The Danish Climate Policy Plan

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1 kebmin.dk The Danish Climate Policy Plan Towards a low carbon society August 2013 The Danish Government

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3 The Danish Climate Policy Plan Towards a low carbon society

4 4 The Danish Climate Policy Plan

5 The Danish Climate Policy Plan 5 TABLE OF CONTENTS Foreword Denmark s long-term climate challenge Changes in Danish emissions an overview Status in relation to the 40% target for Strong Danish efforts for an ambitious European climate policy Foundation for an ambitious national climate policy Reduction potentials and costs in Denmark Principles of Danish climate policy The next steps... 61

6 6 The Danish Climate Policy Plan

7 The Danish Climate Policy Plan 7 Foreword Anthropogenic climate change is real, it is happening and must be taken seriously. The political rhetoric has to be followed up by real action if we are to reverse the current trend of increasing global greenhouse gas emissions. The Danish government wants Denmark to contribute actively to meeting the calls from scientists that significant reductions in greenhouse gas emissions are necessary. We also want Denmark to be the showcase to the rest of the world that the green transition can be reconciled with economic growth. Science recommends that developed countries reduce their total greenhouse gas emissions by 80%-95% by 2050 compared with 1990, as part of an overall 50% reduction in global greenhouse gas emissions. The EU has adopted this target. And Denmark must make its contribution to reach this target. This means that we will have to significantly reorganise our economy. Progress in global efforts to combat climate change has so far been far too modest. Setting a good example shall be Denmark s way to encourage the rest of the world to join global efforts to combat climate change. Denmark is a wealthy country and therefore can afford to take the lead. The effort needed is ambitious. Hence, it has to be carried out in a way that it does not pose unreasonable burdens on Danish citizens and businesses in case international efforts remain timid. Furthermore, the rate of transition must be tailored so that it does not become too costly. The Danish government s strategy to put Denmark on track for the 2050 target includes an interim target of a 40% reduction by 2020 in all Danish greenhouse gas emissions. Opting for this target means that Denmark will live up to the scientist recommendations for wealthy countries with high emissions of greenhouse gases and that the transition necessary will be initiated in all relevant sectors. The Climate Policy Plan calls for a broad dialogue with all relevant players on future action. In addition to starting this dialogue, the Danish government will present a Climate Change Act in the forthcoming parliamentary year. This Climate Change Act will establish a framework for the work on the green transition and it will secure progress in reduction efforts so that Denmark can meet the emission reduction targets. There are two basic elements to the Danish government s strategy: national efforts and European efforts. An ambitious Danish climate policy is highly dependent on developments in the EU, and therefore the Danish government will work actively for more ambitious climate policies at European level. It is crucial that the EU takes the lead in international climate negotiations and thereby puts pressure on other countries to set ambitious emission reduction targets. At the same time almost half of Danish emissions are covered by the EU s common emissions trading system. In this context the price of allowances is a vital incentive for reduction initiatives in the enterprises affected. Common EU policies could also make important contributions to reducing emissions from cars, industrial gases and agriculture. In addition, more intense climate efforts in the other EU countries could entail more uniform conditions for Danish and other European businesses. The energy sector is crucial to realising climate targets. The Danish government s ambitious energy policy is a good foundation for climate policy. The broad energy agreement in spring 2012 is a significant step forward to meeting both the energy policy goals and the target to reduce greenhouse gas emissions by 40% by In the future too, energy policy will provide a vital contribution to climate policy. The Danish government s goal is that already by 2035 Danish electricity and heating supply will be completely based on renewable energy. The goal for 2050 is that all energy consumption, including the transport sector, will be based on renewables. However, an ambitious energy policy cannot stand on its own. There is a need for an active climate policy that secures greenhouse gas emission reductions in all relevant areas. In addition to the energy sector, this is primarily within the transport, agriculture, waste and environment sectors. There are reduction potentials in all of these sectors

