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CLIMATE FRIENDLY ENERGY SOLUTIONS Recommendations for how small and large energy consumers can make a real effort to combat climate change – and how they can ensure more renewable energy Edition 2010

Ecological Council The environment of the future is created today

Det Økologiske Råd Fremtidens miljø skabes i


ISBN: 978-87-89843-07-0 Auditor: Søren Dyck-Madsen – Ecological Council 1st edition in Danish October 2010 Layout: Birgitte Fjord | Graphic design Print: Økotryk Photos: Front page Carlo Bergonzoni; p. 8 mammamaart; p. 9 Energisparebolig.dk; p. 10 Danish District Heating Association / Jørgen Schytte; p. 11 EnergiMidt; p. 12 Velux Solenergi; p. 13, top. Middelgrunden Wind Turbine Cooperative, p. 13, bottom. Samsø Havvind; p. 14 Århus Bugt Wind Turbine Cooperative, p. 15 Nordjysk Elhandel; p. 19 Gino Crescoli. The ‘market’ for climate-friendly energy solutions for energy consumers is dynamic, so the Ecological Council plans to regularly publish revised editions to keep this publication up to date with the most recent descriptions and recommendations.

Det Økologiske Råd Published by the Ecological Council Fremtidens miljø skabes i dag

The environment of the future is created today

Blegdamsvej 4 B DK - 2200 Kbh. N Tel.: +45 33 15 09 77 E-mail: info@ecocouncil.dk Web: www.ecocouncil.dk


CLIMATEFRIENDLY ENERGYSOLUTIONS

Ecological Council Danish version, October 2010 English tranlation, January 2011


Introduction

Climate problems Our climate problems become more and more visible. We see it almost every day in newspapers and on TV. Flooding and heat waves are natural consequences of a warmer climate, since warmer air contains more energy and more vapour, which causes still more serious disasters. We are aware that we are rapidly reaching a point where it may be too late to combat the problem completely. And we know that richer countries have caused the climate problem while poorer countries are affected hardest. For decades we have known about causes and effects relating to climate change. We have debated and tried to reach agreements for action among countries. We know this is urgent and we know that the sooner we act the cheaper it will be. And actually, we know that actions such as saving energy will be beneficial for our economy rather than detrimental to it. However, our politicians have not been capable of acting. They are discussing at length. Politicians often deal with domestic policy issues rather than taking global responsibility; they think in terms of national competitiveness and still see the world in a traditional division between rich and poor. If politicians do not find solutions, demonstrating will and courage, society must exert pressure on them. The business community must request the political adoption of standards and economic frameworks punishing energy wastage and rewarding climate-friendly behaviour. Citizens must act in their own right and support businesses, requesting that national and regional politicians address the issue now without awaiting global agreements. Furthermore it is crucial that businesses, cities, local authorities, and citizens actually follow existing climate policy guidelines. We must all be considerate and contribute at our level to a conversion of society so that the climate problem is combated bottom-up while top-down action is idle talk.

Conversion from fossil fuels to Renewable Energy (RE) in Denmark Consensus is growing rapidly on Denmark working to become independent from fossil fuels – and on the goal being reached around the year 2050. This consensus is dispersing from environmental organisations to energy organisations and industrial organisations – and is gaining ground in most of the political parties in Denmark. To implement this conversion it will be crucial to make use of all potential energy saving measures. The remaining energy need must be covered by renewable energy in the form of wind, solar, geothermal, biomass, tidal energy etc. The conversion will be much harder if we continue wasting energy to the extent we see today. If this conversion is to succeed it is important that politicians set up requirements and economic conditions making it cheaper for producers and consumers to contribute to the conversion process rather than counteract it. In this way we will strengthen Danish businesses, giving them a better home market for the development of energyefficient products. The Danish economy will be sounder when in the near future we do not need to import oil, coal and gas – and we secure a well-functioning energy


supply system in which we are not dependent on unstable regimes around the world. If this is to be a success consumers and businesses must make an active effort in their daily lives.

ZERO CARBON An increasing number of businesses and local authorities set up zero carbon targets, but not all of them succeed in setting their own actions towards zero carbon in a larger context. Instead, they often choose isolated measures with no or only a modest effect on total CO2 emissions. Therefore, in the actions suggested and discussed in this publication we focus not so much on zero carbon in regional areas, but rather on actions making sense and having an impact in an overall Danish and European context.

Additionality – a difficult requirement Initiatives for reducing emissions of greenhouse gases should preferably lead to reductions beyond what would have happened anyway – this is referred to as additional reductions. The climate and energy field is marked by major political frameworks for a country’s maximum emission of greenhouse gases and share of renewable energy. These frameworks must be supplemented by action – some actions derive from the State through legislation etc. and others from households, businesses and the public sector in the form of voluntary action. In principle, voluntary actions launched by local authorities, businesses and citizens will contribute to the State’s compliance with its obligations as they are agreed with the other EU Member States. In practice, however, there are large benefits to be gained for Danish society if we all work together on the conversion to renewable energy. The EU has introduced an emissions trading system for energy-intensive sectors within a politically adopted framework for maximum CO2 emissions. In principle, this capping of emissions and trading of emission allowances should reduce total CO2 emissions in the EU. However, at the moment this trading system barely works. Unused emission allowances are flooding the market and they can be used to comply with the reduction requirements of the future. This means that at the moment emissions are not reduced by the EU’s cap and trade system due to a weak political framework. Only actual actions such as energy savings or the substitution of fossil energy with more renewable energy have a direct effect. Furthermore, voluntary action will have a long-term positive effect. It will make it easier for the State to enact more ambitious political obligations, and it will demonstrate clear support for an actual conversion making Danish society less energyconsuming and independent from using fossil fuels.


