have the appropriate knowledge, regulatory and financial incentives to use/buy accessible and affordable processes/technologies and products whether social and lifestyle choices lead them to ‘do the right thing’ in terms of sustainable decisions.
	Technical availability of appropriate processes, products and technologies for more sustainable production or consumption; the extent to which these are accessible to key actors (ie on the market rather than in the R&D phases, on supermarket shelves rather than available only through alternative retail routes etc).
	Affordability. Relative prices of processes, products and technologies in relation to less environmentally preferable options and the direct and indirect fiscal instruments which impact of prices.

The following section provides an overview of the framework conditions in the energy sector. Descriptions of the framework conditions for all four sectors are shown in Annexes A-D.

4.2 The Energy Sector

The competitive context for energy production and consumption in Denmark is determined by EU environmental and competition policy for the sector and by national policy. The three pillars of the EU energy policy are security of supply, competitiveness and environmental protection. The major elements to integration policy at the EU level are:

An overall framework for energy policy is provided by the Community’s Climate Strategy which has been developed since Kyoto (EC, Community Strategy on Climate Change and Negotiations with industry on carbon dioxide emissions from motor vehicles, EU Environment Council conclusions, 23 March 1998) Increased energy efficiency. The Energy Efficiency Strategy sets a goal of improving energy intensity by 20% by 2010 in relation to the 1995 levels. Under the umbrella of the SAVE II programme the EU is implementing measures aiming for absolute annual cuts in energy intensity of one percentage point over "business as usual" levels (Communication on Energy Efficiency in the European Community - towards a strategy for the rational use of energy (COM(1998)246). The White Paper on Renewable Energies (1997) set a target for energy production from renewable sources in the EU at 12% by 2010. This is supported by the ALTENER II programme (Decision 98/352/EC). The Combined Heat and Power (CHP) Strategy (October 1997) sets the goal of doubling the current share of electricity produced from CHP generation by 2020 from 9% to 18% which would lead to a reduction in total CO2 emissions of 4%. A proposed Directive (March 1997) would set minimum excise duties for energy products. Labelling. The European Commission is currently drafting a proposal for a directive which will aim to make compatible the promotion of renewable energies with the internal electricity market. The Large Combustion Plant Directive (88/609/EEC) has established limits for emissions of acidifying substances from the large scale thermal electricity generation sector. The IPPC Directive (EU 96/61/EC) on integrated pollution prevention and control has widened the coverage of IPC systems to include energy efficiency at the plant level the Fifth Environmental Action Programme, 1992 sets targets for reductions in SO2 and NOx.

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). () 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. ()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 () are expected to contribute 145 PJ annually by 2030.() 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. () 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.

4.2.2 The Institutional and Market Context

The institutional capacity and market structure is summarised below.

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. Municipalities 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 part owners of heat and power generation businesses and as energy consumers. Heat and power generators. 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 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.

Technical availability of renewable energy technologies and electricity products to encourage energy companies to invest in renewables and CHP and for consumers to buy green electricity are influenced both by R&D programmes, and through market based instruments intended to encourage production and distribution of easily accessible and affordable renewable energy. A similar range of policies is intended to encourage energy efficiency by municipalities, businesses and individual households. The framework of existing tools to encourage renewables and energy efficiency are summarised in Table 4.1 and Table 4.2 respectively. Householders will be influenced by the type and age of their housing, their income level and how long they expect to stay at their current dwelling to recoup investment costs. Fiscal instruments in Denmark appear to be well targeted at different groups (e.g. house owners, renters and pensioners) who require different incentives to make energy efficient choices. Policies also recognise that individual investors are becoming an important target group for raising finance for investment in renewables, particularly wind turbines.

4.2.4 Sustainability awareness and willingness to act

In addition to the macro policy framework and the availability of practical and affordable solutions to their consumption decisions, consumers are greatly influenced by their understanding of sustainable production and consumption issues, their own impacts and how they can take direct actions to make more sustainable decisions. The Council for Sustainable Energy is a key part of this awareness raising process.

Council for Sustainable Energy

The Council for Sustainable Energy is an independent council charged with promotion of energy conservation and efficiency and the use of renewable energy, and launching new ideas and debate. It has 24 members personally appointed by the Danish Minister of Environment and Energy. Its activities to raise public awareness include: An annual "Energy Day" including a conference and information activities with themes such as "The Danes’ Individual Energy Choices" (1997) and "Private Transportation" (1998). Energy training for students 14-16 years of age; and general information at a home page. During 1999 its focus has been on energy savings in the liberalised market, including a prize winning competition for ideas to include in the upcoming Danish act on energy conservation.

Finally where businesses or individuals have the appropriate knowledge, regulatory and financial incentives to use/buy accessible and affordable processes/technologies and products it will be a question of whether social and lifestyle choices lead them to ‘do the right thing’ in terms of sustainable decisions.

Table 4.1
The framework for encouraging decisions to produce and consume more renewable energy 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.

Table 4.2
The framework for reducing energy demand 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.
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.

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