8 8 The Danish Climate Policy Plan to reduce greenhouse gas emissions considerably. In a number of areas there can be socio-economic benefits in reducing emissions, as other positive environmental side-effects will often come into play. The Danish government will be following a sensible, pragmatic climate policy. This means that climate change issues will be integrated into other sector policies. In so doing, climate change will be a natural part of transport policy, agricultural policy etc. Policy integration and synergy effects will be crucial to meet both the 2020 target, and the longterm green and structural transition towards Climate mitigation efforts must be designed cost efficiently so that they do not entail unnecessary costs for society. However, when choosing between different reduction options other factors must be taken into account: The distribution of the burden between sectors of society, the need for economic growth, competitiveness, employment and environmental side-effects. Furthermore, it is also important that the initiatives launched before 2020 support the longterm transition. Another vital factor is to draw up specific proposals for financing the initiatives to realise the target of a 40% greenhouse gas reduction. In this context, there must be room for prudent changes to the tax system. Still, the Danish government will not impose new general tax increases on the business community. The Danish government intends to demonstrate that an ambitious climate policy can be reconciled with economic growth and good framework conditions for the business community. This is the only way that our ambitious reduction commitment will inspire others. It is also the reason that the Danish government will not impose new general tax increases on the business community. The Climate Policy Plan is not a cure-all-now solution for how reduction efforts are to be organised or what specific measures are to be initiated and when. There is considerable uncertainty regarding the size of the shortfall to the 40% target, including the extent to which common EU measures will contribute. Thus the scope of the additional national efforts needed is so far unknown, and specific measures are best decided for in on-going dialogue with both the business community and players in civil society. The Climate Policy Plan can inform and inspire this dialogue. In publishing this Climate Policy Plan, the Danish government engages in a dialogue with the business community and the civil society on climate mitigation efforts. This dialogue also builds on a large number of useful contributions already made by the business community and the civil society during the preparation of the Climate Policy Plan. With this plan the Danish government intends to continue the existing successful and broad collaboration on Danish climate policy. Danish government, August 2013

9 The Danish Climate Policy Plan 9

10 10 The Danish Climate Policy Plan The Danish government s Climate Policy Plan in brief What is the target? The Danish government s target is to reduce total Danish greenhouse gas emissions by 40% by 2020 compared with the 1990 level. This is ambitious, but necessary in order to put developments on track towards the long-term EU target of a 80%-95% reduction by 2050 in line with recommendations from climate scientists. How useful is this target, given that there is no international agreement on global reduction efforts? The ambitious Danish efforts will demonstrate to other countries that it is possible to reduce emissions significantly. Furthermore Denmark will show that this can be reconciled with continued growth and welfare. Can Denmark achieve this target? Projections indicate that without new initiatives Denmark will emit about 4 mill tonnes more than the 40% reduction target in This is a lot, but it is not insurmountable. Calculations also show that developments in prices in the European emission trading system, as well as economic growth, are decisive for Danish emissions. All else being equal, a higher allowance price could significantly reduce the shortfall. There are reduction potentials in all sectors, but current estimates indicate that realising the 40% target in 2020 will not be without cost.

11 The Danish Climate Policy Plan 11 How can we achieve the reduction target most efficiently? Some mitigation initiatives can be implemented with subsequent economic benefits, while others can only be implemented at considerable socio-economic costs. Generally, the most socio-economically beneficial reductions can be achieved with mitigation measures that have synergy effects with other policy goals and priorities. Therefore, it is generally most cost effective to integrate climate change mitigation across other policy areas. The world is not static. Technologies, the economic framework, and knowledge about mitigation opportunities are developing all the time. Consequently, constant follow-up on efforts to reduce emissions and assessment of the specific measures are crucial in reaching the 40% target. A well-functioning European emission trading system, and consequential higher allowances prices, could contribute considerably to meeting the national target. And, just as importantly, it could ensure reduces emissions in the rest of Europe. Tightening the EU CO2 requirements for cars and the reform of the EU Common Agricultural Policy could also entail important reductions. The Danish government s climate policy therefore has two strings; national and international. What is the next step? The Danish government will ensure that the necessary initiatives are taken in the future by integrating climate change mitigation measures into different sector policies. For example, there will be follow up in agriculture, amongst other things on the basis of recommendations from the Nature and Agriculture Commission, which has carried out an extensive review of the agricultural sector and proposed recommendations on nature, environment and climate related policies in the agricultural sector. The Danish government will also present a Climate Change Act at the next session of the Danish Parliament (the Folketing). The Act will form the framework for the future climate policy. In the EU the Danish government will strive for agreement on initiatives for structural improvements of the European emission trading system and thus a better and more effective climate policy at EU level. Similarly, the Danish government will work for tighter EU CO 2 requirements for cars and vans and for a greening of the EU Common Agricultural Policy.