It would also be possible to enhance direct impacts in the short term if the State would accept that privately established renewable energy sources without State subsidy would count beyond State obligations – in other words that the State did not relax its reduction requirements when private players make an extra effort without subsidies. Unfortunately, the present government will not permit such a scheme. Therefore it is important to make a joint effort. Of course, some players must contribute more than others, just like in any other joint effort. It is more important to focus on the total impact than for each individual to say: ”Now I’ve done my bit.” Therefore, the Danish Ecological Council recommends that local authorities, businesses, and consumers opt for the implementation of actions that have an overall real impact on either the climate or the establishment of renewable energy production. Such action can be used to improve our own CO2 accounts and contribute to the conversion of Denmark into a fossil-free society. And this should make us proud. On the following pages we discuss recommended actions with a real impact which may be launched by both small and large energy consumers.

Søren Dyck-Madsen, Ecological Council


RECOMMENDATIONS FOR CLIMATEFRIENDLY ENERGYSOLUTIONS

Save energy

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Substitute fossil fuels Replace oil and natural gas burners Connect to district heating

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Install more private RE Put solar cells on your roof Install solar heating Use biomass with care Buy shares in new wind turbine projects – not Government mandated Local authorities can invest in more RE Participate in investments for establishing RE – not Government mandated Use guarantees of origin from additional investment in RE

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Cancellation of allowances Cancellation of reduction credits from voluntary projects outside the UN Avoid cancellation of emission allowances in the EU emissions trading scheme

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Choose an electricity product with an impact Purchasing electricity with emission reduction Purchasing electricity with establishment of more RE Requirements for use of electricity products with guaranties of origin for RE

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Combined actions

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Outline of actions and recommended options

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Background

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1 Save energy

The best you can do is to not waste energy: energy will continue to be scarce and overuse will cause greenhouse gas emissions which again cause global warming.

SAVE ENERGY If we are to phase out fossil fuels we cannot waste energy to the extent we do today

Our daily needs can in almost all cases be met by considerably lower energy consumption without hampering comfort or efficiency. An energy renovation of your building may, apart from the energy savings, even lead to a considerably better indoor climate, health and comfort. A better indoor climate in schools may increase learning among pupils and cause less sick days among teachers. Businesses often achieve greater efficiency from their staff if they ensure a better indoor climate through energy improvement of their building. Electricity consumption can be reduced by only acquiring the necessary appliances, buying the most energy-efficient equipment (measured both during operation and on standby), and by turning appliances off when not in use. Manufacturing industries, office buildings and municipal workplaces have an interest in analysing their electricity consumption (if needed with assistance from energy companies). It often appears that considerable energy savings are attainable with a very modest investment. Energy consumption for transport is huge and can be reduced, for instance, by choosing an energy-efficient mode of transportation such as cycling, walking or public transportation. If a car is indispensable, choose an energy-efficient car, learn eco-driving, and co-drive whenever possible. If we are to phase out fossil fuels we cannot waste energy to the extent we do today.

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SAVE ENERGY


2 SUBSTITUTE FOSSIL FUELS

We still have around 300,000 oil burners in Denmark, Many of these are old and fit for replacement. Oil resources are scarce already today. It is a very climate-harmful form of heating and it may also be an expensive form of heating when the price of oil is expected to increase again. Requirements for heating in the future will therefore exclude oil burners. We recommend deciding upon an early final date for the legal installation of new oil burners for heating and a phasing out date for the use of oil burners – in 10-15 years allowing owners to write off existing oil burners. Danish natural gas is also coming to an end. DONG Energy, a state owned energy company, has already entered an agreement for the supply of Russian gas. Therefore it will be beneficial to decouple private buildings from the natural gas grid and transfer them to the district heating grid or to heat pumps. It will be better to use the remaining natural gas for the co-generation of electricity and heat, supplement the increasing share of wind energy, and for use in the heavy transport sector to prepare for the transition to biogas.

Energy improvements and heat pumps go hand in hand

Replace oil and natural gas burners By replacing oil and natural gas burners and installing heat pumps owners prepare their buildings for the future and benefit the climate and environment. You can even contribute to the conversion of the Danish energy sector to a higher rate of renewable energy by installing a small buffer tank for hot water, allowing you to turn off the heat pump when renewable electricity is scarce and turn it on when the wind is blowing and electricity is ample and cheap. The better choice is a ground source heat pump even if it appears more expensive at first sight. If you opt for an air source heat pump it is very important to find the best one. You can find a list of the best heat pumps here (in Danish): www.elsparefonden.dk/forbruger/produkter/indeklima/varmepumper

If it is not possible to connect to efficient district heating it is a good idea to opt for ground source heating – preferably with a buffer tank for hot water and solar heat

Remark that post-insulation and energy improvement of your building is very useful before you buy a heat pump. In this way you avoid to change into a too large and thus less efficient heat pump – or to risk that it may actually not be capable of heating your home on a cold winter day. And you should consider installing solar heating for hot water, as it fits nicely with a ground source heat pump. However, it may be even better to change into district heating, if possible. Read more below.

Connect to district heating Many natural gas heated buildings and some oil heated buildings are located close to an existing or planned district heating system. Many district heating systems are today supplied with waste heat from electricity production, heat from waste incineration, and renewable energy and therefore supply buildings with a relatively environment-friendly energy form.

SUBSTITUTE FOSSIL FUELS

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to supplement the system in the summer months


Connect to climatefriendly district heating, if possible

Furthermore, district heating systems serve to balance the growing production of renewable energy particularly from wind turbines and thereby they contribute to optimising the Danish energy system and phasing-out fossil fuels. Many local authorities are currently revising their heat plans in view of determining where it is most beneficial to extend the district heating grid and where it is better to use individual heat pump with heat buffer. If your building is located in or close to a district heating area with environmentfriendly energy supply, we suggest that you connect to the system.

