evaluation of low-carbon development policy … development policy implementation in the ... part of...

Part-financed by the European Union

Investitionsbank Schleswig-Holstein

2014

Evaluation of Low-Carbon Development policy implementation in the Baltic Sea Region

2014

JANIS BRIZGA, DACE AUZIŅA, SMARTGREEN, LTD



The Client: Ministry of Environment and regional development Contract Nr. 77; 15/09/2014 Report: “Evaluation of Low-Carbon Development policy implementation in the Baltic Sea Region” Authors: Dr.geogr. Jānis Brizga Dace Auziņa Contractor: “Smartgreen”, Ltd. Kuldīgas str. 24-3 Rīga, LV-1007 Latvia e-pasts: [email protected]

mailto:[email protected]



Contents

Contents ..................................................................................................................................... 3

1 Introduction ....................................................................................................................... 5

2 Diversity of interpretations ................................................................................................ 6

2.1 Circular Economy ......................................................................................................... 9

2.2 Green or Low-carbon growth .................................................................................... 10

2.3 Local Economy ........................................................................................................... 10

2.4 Green Jobs ................................................................................................................. 10

2.5 Sustainable Consumption and Production (SCP) ...................................................... 11

3 GHG emissions, sinks and impacts in the BSR ................................................................. 12

3.1 GHG emissions ........................................................................................................... 12

3.2 Carbon sinks .............................................................................................................. 24

3.3 Climate change impacts ............................................................................................ 25

4 Policy approach ................................................................................................................ 29

4.1 EU policy .................................................................................................................... 29

4.2 Scenarios.................................................................................................................... 35

4.3 National characteristics and policies ......................................................................... 37

4.3.1 Finland ................................................................................................................ 39

4.3.2 Sweden ............................................................................................................... 39

4.3.3 Denmark ............................................................................................................. 40

4.3.4 Germany ............................................................................................................. 41

4.3.5 Estonia ................................................................................................................ 42

4.3.6 Latvia .................................................................................................................. 43

4.3.7 Lithuania ............................................................................................................. 44

4.3.8 Poland................................................................................................................. 45

5 Stakeholder engagement ................................................................................................. 46



6 Best practice examples .................................................................................................... 51

6.1 Agriculture in Denmark ............................................................................................. 51

6.2 Electricity certificates ................................................................................................ 53

6.3 Territorial planning for Wind farm development ..................................................... 54

6.4 Combined of heat and power.................................................................................... 55

6.5 Local initiatives .......................................................................................................... 56

7 Transition to LCD in the Baltic Sea Region ....................................................................... 58

7.1 Co-benefits and trade-offs ........................................................................................ 58

7.2 Governance approach ............................................................................................... 61

7.3 Strategy formulation ................................................................................................. 62

7.4 Investment ................................................................................................................. 66

7.5 Action plan ................................................................................................................. 68

Conclusions .............................................................................................................................. 70

References ................................................................................................................................ 71



1 Introduction

Low-carbon development (LCD) is a much used term in development circles today. As such,

governments are actively exploring how to decouple economic growth from carbon

emissions to achieve their growth targets through a low-carbon trajectory or even through a

‘carbon neutral’ pathway. One of the most compelling reasons for this is the fact that

potential impacts of climate change are predicted to be severe, for both industrialized and

developing countries, and that investing today in decreasing emissions and reduce the risk

of the most catastrophic impacts is much more productive and responsible than paying for

climate change damage in the future (Stern, 2007). The next few years will be critical for

enacting an international climate mitigation agreements as well as regional and national

strategies.

This study provides an analysis of low-carbon development options for mitigating

greenhouse gas (GHG) emissions in the Baltic Sea Region (Fig. 1.). Study was done by

Smartgreen, Ltd. and commissioned by the Ministry of

Environmental Protection and Regional Development as

part of the project “Low carbon emission policy designing

and implementing” (BALLOON - BalticLowCarbon)

supported by the EU Strategy for the Baltic Sea Region

Seed money Facility.

The Baltic Sea Region (BSR) is highly industrialized and

populated - around 85 million people live in the Baltic Sea

catchment area. That makes the BSR highly vulnerable to

the climate change, e.g. sea level rise would affect at least

16 million people live on the coast.