12 12 The Danish Climate Policy Plan

13 The Danish Climate Policy Plan 13 1 Denmark s long-term climate challenge Climate change is a global challenge to be taken seriously. Science has said that global emissions of greenhouse gases must peak as soon as possible, and by no later than 2020, if temperatures are not to rise by more than two degrees compared with pre-industrial levels. By 2050, emissions from the developed countries must be reduced by 80%-95% compared with 1990: a target the EU has adopted as part of a joint global climate change mitigation efforts. The 2050 target is ambitious and realising it will also demand considerable efforts in Denmark. With its ambitious energy policy, Denmark has laid an important stepping stone to securing this transition. With the highest greenhouse gas emissions of all sectors, the energy sector is pivotal for climate policy in both the short and long term. The broad energy policy agreement in 2012 gave real impetus to the transition towards a long-term sustainable and low carbon energy sector. However, despite significant results and goals for energy, there is a need for additional mitigation efforts in all sectors.

14 14 The Danish Climate Policy Plan The Danish government s climate and energy policy goals The overall climate target set in the Danish government platform is a total reduction in Danish greenhouse gas emissions of 40% by 2020, compared to the 1990 level. The Danish government wants all sectors, including non-ets sectors, to contribute with concrete and documented reductions up to 2020 and beyond. The long-term benchmark is that Denmark is to contribute to the EU target to reduce greenhouse gas emissions by 80%-95% up to 2050, compared with 1990, as part of joint global mitigation efforts. Within the EU, Denmark has an obligation to reduce non-ets emissions in the period , increasing to a total reduction of 20% in 2020 compared with All of Denmark s energy supply, including transport energy consumption, shall be based on renewable energy by As part of this, oil for heating purposes and coal are to be phased out by 2030, and electricity and heating supply is to be 100% covered by renewable energy by 2035.

15 The Danish Climate Policy Plan 15 Figur 1 Figur 2 Having all of Denmark s energy supply from renewables by 2050 will result in fossil fuels being phased out. This also implies that energy consumption by the entire transport sector will be covered by renewable energy by Emissions from agriculture and other sectors must be reduced gradually up to 2050, if Denmark is to be able to contribute to the EU target of an 80%-95% greenhouse gas reduction compared with If reductions are to approach the upper level of this span, i.e. 95%, significant reductions in agriculture and other sectors will be required. Mill. Tonnes CO2 equivalents Transport Agriculture Environment CO 2 emissions with the Danish government s 2035 target for renewables Oil and gas Energy Emissions for 100% renewables in transport and energy Figure 1. Historical and projected Danish greenhouse gas emissions without policy changes up to 2020 (Source: Danish Centre 70 for Environment and Energy and the Danish Energy Agency) 60 Note: It is assumed that new policies will be implemented to reach the Danish government s 2035 goals for renewables. 50 Realising the Danish government s energy policy goal of full conversion of electricity and heating supply to renewable energy means that emissions from the energy sector will have to be further reduced up to 2035, see figure 3. This requires new initiatives for the period after If this energy policy goal is realised, total Danish greenhouse gas emissions in 2035 will have been reduced by around 50% compared with In this case transport and agriculture will account for almost 70% of the remaining emissions in 2035, unless further policies are implemented to underpin the structural reorganisation 40 of these sectors to lower the emissions. Up to 2050, realisation of the goal of full conversion from fossil fuels to renewable energy will remove Figur 3 35 almost all emissions from 30 transport and energy. 1 However, reducing emissions with around 80%-95%, as stated in the 25 EU reduction target, will require further mitigation efforts, including efforts in the 20 agricultural sector. Mill. Tonnes CO 2 equivalents 15 The Danish government s target to reduce Danish greenhouse gas emissions by 10 40% by 2020 compared with 1990 is ambitious, but not too ambitious. 5 A 40% reduction in 20200is a natural stepping stone towards a long-term reduction in greenhouse gas emissions in accordance with the EU s 2050 Energy target of Transport 80%-95%, see Agriculture figure 1. Figur Mill. Tonnes CO2 equivalents However, 1990 there may be 2000 methane/nitrous 2010 oxide 2020 emissions from utilisation 2050 of biogas and, depending on how they 1990 are accounted 1992 for, 1994 also emissions 1996 from biofuels. So emissions from energy and transport will not entirely disappear by Historical emissions 80% reduction Historical emissions Projected emissio 40% reduction target 90% reduction 40% target, includ Reduction pathway Mill. Tonnes CO 2 equivalents 60 50