District heating pipes at decentralized Danish district heating facility. In the back you can see two accumulation tanks used to store hot district heating water

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3 Install more private RE

Even if installation of more renewable energy in theory has no direct effect on emissions of greenhouse gases to the atmosphere due to the emissions trading system it still has an important impact in practice. Also, it has a long-term effect, as we described in the introduction. EU Member States furthermore must install more renewable energy due to the EU requirement for 20 % renewable energy by 2020. Voluntary installation makes it easier for Member States to attain their objectives. It will make it cheaper for all consumers just as voluntary installation will affect politicians into entering further-reaching agreements in the future. Also, installation of renewable energy is in most cases an interesting investment with a (modest) surplus interest.

Put solar cells on your roof Even in Denmark solar cells have become a fine investment for private building owners and the public sector due to their payment of energy taxes. In Denmark production of electricity from solar cells installed on your own building is subsidised since electricity produced over the year is counterbalanced in the building’s electricity consumption. In this way you avoid paying energy tax, grid fees and VAT etc. of your own solar cell electricity. This means that the investment in solar cells is returned over some 15 years while the cells last at least 25 - 30 years.

Solgården residence in the city of Kolding with solar cells on the roof

Also, the Danish market develops in a way that standard solutions have become more common causing solar cell prices to decrease. Solar cells furthermore have the benefit of producing electricity during the day where we need electricity most. And they produce most in the summer when it is useful to close down the large power plants since the demand for heat in this period is rather low. You may pool with your neighbours and others near you to get a concrete offer for installation of solar cells. This makes the investment per home cheaper.

Install solar heating It ������������������������������������������������������������������������������������������� is very often profitable to install solar heat, but for the project to have a real environment and climate effect you should check the location of the building in relation to the district heating grid. For society it is uneconomic if production of hot water and heat from a solar panel means that a heat surplus arises elsewhere in the grid that must be cooled off using electricity. This may be the case near power plants that also operate in the summer to produce electricity. It may also apply to waste incineration producing more heat for hot water in the summer months. Many district heating facilities based on biomass or natural gas may reduce or even stop operation in the summer and thus save fuel. So in such systems it may make

INSTALL MORE PRIVATE RE

CLIMATE-FRIENDLY ENERGY SOLUTIONS

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Solar heat in the summer house – clear as daylight


environmental sense to install solar panels on buildings. Do check out locally. In such district heating systems installation of a joint solar heat facility will make much more economic sense than individual installations; however it may be difficult to find the space while accessible and usable roof surfaces will almost always be available on buildings.

Installing solar heat on your summer house is an evident solution

Especially in summer house areas it makes sense, also financially, to install solar heat for heating of hot water. The use of summer houses goes fine hand in hand with use of solar heating. Furthermore, the environment and climate effect is particularly high since by far the major part of Danish summer houses use electricity for heating of hot water; thereby solar heat substitutes the use of electricity.

Use biomass with care A shift from fossil fuels to use of biomass will reduce quantities of fossil fuels. Naturally, the effect is larger where ’fossil-intensive’ energy is substituted. So if biomass should be the solution it should be used with care – and not in all district heating areas or areas that are perfectly suited for installation of an efficient ground source heat pump.

For maximum climate effect wood pellets should be used in power plants to substitute coal

You should also make sure that the smoke with health-hazardous particles from burning of biomass does not cause nuisances to neighbours. Biomass, furthermore, takes many forms. The most readily accessible forms of biomass such as wood pellets or chips can easily be fed into existing coal-fired power plants thus substituting coal with maximum climate effect. If these fractions of biomass are used to heat buildings the CO2 abatement effect is much poorer than when used in power plants. Therefore, only use biomass that cannot be collected or handled commercially for simple heating purpose; for instance wood collected in the woods or surplus wood from your own plot. If you live outside a district heating area and do not cause smoke nuisances to your neighbours, and you wish to heat with firewood, it is important to choose the most efficient and least polluting stove. We recommend masonry stoves or, second best, eco-labelled wood-burning stoves. For maximum climate effect wood pellets should be used in power plants to substitute coal.

Buy shares in new wind turbine projects – not Government mandated Now and again new RE projects are tendered in shares or in so-called wind turbine cooperation in which a large number of small private investors pool up capital to establish a large wind turbine. Buying shares in such projects means that more renewable energy will be established in Denmark at a faster pace. Ownership of up to six shares, corresponding to a production share of some 6,000 kWh, gives tax

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INSTALL MORE PRIVATE RE


relief in Denmark and thereby a particularly good economy for private investors – in excess of this limit revenues from electricity sale from the wind turbines are taxable. Often, it is a problem to identify a suitable location on land and organise project management. Therefore, it is useful for such wind turbine cooperations to cooperate, for instance, with local authorities and businesses in view of joint establishment of several wind turbines with different forms of ownership. This also applies to solar cell or solar panel cooperations. Major off shore wind turbine projects are tendered by the State and interested investors/energy companies submit tenders with price and subsidy terms. Such projects are in praxis mandated by the Government and will be implemented in any case by large investors. So additional financing from consumers does not affect whether or not the facility is established.

Wind turbines off Copenhagen were established in co-ownership between Middelgrundens Wind turbine cooperation and The Copenhagen Energy company

Local authorities can invest in more RE Local authorities can make an extra effort by investing, for instance, in establishment of wind turbines. In this case local authorities must establish a special municipally owned coop or limited company, which then raises loans beyond the normal loan facility of the local authority and implements the project. If a local authority can find suitable and preferably local sites for these wind turbines, it may enhance its environmental profile and probably also gain a profit from the investment. The local authority can use the guarantees of origin from the project to improve its CO2 accounts. (See section on guarantees of origin). The surplus generated in the municipal wind turbine company can be used for the same purposes as surplus in municipal energy supply companies: energy saving efforts, energy-efficiency of road lighting etc. The surplus cannot be used, for instance, for operating purposes in the local authority or for construction projects beyond the energy field unless a tax of 40 % or 60 % respectively is paid under the Danish Act on Electricity Supply. Local authorities may use and enhance their credibility towards citizens by inviting for cooperation on investment projects and thus strengthening efforts for installation of renewable energy on its territory or elsewhere. In addition, local authorities must designate suitable locations for new onshore wind turbines – which give them particularly fine options for exploitation of the sites by launching projects and keeping them open to other investors.