This study seeks to identify and evaluate LCD policy design and implementation in the BSR

and look at greenhouse gas emission reduction options that can be implemented in the BSR.

Specific objectives include the development of LCD model - scheme, which could be used as

common understanding of the LCD approach and evaluation of low carbon policy

implementation progress in EU countries, noting main gaps and possible solutions (based on

policy review).

Fig.1. Baltic Sea Region – Estonia, Latvia, Lithuania, Poland, Germany, Denmark, Sweden and Finland.



2 Diversity of interpretations

Low-carbon development is complexity and interdisciplinary term linking many aspects such

as economy, society, politics, legislation and culture, which decide the complexity of LCD

pattern selection (Dou, Xie, & Ye, 2013). Thus, LCD in a way is similar to Sustainable

development concept and it’s perceived that reducing GHG emissions is critical not only to

address climate change but also to facilitate economic development, social security and

environmental sustainability. Fifth IPCC report specifically stresses this link stating that

unmitigated climate change would create increasing risks to economic growth, ecological

integrity and social security, especially emphasizing possible food and water shortage,

increased poverty and displacement of people and coastal flooding (IPCC, 2014).

The same IPCC report demonstrates that mitigation scenarios that are likely to limit

warming to below 2°C through the 21st century relative to pre-industrial levels is still

feasible and entail losses in global consumption growth by 0.06% over the century relative

to annualized consumption growth in the baseline that is between 1.6% and 3% per year.

Therefore reducing GHG emissions and achieving socio-economic development are not

mutually exclusive and costs of mitigation are much lower than costs of adaptation. The

report also states that mitigation efforts and associated cost are expected to vary across

countries, but the majority of mitigation efforts takes place in countries with the highest

future GHG emissions. However, as we postpone the climate actions, window of

opportunities are closing, and we are left with the limited choice of measures and higher

costs of mitigation.

Following on the discussion about economic growth Mulugetta and Urban (2010) has

divided LCD according to the difference in the growth patterns (high growth or low growth)

and the production & consumption-related policies and strategies (demand side or supply

side) into four categories:

low carbon growth (high growth and supply side),

low carbon lifestyle (high growth and demand side),

coexistence with nature (demand side and low growth),

equilibrium economy (low growth and supply side).

Low carbon growth tends to focus on the production side of the economy in producing

goods and services with lower carbon emissions, aiming to decouple economic growth from

GHG emissions, hence involving interventions in technological innovation and sectoral

change. Low carbon lifestyles policy pathway assumes that decoupling can be ensured by



changes in lifestyles, but also presumes that the supportive policies are in place to deliver

better public services and market conditions for ‘green’ products. Not all options in this

category are valid for Baltic States and Poland, given that the per capita consumption is still

much below EU average, and public policy tends to be designed to achieve the opposite.

The equilibrium economy focuses on the production side of the economy with a view to

invest in social development and wellbeing rather than growth. Part of the equilibrium

economy thinking is that it serves the function of a transitional pathway to a high growth

economy where the social and economic infrastructures need to be built first. The co-

existence with nature category focuses on the consumption-side of the economy, which

suggests that policy is geared towards low growth trajectory and uses a combination of

technological and behavioral change to achieve low carbon development.

The LCD options presented are not mutually exclusive, and in reality country policy makers

would choose to deploy a mix of production and consumption-oriented measures, as well as

economy and wellbeing measures. The key measures for LCD in this context are energy

efficiency, better use of low-carbon energy and sustainable lifestyles, as well as improving

carbon sinks. However, Skea and Nishioka (2008) also emphasizes that a low-carbon society

should take actions that are compatible with the principles of sustainable development,

ensuring that the development needs of all groups within society are met.

Additionally to sustainable development principles many scholars have identified other

important principles of LCD bringing together green economics and environmental and

social sustainability perspectives (see Table 1) (Jackson, 2009; Milani, 2000; Sen, 1999).

These principles are intended to be broad so as to incite further discussion and exploration

regarding perceived tensions between social, economic, and environmental perspectives.