16 Mill. Tonnes Transport Agriculture Oil and gas Energy Mill. Ton The Danish Climate Policy Plan 2000 Energy Transport Agricultu Environment Emissions for 100% renewables in transport and energy Figur 2 Figur 4 Mill. Tonnes CO2 equivalents Figure 2. Historical greenhouse gas emissions as well as future targets (Source: Danish Centre for Environment and Energy 40 and the Danish Energy Agency) Prompt and well organised mitigation efforts could turn out 30 to be the cheapest in the long run. A large proportion of future greenhouse gas emissions will be determined by 25 the technologies we choose today, because many technologies 20often have long lifetimes. So, in order for climate policy to be cost effective climate mitigation measures should be taken 15 into consideration, when infrastructure with a very long lifetime is to be replaced, updated or renovated. This will 10 avoid unnecessary scrapping of capital stock. However, it should also be taken into consideration that later efforts 5 may turn out to be cheaper, as technological developments may 0bring down prices in some areas Mill. Tonnes CO2 equivalents Historical emissions 40% reduction target Reduction pathway 80% reduction 90% reduction Figur 8 Early efforts may promote development of new reduction 80 technologies and make these cheaper. This may help convince people in wealthy as well as poorer countries that the climate can be saved without inhibiting economic growth. 70 Efforts should also be balanced so that they are not unnecessarily costly for people and businesses. Popular support may wane, if it is not possible to reconcile the green transition with a healthy 60 economy. Mill. Tonnes CO 2 equivalents Finally, the Danish government s 40% target is in line with 50 the EU ambition to take the lead in combating climate change: Together with other ambitious Member States, Denmark is showing that 40 an ambitious target in the short term will lead towards the 1990 long-term 1992 transition up to However, as national efforts and EU efforts are inextricably Historical emissions Projected emi entwined, the Danish government is working to stabilise the EU emission trading system in the short term and to 40% target, in tighten the EU s 2020 climate target. Furthermore, the Danish government considers it necessary to set subsequent and more ambitious post-2020 EU targets for energy efficiency and renewable energy. This may in part pave the way for a new international climate change agreement, and in Figur part 9 get the entire EU to contribute to ambitious mitigation efforts. The more ambitious EU countries, including Denmark, cannot meet the 2050 target without concerted action from the entire EU. It is a matter of fact that the rate of climate change depends on the accumulated concentration of greenhouse gases in the atmosphere. Emissions accumulate in the atmosphere year after year. Consequently, early and permanent international mitigation efforts will have a greater effect than later efforts. se selvstændig fig Supply Businesses Households Figur s CO2 equivalents 6 4 Figur