The Municipality of the island Samsø borrowed DKK 125 million to finance five of ten off shore windturbines in an area south of Samsø

INSTALL MORE PRIVATE RE

CLIMATE-FRIENDLY ENERGY SOLUTIONS

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Local authorities and local energy companies are working to establish additional wind turbines off the City of Århus

Participate in investments for establishing RE – not Government mandated For large (and medium-sized) businesses it is evident to opt for a climate effort in the form of investment in establishment of more renewable energy. Businesses can naturally also choose to donate money to a fund as stated under recommendation E, but this solution is far more expensive. Direct investment in renewable energy can thus generate a small, but significant income for the business, which other instruments such as cancellation of allowances or acquisition of guarantees of origin cannot do. At the same time the company can use the guarantees of origin created through RE production from such investment in its own CO2 accounts.

Businesses gain a profit from investing in a renewable energy facility and using guarantees of origin in their CO2 accounts

Many businesses wish to contribute with a climate effort with a real impact on renewable energy and to the conversion of the Danish energy sector from fossil fuels to renewable energy. It is a benefit in terms of administration and profiling for businesses to make such investments in cooperation with, for instance, a local authority and/or a wind turbine cooperation. If instead the business chooses to co-invest in politically decided tenders of off shore wind turbines it cannot in the same way tell a story about how it ensures more renewable energy, since those off shore wind turbines further to the Government mandating tender form are established anyway.

Use guarantees of origin from additional investment in RE Higher RE production (in Denmark) will phase out fossil fuels and thus reduce CO2 emissions per kWh in electricity produced in Denmark. Private investments in more renewable energy without State tender / Government mandating will contribute to faster establishment of renewable energy – and will cause issuance of guarantees of origin from this RE production. Businesses and local authorities can directly use guarantees of origin from own investments in RE to improve their own CO2 accounts. See section on guarantees of origin.

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4 Cancellation of allowances

By paying for reductions of greenhouse gas emissions either through reductions on the voluntary market for reduction credits or, more questionably, in the EU emission allowance system you can curb your personal emissions of greenhouse gases from part or all of your consumption of energy, transport, purchase of goods etc. You can cancel allowances through electricity companies, but also through organizations offering this service. On the voluntary market for reduction credits there are only a few Danish players, but a multitude of foreign players, and you should choose your service provider with care.

Cancellation of reduction credits from voluntary projects outside the UN Consumers wishing to curb those CO2 emissions that their daily activities cause should use the best projects on the voluntary market. By cancelling credits from the voluntary market (VERs – Voluntary Emission Reductions) you can make sure that your reductions do not lead to others in the rich countries avoiding reductions. This means that any reduction made on a voluntary basis will in principle be additional to the obligations already in place. However, not all projects have a good rating. American consumers are keen to use credits from saved CO2 emissions from projects preventing felling of rainforests. At first sight this seems like a good idea, since there are many good reasons to protect our rainforests. But when you take a closer look at the CO2 reduction there is a massive risk that felling activities just move to the next forest or the next country; neither is there any guarantee that felling will not be resumed after a few years. Therefore it is questionable whether CO2 reductions are actually realized. In the UN, work is ongoing to adopt rules to preserve forests, but – unfortunately – an international solution is not around the corner.

Purchase of voluntary credits from the project ’Shimba Hills’, exchanging old stoves with new stoves with half the consumption of wood, ensures CO2 emission reductions

Therefore it is better to use credits from reductions deriving from energy savings, general energy efficiency projects and from installation of renewable energy. In this context it is important to note that some developing countries have objectives for RE extension – this goes for China in particular. Investment in RE through voluntary reduction projects in China will therefore not give the desired additional effect, since China will meet their objectives themselves. Focus should therefore be on the poorest countries, such as African States, poor Island-States and some countries in Asia and the Caribbean where any reduction would be additional. Furthermore, reduction projects in these countries will often give side effects in the form of technology transfer, job creation and environmental improvements – issues that can be used in companies’ environmental reports. Voluntary reduction projects are certified in a large number of certification systems of varying credibility and different guarantee of reduction. Some certification systems are recommendable, since they do not, for instance, permit forest projects. These are Gold Standard with the involvement of WWF, Social Carbon and Plan Vivo. By contrast, we warn against certification through Chicago Climate Exchange, which is very common in the US, but which has a very poor reputation. In any event it is important to ask for a detailed project description and a guarantee that acquired reductions must take place elsewhere if the project should for some reason fail in its reduction efforts.

CANCELLATION OF ALLOWANCES

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CO2 reductions beyond the UN system typically in poor countries do not give the right to avoid reductions at home


Avoid cancellation of emission allowances in the EU emissions trading scheme Since the introduction of an emissions cap and trading scheme (ETS) for energyintensive industries in the EU in 2008 it has been possible to acquire emission allowances and cancel them, thus reducing emissions from industries in the EU.