Table 1: Six Principles of a LCD

Principle Description




Redefinition of what ‘good’ development means

Redefine the primary objective of an economic system (e.g., new objectives may include realizing people’s capabilities, providing people with the opportunity to flourish, etc.)

Shift attention away from traditional economic concepts (e.g., material consumption, income, economic growth, material standards of living, etc.)

Initiate indirect impacts in the areas of measurement of economic performance, work times, lifestyles and consumption patterns or layout of cities (i.e., these are secondary impacts of the redefinition of the primary objective of an economic system)

A more realistic conception of human nature

Cultivate the aspects of human nature that lead to socially and environmentally benign values and behaviors (e.g., aim for attitudinal and behavioral change away from conspicuous material consumption)

Move away from a reductionist perspective that views people, their behavior, and their values/desires as purely economic

Stay within ‘ecological limits’ (i.e., economic scale)

Keep the consumption of resources in line with resources’ natural regeneration (e.g. forests) or generation through investment (e.g. windmills)

Reinvest the proceeds from the consumption of non-renewable resources into renewable substitutes

Keep the production of waste within waste-assimilation capacity (e.g., this can be achieved through reduction of scale (degrowth), technological innovation, changes in management, etc.)

Maintain strong links between real economy and the ‘real real’ economy of natural ecosystems

Address social concerns Produce a range of accessible social goods

Prevent severe inequalities and other disruptive social consequences

Strive for a fair and equitable distribution of benefits, costs and risks

Remove barriers so that people can lead healthy and fulfilling lives (e.g., enable meaningful participation of all people in economic life and the institutions that govern it)




Resilient Withstand and adapt to stresses and shocks without significant crises and shortages

Increase resilience through a range of means (e.g., decentralization, diversification, conservation of natural assets, application of function-specific governance arrangements such as nonmarket regimes, risk prevention, self-sufficiency, technological innovation, limitation of the scale of economic units, limitation of the scale of financial economy, etc.)

Appreciate diversity and respect of human rights and the rights of those who do not have a voice (e.g., future generations, other species, ecosystems)

Address issues outside of the traditional economic paradigm (e.g., working conditions, fairness of pay, outcomes of development decisions, etc.)

LCD in different categories is very diverse in the direction, goals, priorities and means of

development, because the development concepts and strategies differ leading to the

diverse patterns of LCD practices. Of course, no matter what pattern is practiced, the goal is

to promote comprehensive LCD of the socio-economy oriented to sustainable development.

However, in literature, there exist several concepts related to LCD, demonstrating how it is

interrelated with a range of other types of economies and growth models, and worldviews.

2.1 Circular Economy

A circular economy reduces the consumption of resources and the generation of wastes by

reusing and recycling wastes throughout the production, circulation and consumption

processes. Investing in resource efficient technologies and waste management/recycling

within a Green Economy is expected to improve resource efficiency and waste management

(Fulai, 2010). Adopting this approach could save European manufacturers $630bn a year by

2025 (Ellen McArthur Foundation, 2012). The literature discusses a number of challenges to

achieving the circular economy. These include challenges related to practical issues of

implementation such as technical, economic and infrastructure problems; challenges to do

with behavioral change; and finally fundamental challenges like limitations to recycling and

growth of the economy based on material use that can be understood from the second law

of thermodynamics (Prendeville, Sanders, Sherry, & Costa, 2014).



2.2 Green or Low-carbon growth

Green growth means fostering economic growth and development while ensuring that

natural assets continue to provide the resources and environmental services on which our

well-being relies (OECD, 2011). This concept is based on the investment and innovation

which should underpin sustained growth and give rise to new economic opportunities.

Green growth concept is developed and supported by several intergovernmental

institutions, e.g. OECD (2011); UNEP in 2008 led the Green Economy Initiative; World Bank

in 2012 published its report "Inclusive Green Growth: The Pathway to Sustainable

Development" (Fay, 2012).

Low-carbon growth is based on the assumption that there is no fundamental conflict

between infinite economic growth and biophysical limits of the planet earth. This green

growth agenda is challenged from two sides: on the one side, neoclassical economists tend

to perceive pollution abatement as a cost and see little economic rationale for unilateral

action to protect the global commons (Sinn, 2008). On the other side, the de-growth

literature raises doubts about the technological optimism of the green growth agenda with

the arguments that backstop-technologies are not always available, that one-dimensional

solutions might create new problems in other areas, and that the rebound effect will limit

the success of resource efficiency strategies (Jackson, 2009; Kallis, Kerschner, & Martinez-

Alier, 2012; Victor, 2012).