17 The Danish Climate Policy Plan 17 A world-class target The Danish greenhouse gas reduction target for 2020 is one of the most ambitious in the world. However, this does not mean that Denmark stands alone. Other progressive countries are moving in the same direction and have taken on national greenhouse gas reduction targets that go beyond their international obligations. Examples include: Germany is aiming to reduce greenhouse gas emissions by 40% by 2020 compared with 1990 and at the same time Germany is starting to phase out nuclear power. Norway is aiming to become greenhouse gas neutral by 2050 (partly by buying climate credits from abroad). This target will be brought forward to 2030, if there is an international agreement. Sweden is aiming to reduce greenhouse gas emissions in the non-ets sector by 40% by 2020 compared with The UK is aiming to reduce greenhouse gas emissions by 34% by 2020 nationally, without buying climate credits from abroad. In 2008 the UK adopted a Climate Change Act under which national reduction targets in terms of carbon budgets are adopted. Under the Climate Change Act the UK has adopted a conditional target to reduce emissions by around 50% by 2027 on the condition that the EU adopts common reduction targets post However, the countries all have different points of departure, requirements and strongholds, and they have chosen different strategies to achieve their national climate and energy targets, making it difficult to directly compare the targets. For example, Norway and Sweden already have a high share of renewable energy and for Sweden also nuclear power. Both countries are also focusing on climate projects in developing countries and use of climate credits from high carbon uptake in soil and forests. The UK and Germany are focusing on converting their energy systems and on reducing national emissions. Finally, there are differences in the scale of reductions countries have already achieved from 1990 onwards, as the countries had different reduction targets under the Kyoto Protocol.

18 18 The Danish Climate Policy Plan

19 The Danish Climate Policy Plan Trends in Danish emissions an overview Danish emissions arise from use of fossil fuels by the energy sector and the transport sector, emissions from agriculture, as well as the environment. The latter category in this context includes emissions from industrial processes, industrial gases, wastewater and waste. Figure 3 illustrates how these sectors are expected to contribute to emissions in 2020, including only agreed initiatives from the energy agreement. The energy agreement will lead to a significant fall in emissions in the energy sector and thus a fall in total Danish emissions. In 2020 the energy sector is expected to account for more than 40% of total emissions, while transport will account for almost 30% and agriculture almost 20% (see projections from the Danish Centre for Environment and Energy and the Danish Energy Agency). However, with regard to both transport and agriculture, only moderate reductions are likely up to 2020, unless new policies are implemented. 40 igur Mill. Tonnes CO2 equivalents Energy Transport Agriculture Environment Oil and gas Figure 3. Historical and projected Danish greenhouse gas emissions for 1990 to 2020 (Source: Danish Centre for Environment and Energy and the Danish Energy Agency) Note: In addition to emissions from the five sectors, there are about 0.5 mill. tonnes CO 2 equivalents in 1990, falling to 0.3 mill. tonnes CO 2 equivalents in 2020 arising from other sources than transport, agriculture, the environment and energy. This is not included in this figure, but is included in the total emissions. igur 8 80

20 20 The Danish Climate Policy Plan Update of greenhouse-gas projections from the Danish Energy Agency The projection of future greenhouse gas emissions was updated in connection with this Climate Policy Plan taking into consideration a number of developments that have taken place since the last baseline projection in September These developments include the change in the electric heating tariff in the 2013 Finance Act, the solar panel agreement in autumn 2012, as well as the effects of the Growth Plan DK. The projection has also been adjusted for a significant drop in the price of CO 2 allowances on the European emission trading market. The significant drop in the price of allowances has led to adjustment of the allowance price estimate from EUR 22/allowance, as assumed in the baseline projection, down to EUR 9.6 in ,3 All else being equal, this will increase emissions from Danish electricity production. The basis for projections of greenhouse gas emissions are existing regulations and policies already adopted. It has also been assumed that there will be no changes in behaviour. These elements are collectively called businessas-usual. The projection includes the effect of agreed political initiatives such as agreements on new offshore wind farms. On the other hand, political agreements and initiatives where the implementing instruments have not been decided on are not included. The projection is based on a number of overall economic assumptions about economic growth, private consumption, business production, fuel prices, emissions prices, tax rates, subsidies etc. and a number of technology-specific assumptions regarding the price of different types of installation, their efficiency etc. Finally, there are assumptions regarding energy-market player behaviour under pure market conditions. The results of the projections are very dependent on these assumptions. The assessment of the effect of specific political initiatives also influences the result. For example: Planning aspects regarding expansion of wind power or biogas or assessments of the impact of energy savings initiatives. The projection goes up to 2035, and its findings are obviously very uncertain. New emission factors from the UN Inter governmental Panel on Climate Change (IPCC) In preparation of this Climate Policy Plan, historical and future emissions have been recalculated in accordance with the new IPCC guidelines for calculating greenhouse gas emissions. The new guidelines mean that methane and nitrous oxide emissions from agriculture in 2010 are calculated to be lower compared to calculations with old guidelines; 8.9 mill. tonnes CO 2 equivalents compared with the previous 9.5 mill. tonnes CO 2 equivalents. In accordance with normal practice under the Climate Convention, the historical emissions have been recalculated using the new guidelines. Total emissions of methane and nitrous oxide in the 1990 baseline year have been calculated using the new guidelines at about 10.4 mill. tonnes CO 2 equivalents, against the previous 12.5 mill. tonnes CO 2 equivalents. With regard to total Danish emissions, the new IPCC guidelines mean that total emissions in the 1990/95 baseline year are now estimated at 67.2 mill. tonnes CO 2 equivalents against the 69.3 mill. tonnes CO 2 equivalents previously recognised as Denmark s baseline-year emissions. 2. The prices have been converted from DKK. The exchange rate used is EUR 1 = DKK The market price for allowances is currently even less than the 2020 estimate.