The EU emissions trading scheme is suffering. Allowances are too cheap and too plentiful

In principle, this system works and cancellation of allowances means that emissions are reduced. However, in practice it is not so simple. Industries have been allocated rather many free allowances for the period 2008-12 (before the recession) and they have furthermore been given wide options for replacing their own reduction obligations by implementing reduction projects (CDM – Clean Development Mechanism) in developing countries, as the latter have no reduction obligations. These CDM projects far too often have implied reductions that would have been implemented in any event (especially in China), but they have still entitled project owners not to implement reductions in the rich countries. Such a system is harmful to climate. This means that the EU allowance market is presently flooded with unused allowances and unexploited possibilities of implementing CDM projects. At the same time, industries are entitled to transfer unused allowances and CDM projects from the period 2008-12 to the period 2013-2020. Therefore, EU industries covered by the emissions trading scheme will not feel the need for actual reductions before 2020 at the earliest. Evidently, this has caused a drop in the price of EU allowances and thereby the economic incentive for reducing emissions internally in the EU has decreased significantly. It also means that as a minimum there will be a time lag of some ten years from the time when consumers emit CO2 and cancel a corresponding allowance – up to the time when industry is actually forced to reduce its emissions. Worst case scenario is that political decisions about the cap for allowances around 2020 will take preceding cancellations of allowances into consideration, so there will be no actual effect from voluntary payments for cancellation of allowances today. It is therefore not a good idea today for local authorities, industries or citizens to pay for cancellation of CO2 allowances in the EU ETS since the effect is more than questionable. We suggest that you choose another instrument with a guaranteed reduction.

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CANCELLATION OF ALLOWANCES


5 Choose an electricity product with an impact

A number of electricity companies in Denmark sell electricity products where the supply of electricity is accompanied with an extra service liable to reduce CO2 emissions or ensure establishment of more renewable energy. Product types, minimum requirements and effects associated with the different products are discussed in ’Background’, section H.

Purchasing electricity with emission reduction This type of electricity product is based on the set-up that the purchase of electricity is linked to purchase and cancellation of allowances acquired either on the voluntary market or through the EU allowance market. By linking purchase of electricity and cancellation, the price of cancellation is put on the electricity bill. The cancellation may just as well be done independently from the purchase of electricity. In the above we have discussed pros and cons from the two types of cancellation. These pros and cons are naturally the same when allowance or credit cancellation is linked to the purchase of electricity. If you choose a climatefriendly measure in connection with your purchase of electricity, cancellation should take place on the voluntary market for credits. At least as long as the EU allowance market works as poorly as we see it today.

Purchasing electricity with establishment of more RE In the purchase of electricity with establishment of RE the consumer makes a donation ensuring that new RE should be installed with a production during its useful life corresponding to the purchase of electricity in question. This option is recommendable when the consumer does not wish himself to invest in new RE. It is not particularly fit for large consumers such as local authorities and major companies that have an economic advantage from investing themselves in establishment of more RE. If an electricity consumer chooses this solution he or she contributes to shifting Denmark from fossil fuels to renewable energy – and thus to speed up (or surpass) the extension of 30 % renewable energy that the Danish State must implement up to 2020. Furthermore, the electricity consumer improves the design of the Danish energy system and its share of RE making it easier for Denmark to take on further RE objectives after 2020 and contributing to Denmark being completely independent from fossil fuels before 2050. In theory the electricity consumer does not contribute to a reduction of total CO2 emissions since the magnitude of the emissions up to 2020 has been established through the adoption of total emissions in the EU in 2020. But since the emissions trading scheme is not working well (see above section on this issue) it will mean in practice that any extra or early investment in renewable energy will substitute fossil fuels and thereby contribute to a real reduction of CO2 emissions.

CHOOSE AN ELECTRICITY PRODUCT WITH AN IMPACT

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Purchase of electricity with reduction of CO2 emissions should be based on purchase of credits from projects outside the UN and EU systems


Investments in purchase of electricity with establishment of RE can cause issuance of guarantees of origin that donating consumers can acquire and thus improve their CO2 accounts. See below section on this issue. Choosing a foundation set-up rather than a separate legal unit Typically, payments for more renewable energy can be made to electricity companies using either a separate legal unit or a non-profit or commercial foundation for investing in renewable energy. A non-profit foundation is by far the best solution since such foundation is protected against funds being involved in, for instance, a bankruptcy. Also, a non-profit foundation will have a separate board of directors, it can only use funds according to the statutes – and it can give tax deductions according to the Danish tax deductible gift rules for non-profit organisations recognised as beneficial for society, where payments between DKK 1 500 and DKK 15,000 per year can be deducted in the tax return.

Requirements for use of electricity products with guarantees of origin for RE When electricity is produced at renewable energy facilities the owner of the facility can acquire so-called guarantees of origin documenting that a certain amount of electricity has been produced at the renewable energy facility. These guarantees of origin can be sold and bought on a market where the supply of guarantees of origin is very large, but the demand very small. Therefore they are cheap. Acquisition and cancellation of guarantees of origin is attractive to large energy consumers having entered agreements on reduction of CO2 emissions: it is permitted to calculate your CO2 emissions as if your industry buys electricity directly from the producer having issued the guarantee of origin. However, industries normally only obtain to have their own CO2 accounts look nicer while the accounts of all others get a little worse; total amounts of CO2 and RE are exactly the same. Guarantees of origin have been available on the market for some time now and they are sold as so-called ’green power’ that normally comes from old hydropower plants or windmills. The purchase of such guarantees of origin has no real effect – neither on the climate nor on renewable energy. Such products should be avoided. In addition, some electricity companies offer guarantees of origin from renewable energy facilities that the Danish State has mandated in a tendering process. Here, the State initiates establishment of more RE, while the electricity company is merely the contractor. Industries purchasing these guarantees of origin have done nothing directly for climate or renewable energy – and it is fair to say that they ‘strut in borrowed plumes’. In State tenders it should not be possible to sell and use guarantees of origin. Products with guarantees of origin of up to two years of age may, however, gain an effect in the form of an actual price formation due to much lower supply, but they will only obtain financial support for the renewable energy facility in question for two years. This will probably only have limited effect on the financial calculation behind the decision of establishing more renewable energy.