2.3 Local Economy

A local economy fosters community networks, social movements, and peer production (i.e.,

the sharing of ideas within an open, non-proprietary, cooperative framework) through the

establishment and support of community enterprises (Schor & White, 2010). It focuses on

health and wellbeing, and enables discussions surrounding economies to include not only

the typical actors (e.g., non-governmental organizations, researchers, policy makers, etc.),

but also those who have not traditionally been involved in policy debates (e.g., people

involved in urban gardening, climate change activists, social movements, etc.). This concept

is related to other similar concepts, e.g. green cities, transition towns, community

development. Some of the practical features of this is a Majors pact which states their

intention to adopt a slate of measures to stem climate change.

2.4 Green Jobs

It is perceived that LCD can create large numbers of green jobs across many sectors of the

economy, and can become an engine of development. This is largely about building a green



infrastructure: over 1.27 million people could be working in ‘green jobs' in the UK by 2015

with faster government action and financial backing. California has taken a lead here: their

Green Collar Jobs Act, signed into law in 2008, established the Green Collar Jobs Council

(GCJC) under the purview of the California Workforce Investment Board (CWIB). Green jobs

is part of the low-carbon transition management as workforce and economy will have to

adjust to LCD. OECD/Cedefop (2014) stresses the need for: i) upgrade skill sets in industries

experiencing only minor adjustments; ii) gearing up educational institutions and firms to

provide the new skills for new occupations and sectors that will emerge from the green

economy; and iii) retraining and realigning skills in sectors that will decline as a result.

2.5 Sustainable Consumption and Production (SCP)

The concept of sustainable consumption and production (SCP) is a whole-systems approach

through which to consider the practical means of aligning economic systems to meet the

needs of current and future generations within the ecological carrying capacity of the Earth.

It examines our needs and values as a society, and applies a lifecycle and value chain

perspective to the production and consumption of goods and services, and includes

categories such as food systems, the building sector, households, infrastructure,

transportation, consumer items, large infrastructure (e.g. waste operations), etc. Shaping

and transforming the production and consumption system requires the participation and

collaboration of all key actors in society, notably government, business and industry as well

as communities, civil society and NGOs, who need to work together to establish the

structures through which sustainable patterns of production and consumption arise.



3 GHG emissions, sinks and impacts in the BSR

3.1 GHG emissions

Germany is the largest GHG emitter in the BSR and the whole EU. It has committed to

ambitious emission reduction targets that go beyond the target set by the EU. Germany

emits on average 990 million tons CO2e per year, followed by Poland with an average of 400

million tons of CO2e per year1. Other economies of the BSR are smaller and thus their

emissions significantly lower. Finland, Sweden and Denmark on average emit 73, 66 and 67

million tons of CO2e respectively. Latvia, Estonia and Lithuania have the lowest emissions,

respectively 11, 19 and 22 million tons annually (see table 2).

Trends demonstrate (see fig. 2) that all the countries in the BSR have decreased their

emissions between 1990 and 2012, however most significant decrease in emissions

happened in Estonia, Latvia and Lithuania who decreased their emissions by 53%, 58% and

56% respectively. This reduction in GHG emissions has been possible because of the

decreasing population between 1990 - 2010, a drop in economic output, and changes in

economic structure and rising prices of energy.

1 In this study we have used GHG emission data from OECD Environment Statistics database (ISSN: 1816-9465

(online); DOI: 10.1787/env-data-en), if not specified differently. It should be noted that OECD uses official UNFCCC data.