21 Figur 2 Figur 4 Mill. Tonnes CO2 equivalents 40 The Danish Climate Policy Plan Transport Oil and gas The following gives a brief overview by sector of how emissions have developed historically, and how they are expected Agriculture Energy Environment to develop in the future on the basis of already agreed policies. Emissions for 100% renewables in transport and energy Energy sector emissions Historically, traditional energy consumption (households, 50 businesses as well as electricity and heat production) has accounted for most of the Danish greenhouse gas emissions. In 1990, emissions from these sources totalled more 40 than 30half of all Danish emissions, and this has basically continued ever since. The supply sector, i.e. electricity and district 20 heating production, accounts for most of the emissions, followed by individual use of fossil fuels for industrial 10 processing and heating buildings. Mill. Tonnes CO2 equivalents Around 70% 1990 of emissions from the 2020energy sector 2050 (excl. transport) are subject to the EU emission trading scheme Historical emissions 80% reduction (ETS), while about 30% are not subject to the scheme (non- 40% reduction target 90% reduction ETS). Non-ETS emissions from the energy sector arise primarily from Reduction individual pathway use of gas and oil in businesses and households as well as small district heating plants. 40 Figur 4 Figur 5 Mill. Tonnes CO 2 equivalents Mill. Tonnes CO 2 equivalents Transport sector emissions Energy Transport Agriculture Carbon emissions Historical from emissions the transport 80% sector reduction rose up to 2007, after which they fell until So far, developments 40% reduction target 90% reduction after 2010 look more or less stable. The drop was due to Reduction pathway many Figur factors, 8 for example the economic crisis which has depressed growth in transportation, as well as a number of 80 initiatives 40 to reduce CO 2 emissions per km. driven. These initiatives include i.a. reform of car taxation to favour more 35 environmentally friendly and energy-efficient cars, minimum requirements for biofuels, and the technological development of cars to comply with stricter CO 2 -EU regulations Mill. Tonnes CO 2 equivalents Today, 20 energy consumption by the transport sector accounts for 1/3 of the 50final energy consumption, and it 15 is based almost exclusively on fossil fuels. This is directly reflected in the CO 2 emissions from the transport sector. 10 Road transport is responsible 40 for by far the largest component 5 of transport energy 1990 consumption Passenger cars today account for about 57% of CO 2 emissions from road Historical emissions Projected emissio transport, 0 while vans and lorries account for around 37% % target, inclu and buses and motorcycles the final 6% (see fig. 5). Supply Businesses Households Mill. Tonnes CO 2 equivalents Figur Figur se selvstændig figu Mill. Tonnes CO2 equivalents Mill. Tonnes CO 2 equivalents Figur UDG Supply Businesses Households Passenger cars Lorries and vans Figur 5 16 Busses Other road transport Other transport Figure Energy sector emissions Figur 6 Figure 5. Transport sector emissions Note: Other transport emissions include railways, and domestic shipping and aviation. 12

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