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DKK 1 = EUR 0.134

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CHOOSE AN ELECTRICITY PRODUCT WITH AN IMPACT


The case is different when private consumers, local authorities or companies have invested on a voluntary basis in establishment of more renewable energy without State tender. Here, consumers have contributed to higher production of renewable energy and thereby to the phase-out of fossil energy-based production. They have (in the case of establishment in Denmark) also contributed to lower CCO2 content totally from electricity production per consumed kWh. In such cases guarantees of origin can also be issued, but since the energy consumer has made an active action/ investment that has an actual effect on the content of CO2 per kWh it is fair that the investing energy consumer uses the guarantees of origin for reduction of CO2 in his own accounts. The CO2 reduction to which the company has contributed through investments will thereby only benefit the company itself. We recommend companies instead of acquiring ’bad’ guarantees of origin on a surplus market to use the extra funds they are willing to spend on the purpose to implement energy savings and establish more renewable energy – either directly or through donation to a foundation establishing more renewable energy. Investments in RE may be financially sound and it gives the option to issue yourself those guarantees of origin that the energy consumers must use in order to reduce CO2 emissions in their accounts.

CHOOSE AN ELECTRICITY PRODUCT WITH AN IMPACT

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Avoid guarantees of origin from old wind and hydropower facilities and guarantees created by the State through State tenders. They have no real climate effect


6 Combined actions

Combined actions Some electricity trading companies offer packages of solutions where both purchase of electricity and measures towards energy savings are ‘bundled’. Typically the ’package’ contains:

Excess price of electricity through package solutions should be transparent and earmarked to RE investments

> Purchase of electricity from the company > A special effort for energy savings from the electricity company – in addition to what all grid companies are already obliged to in Denmark through State agreements. This may be procurement of energy saving advising, review of the industry’s production in view of identifying energy savings – or assistance to a behaviour campaign > Excess price for purchase of guarantees of origin from the electricity company’s already established renewable energy production – with a promise that the excess amount is used to finance future renewable energy. Typically there is no clear division of which amount is used for which part of the package. The package solution may be expedient and easy to buy especially for large companies and other major electricity customers. This is particularly the case since energy savings can typically finance the additional payment for the guarantees of origin and thus be cost-neutral for the consumer. Some electricity companies claim that the excess price of the guarantees of origin is used to give lower bids on State tenders. However, it is not substantiated that the excess price has an effect on establishment of more of RE. We recommend consumers entering such agreement to request that the excess price of electricity is more transparent and that funds are earmarked and transferred to a separate legal unit or foundation with the purpose of establishing renewable energy. In this way you are sure that your excess payments are actually used for more renewable energy production. We advise against products containing guarantees of origin from old RE facilities and from establishment of RE through State tenders.

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COMBINED ACTIONS


7 Outline of actions and recommended options

CONSUMER TYPE Private Local authorities ACTION consumers and State

Small businesses

Medium-sized businesses

Large businesses

Saving energy

x

x

x

x

x

Replacing oil and gas burners

x

x

x

x

x

Connecting to district heating

x

x

x

x

x

Solar cells on roof

x

x

(x)

(x)

Solar heat (1)

(x)

(x)

x

x

Wind turbine shares

x

Biomass (2)

(x)

Municipal company RE

Investment in RE

x x

x (3)

Voluntary allowances

x

x

x

Electricity with voluntary allowances

x

x

x

Electricity with payment to RE

x

x

Electricity with good GoOs (4)

(x)

(x)

Combinations (5)

(x)

x

(x) (3) x

(1) Solar heat is only recommendable in district heating areas if it is possible to discontinue production of surplus heat when heat is produced from solar panels. District heating areas differ much among them and the effect from the measure must be assessed locally. (2) Biomass (fire wood, wood pellets etc.) should be used at large efficient facilities with heat and power production. If biomass is used in small facilities you should avoid smoke nuisances to neighbours and use biomass that cannot be used directly and commercially at large plants. (3) For medium-sized companies direct own investment in more RE may present an economic advantage instead of donating money to a foundation making the investment in RE. (4) Today it has no effect to purchase guarantees of origin (GoOs) from old RE or through State tenders. If the guarantees of origin are issued further to a voluntary investment in RE, they can be used in your CO2 accounts. (5) Before entering agreements on combinations you should make sure that any excess price of electricity is placed in a separate legal unit or – even better – in a foundation established with the purpose of establishing more renewable energy.

OUTLINE

(x)

CLIMATE-FRIENDLY ENERGY SOLUTIONS

19

x


Background

A How to change electricity product – and electricity trader Unfortunately, a search on the Danish electricity price board for electricity with climate choice is not logic

It is relatively easy to change electricity trader if you wish to buy an electricity product with a more positive climate effect or establishment of more renewable energy. On the websites of the electricity traders there is an easy guide to be followed to change energy trader or electricity product. If you fill in the table with registration of yourself and your meter, your new electricity trader handles the rest. You may need to read your meter one more time.

B Electricity price board The Danish electricity price board (Elpristavlen) was originally established to inform consumers about what price they should pay for electricity in the light of their consumption pattern. The electricity price board has a module where you can search for electricity companies supplying electricity products with a positive climate effect or using renewable energy. All you need to do is to enter your consumption and your electricity trader. Then you see an outline with a blue field on the right hand side. Select ’Klimavalg’ (climate choice).You will now see the electricity products with one or more of the searched features. Unfortunately the search is not logic since all electricity products complying with just one of the search criteria appear if you search for a combination of several criteria. It would be more logic that the more criteria you enter the fewer products you would have to choose between. This is not the case and this makes the electricity price board difficult to use in direct searches. However, you can still find electricity products holding an element of ’Strøm med klimavalg’ (Electricity with climate choice), but you must check each product yourself to find out how many criteria the product meets and how large a CO2 effect the product has in the real world.