Fig. 2. Total CO2e in the BSR, Index 1990=100. Source: (OECD, 2014)

[14]



Table 2. Total GHG emissions excluding LULUCF per country from 2000 – 2012 (Gg CO2e)

Sour

ce:

OEC

D,

2014

Incre

ase

in

final

dem

and

has

been

the

main

upw

ards

drivi

ng

force

of

emis

sions

in

three

Balti

c

states and would have caused an 80%, 64% and 143% emission increase in Estonia, Latvia

and Lithuania, respectively, all other factors kept constant (Janis Brizga, Feng, & Hubacek,

2014). This increase has been partly offset by a declining carbon emission intensity of the

economy, especially in Latvia and Lithuania; whereas in Estonia, which has one of the

highest carbon emission intensities in Europe, a shift in consumption patterns towards low

carbon consumption items and a decarbonizing economic structure were the main

balancing factors.

Den

mar

k

69

,95

71

,55

70

,93

75

,84

69

,89

65

,59

73

,47

68

,92

65

,40

62

,51

63

,01

58

,05

53

,12

-32

Esto

nia

17

,16

17

,54

16

,94

18

,81

19

,13

18

,42

17

,84

20

,95

19

,55

16

,19

19

,89

20

,48

19

,19

11

Fin

lan

d

69

,19

74

,40

76

,62

84

,58

80

,58

68

,62

79

,90

78

,25

70

,13

66

,00

74

,40

66

,86

60

,97

-13

Ge

rman

y

10

40

,4

10

55

,2

10

33

,9

10

32

,3

10

19

,8

99

4,5

10

02

,4

97

6,6

97

9,8

91

2,6

94

6,4

92

8,7

93

9,1

-11

Po

lan

d

39

6,1

39

2,9

38

0,4

39

3,4

39

8,0

39

8,8

41

4,2

41

5,5

40

6,1

38

7,7

40

7,5

40

5,7

39

9,3

1

Swe

de

n

68

,56

69

,34

70

,07

70

,47

69

,70

66

,91

66

,78

65

,23

63

,01

59

,10

65

,07

60

,75

57

,60

-19

Latv

ia

9,9

9

10

,63

10

,60

10

,86

10

,85

11

,06

11

,52

11

,98

11

,50

10

,85

11

,99

11

,14

10

,98

9

Lith

uan

ia

19

,63

20

,72

21

,23

21

,45

22

,23

23

,32

23

,71

26

,12

24

,93

20

,43

21

,12

21

,68

21

,62

9

Co

un

try/

year

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

00

/ 2

01

2, %

[15]



However, Estonia, Latvia, Lithuania and Poland are countries that haven’t decreased their

CO2 emissions during period from 2000 – 2012, as their economies grow. In this time period

Denmark, Germany, Finland and Sweden using successful policy interventions have

managed to decrease their GHG emissions. The most significant decrease was in Denmark –

by 24%. Emissions also decreased in Finland by 12% and in Germany and Sweden by 11%.

In table 3 we can see changes in CO2 emissions in different sectors in BSR countries

comparing data from 2000 and 2012. Energy industry and transport sectors are responsible

for the greatest part of the GHG emission growth.

Table 3. Changes in CO2 emissions by different sectors in BSR countries during 2000-2012

(2000=100%)

Sect

or

Ene

rgy

Ene

rgy

Ind

ust

ry

Man

ufa

ctu

rin

g in

du

stri

es a

nd

co

nst

ruct

ion

Tran

spo

rt

Oth

er

sect

ors

Fugi

tive

Em

issi

on

s fr

om

Fue

ls

Ind

ust

rial

p

roce

sses

Solv

en

t an

d

oth

er

pro

cess

es

Agr

icu

ltu

re

Was

te

De

nm

ark

74

%

65

%

71

%

99

%

72

%

41

%

53

%

10

2%

92

%

74

%

Esto

nia

11

4%

11

0%

13

3%

13

7%

12

8%

80

%

94

%

70

%

10

9%

71

%

Fin

lan

d

88%

94%

70%

99%

80%

94%

95%

53%

99%

63%

Ger

man

y

92%

101

%

97%

85%

81%

49%

88%

59%

92%

49%

Po

lan

d

100

%

96%

65%

169

%

118

%

91%

110

%

121

%

98%

99%

Swed

en

84%

115

%

69%

96%

39%

211

%

86%

109

%

92%

56%

[16]