C Limits to Kyoto protocol and EU emissions trading scheme Most consumers wish to make a special effort for either the climate issue and/or for establishment of more renewable energy. Reductions of greenhouse gas emissions, however, are covered by political decisions in the Kyoto protocol in which the rich countries must reduce by some 5 % in 2012 compared with 1990. The old EU-15 Member States have an obligation to reduce by 8 %, and Denmark must reduce by 21 %. The EU has adopted the so-called emissions trading scheme where energy-intensive industries as a whole are under the obligation to reduce their emissions. For this purpose they have been granted free emission allowances up to 2012, which they must render to the countries corresponding to those greenhouse gas emissions that the industry causes. If the industry reduces more than planned they hold surplus allowances that they can sell to other industries and vice versa. If the industry does not wish to reduce its own emissions it can implement reduction efforts in developing countries releasing it from the obligation to reduce emissions itself.

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BACKGROUND


Many of these reduction projects abroad would, however, have been implemented even without payment from Western industries, while the reduction can still be avoided in the rich countries. In this way the system causes harmful effects on the climate. In theory it means that it is difficult to see where it is possible to make the extra effort for the climate in addition to what countries and industries have already been bound to. Also, recent years’ recession has meant that far too many emission allowances are available so there is no actual reduction pressure on countries or industries until we come closer to 2020 due to the EU objective of a 20 % reduction in 2020. This being said, measures to reduce emissions, for instance through energy savings or establishment of more renewable energy substituting fossil fuels, will still have an impact. In this way we ensure that the Danish and European energy system becomes more fit for tackling the reduction requirements of the future – thus making it easier for politicians to lower the future emission ceiling as needed.

D Interplay between energy savings and EU emissions trading scheme If more energy savings are realised in the fields of electricity and district heating there will in principle be more emission allowances available – which may be used to emit more greenhouse gases elsewhere. Therefore the emissions trading scheme only works if there is shortage of allowances. This is not the case today due to poor EU reduction targets, too large allocation of emission allowances and too ample room for making (questionable) reductions in developing countries instead of in the EU. Furthermore, savings mean in principle more emission allowances. In this case the price of these allowances – and thereby also the price of energy – drops deteriorating the profitability of energy saving efforts. Therefore, the emissions trading scheme does not work today as an incentive for CO2 reductions. By contrast, it becomes easier politically to decide to lower the ceiling for the next period when CO2 reductions have been realised in this allowance period. A sharpening of the EU commitment regarding emission reductions from present 20 % to 30 % will be an incentive for CO2 reductions. However, this should be designed in a way that the further 10 % cannot just be met by using the unused allowances, the unused CDM project opportunities or by loosening the rules for inclusion of reductions from changes in forestry. If a tightening of EU objectives is to have a beneficial effect on conversion of the European energy system, and thus also on the future competitiveness of the EU, reduction requirements must be real. Already today the surplus of allowances is so large that a political adjustment is called for in order for the system to work. Many companies and private households can already today profit from investing in energy efficiency despite the lack of incentives from the emissions trading scheme. Also, there are further economic advantages associated with improved energy efficiency, for example through renovation of buildings that are better and healthier to live and work in. In addition, reductions of energy consumption through energy savings create many local jobs in the EU and much money is saved since fewer fossil fuels must be imported. This creates more jobs in the EU, improves the balance of payments and decreases the dependency on foreign fossil fuels.

BACKGROUND

CLIMATE-FRIENDLY ENERGY SOLUTIONS

21

The emissions trading scheme does not work today as an incentive for CO2 reduction


So even if energy savings within the emissions trading scheme do not lead to a better climate in theory, in practice there are many reasons to implement savings. So we urge politicians to tighten the cap and the functioning of the EU emissions trading scheme giving better and stronger incentives for energy savings – since this is the easiest and cheapest way to tackle the climate issue.

E EU Directive on 20 % renewable energy Energy savings create jobs, improve the balance of payments and reduce dependency on fossil fuels

The EU has adopted an objective of 20 % of total EU energy consumption deriving from renewable energy in 2020. This obligation to use renewable energy has been set up for each EU Member State according to its potential and capability. This means that Denmark is obliged in 2020 to produce 30 % of Danish consumption of energy from renewable energy sources. In practice it is expected in 2020 that close to 50 % of Danish electricity is produced from renewable energy, primarily wind turbines, while the share of RE in transport is expected to be much lower. The Danish State is under the obligation to ensure that the 30 % is met through a combination of energy savings and extension of renewable energy facilities. Any non-State decision on investment in renewable energy counts in meeting the EU requirements. Therefore private investments in more renewable energy cannot be seen as directly additional (i.e. on top of State obligations) before and if they exceed 30 % in 2020. And even in this case the State can ‘sell’ excess renewable energy production to countries not attaining their objectives. On the other hand the State is not necessarily the one ensuring full implementation of EU requirements through tendering of off shore wind turbines. Particularly not since off shore wind farms are a more expensive way to produce the necessary renewable energy compared, for instance, with onshore wind turbines. Actually, some of the obligation is expected to be met on a voluntary basis by the private sector. If you make an investment in renewable energy you can rightly say that you contribute to: > > > >

Earlier compliance with the Danish obligation of 30 % renewable energy in 2020 Cheaper compliance with the 30 % RE requirement for all consumers Danish conversion from fossil fuels to renewable energy Easier compliance for Denmark with further objectives from the EU to the share of renewable energy, e.g. in 2030 – and thereby easier access for politicians to take upon us a larger greenhouse gas reduction obligation.

Unfortunately the Danish government will not allow today that private investments in unsubsidized renewable energy are left out of the accounts for compliance with Danish obligations. However, this option is open to the government under the EU RE directive. Should the government change its position this would open up for private households, businesses and local authorities to say that they have actually made a direct additional difference for ensuring more renewable energy through investments in RE without State subsidy.

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BACKGROUND


F Effect from State tenders for RE Some of the Danish extension with renewable energy comes from State tenders and subsidies for off shore wind turbine projects. In this way the State mandates establishment of the requested volume of renewable energy even if the price of electricity is unknown. The establishment of off shore wind farms is mainly ensured by large investors, typically the major energy companies in Denmark and the EU, so these investors cannot be said to make an additional action through their commitment. This means that companies ’and other private players’ co-financing either in the form of co-investment or payment of a (small) excess price of electricity from present and future off shore wind farms cannot be documented as having an effect on the extension of renewable energy. It also means that the guarantees of origin, which may be issued from electricity production from these facilities, should remain the property of the State. They should not be the property of the investor and he should not be able subsequently to sell them to companies improving their CO2 accounts without any own efforts done so that all other consumers get poorer CO2 accounts. State efforts should be of benefit to us all thus resulting in a lower CO2 per kWh for all consumers.

G EU guarantees of origin for renewable energy When the EU adopted the directive regarding 20 % renewable energy in 2020 the socalled guarantees of origin (GoO’s) for production of renewable energy were included. A certificate is issued documenting that a certain quantity of electricity in the grid has been produced at renewable energy facilities. The idea was – until short before presentation of the final proposal in the EU Commission – that guarantees of origin were to form the cornerstone of a trading scheme very similar to the EU emissions trading scheme for greenhouse gas emissions. Electricity traders were to document through purchase and submission of guarantees of origin corresponding to 20 % of electricity sale that 20 % of the electricity sold derived from renewable energy sources – this as a means to comply with the EU 20 % renewable energy objective. The final directive established national RE obligations for all countries in a way that the EU as a whole can attain 20 % by 2020. Denmark’s obligation is set at 30 %. With this change the demand for guarantees of origin vanished so that today we have a ’market’ where guarantees are issued as a documentation for electricity production through renewable energy, but where the incentive for buying guarantees of origin is non-existing. This means that supply of guarantees of origin far exceeds demand – the latter being merely left to voluntary initiatives. There is a large gap between actual demand and actual voluntary supply of guarantees of origin. It also means that cancellation of some of the many guarantees of origin has absolutely no effect in the real world. And it means that the price of cancellation by and large only covers costs of issuing and cancelling guarantees. As long as the system works without an actual ‘forced purchase’ matching the supply we cannot recommend the use of electricity products based on GoO’s - that used to be extensively offered as ’Green power’.

BACKGROUND

CLIMATE-FRIENDLY ENERGY SOLUTIONS

23

Guarantees of origin from State tenders for RE / Government mandated RE should benefit all consumers


Only guarantees of origin deriving from own investments in RE should be included in industries’ and local authorities’ CO2 accounts

Some electricity products have been and still are unjustly recommended as climatefriendly despite their lack of effect. However, it is possible that a demand for guarantees of origin from renewable energy facilities not older than two years of age – as described in the Danish ’Declaration of Electricity with Climate Impact’ – may create a deficiency and thereby an actual price. If this occurs there will be a minor economic incentive for establishing more RE. Finally, we find it fair that investing consumers include CO2 reductions in their internal CO2 accounts, if the guarantees of origin issued from electricity production derive from consumers ’active investment in more renewable energy facilities.

H Danish ’Declaration of Electricity with Climate Impact’ In order to clean up the market for misleading electricity products a committee established by the Danish Minister for Climate and Energy has drawn up a so-called ’Declaration’ setting up a number of minimum requirements for electricity products and a number of effect descriptions and documentation requirements. Six organizations have contributed: Danish Energy Agency, Danish Energy Association, Energinet.dk, Danish Consumer Council, Danish Society for Nature Conservation, and the Danish Ecological Council. The declaration has succeeded in eliminating a number of the worst misleading products and a number of Danish electricity traders now offer new electricity products that are far better than before and have an actual positive effect on the climate, alternatively establishment of more renewable energy. Find the Danish ’Declaration of Electricity with Climate Impact’ (in Danish) here: www.elpristavlen.dk/Artikler/~/ media/Filer_til_nyheder/Deklarering_af_stroem_med_klimavalg101209.pdf. ashx The Declaration covers three types of electricity products (see also section 5): 1) Electricity with cancellation of allowances or credits – recommending use of the voluntary market 2) Electricity with payment to more renewable energy where payments in a non- profit foundation are recommended. Guarantees of origin can thus be used in the purchaser’s own CO2-accounts. 3) Electricity with cancellation of guarantees of origin from old RE facilities and through State tender is generally not recommended. If you still choose a product using cancellation of GoO’s you should choose to cancel these from facilities not older than two years of age issued for production from RE without State tender.

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BACKGROUND


Climate-Friendly Energy Solutions Recommendations for small and large energy consumers about how to make a real positive impact for the climate and how to ensure more renewable energy in the future.

Is it a good idea for a company or a local authority to invest in establishment of more renewable energy? Which electricity product should we choose if we wish to make a positive effort for the climate cause? Or should we opt for CO2 reductions through the voluntary market for CO2 reduction credits? More and more companies and local authorities set up a target of becoming CO2 neutral. In the process many players find it difficult to choose the right instruments with a real effect on the climate or ensuring more renewable energy. There is a risk that too often isolated actions are chosen that have only little or no effect on total CO2 emissions. In this publication the Danish Ecological Council presents recommendations for how to implement actions among small and large energy consumers that overall have a real positive effect on the climate or ensuring establishment of renewable energy facilities. By choosing the right instruments companies and local authorities can improve their own CO2 accounts and at the same time contribute to converting the Danish energy system to a fully renewable energy based system. In addition to concrete actions you can find background information about the interplay between, for example, energy savings and the EU emissions trading scheme. And you can read why purchase of guarantees of origin from old hydropower or off shore wind farms under State tenders has no real CO2 effect.

Climate Friendly Energy Solutions  

Recommendations for wow small and large energy consumers can make a real effort to combat climate change – and how they can ensure more rene...

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