Sect

or

Ener

gy

Ener

gy

Ind

ust

ry

Man

ufa

ctu

rin

g in

du

stri

es a

nd

co

nst

ruct

ion

Tran

spo

rt

Oth

er s

ecto

rs

Fugi

tive

Em

issi

on

s fr

om

Fuel

s

Ind

ust

rial

p

roce

sses

Solv

ent

and

o

ther

p

roce

sses

Agr

icu

ltu

re

Was

te

Latv

ia

10

0%

75

%

83

%

12

9%

11

8%

47

%

42

6%

12

7%

12

4%

10

3%

Lith

uan

ia

11

0%

87

%

12

8%

13

3%

12

9%

10

8%

12

0%

48

%

11

3%

81

%

Source: OECD, 2014

In the energy sector, which encompass energy industry, manufacturing industries and

construction, transport, fugitive emissions from fuels and other sectors, Germany and

Poland have the biggest impact – Germany makes 786.03 Mt CO2, but Poland creates much

less – 319.66 Mt CO2. In Germany emissions from energy sector decreased by comparing

year 2000 to 2012, but it has decreased by 1990 mainly as a result of energy efficiency

measures and improved insulation of buildings in Eastern Germany. The energy intensity

of Poland’s economy is still very high but declined considerably since 2005, and comparing

years 2000 and 2012, it is seen, that there are no big changes. Denmark and Finland in 2000

created same amount of CO2 in energy sector – 54.43 Mt CO2, but by year 2012, Denmark

managed to decrease their emissions to 40.41 Mt CO2, and Finland to 47.81 Mt CO2. Three

Baltic state – Latvia, Lithuania and Estonia creates small amount of CO2 – 7.22 Mt CO2, 11.89

Mt CO2 and 16.87 Mt CO2, respectively.

In energy industry sector, again, Germany and Poland are the main emitters (Fig. 3), where

Germany emits 364.74 Mt CO2 in 2012, which is a bit more than in year 2010. Poland emits

169.60 Mt CO2 in 2012, which is less than in 2010. Latvia, Lithuania and Sweden is

responsible for 1.87 Mt CO2, 4.41 Mt CO2 and 10.26 Mt CO2, respectively. Sweden and

Estonia are the only countries from the region increasing their emissions in this sector, but

Denmark and Latvia has reached significant emission decrease.

The same situation is seen in Manufacturing industries and construction sector, where

Germany and Poland are the main emitters (Fig. 3), and Latvia, Lithuania and Estonia emits

small amounts, just because the manufacturing sector in these countries is poorly

developed.

[17]



In transport sector Germany emits the most, but have managed to decrease its CO2

emissions from 183.04 Mt CO2 in 2000 to 155.49 Mt CO2 in 2012, unlike Poland that in 2000

emitted 27.68 Mt CO2, and increased their emissions by 2012 to 46.82 Mt CO2. Although,

absolute emissions of the Baltic State (Latvia, Lithuania and Estonia) in transport sector are

low, this is the sector we can see increase in emissions between 2000 and 2012 (Table 3),

caused by increasing number of cars and distance driven.

In sector of fugitive emissions from fuels Germany had made big changes, because their

emissions from this sector decreased by half from year 2000 to 2012, similar trends are

observed also in Denmark and Latvia. Sweden is the only country in this sector that

increased their emissions, other countries by comparing years 2000 and 2012, stayed in the

same level of emissions (Table 3).

The industrial processes, solvent and other processes agriculture and waste GHG

emissions are non-energy related. In industrial sector Germany is the main emitter although

have managed to decrease it’s emissions from 77.21 Mt CO2 in 2000, to 68.25 Mt CO2 in

2012, then Poland, that lightly increased emissions between these years. Latvia and Estonia

in this sector have lowest emissions among all BSR countries that reaches above 1 Mt CO2.

However, Latvia has increased its emissions from industrial processes more then 4-fold, but

Denmark, Finland and Sweden slightly reduced their industrial emissions. In agriculture and

waste sector BSR countries haven’t made significant changes, although Germany have cut

their emissions from the waste sector by half.

Emission mix for different countries in the BSR is diverse, e.g. in Estonia with energy industry

is responsible for almost 70% of the total national emissions (see fig. 3). This is the result of

the high energy intensity of the sector as the result of the burning of lignite. Energy industry

is also the main emitter in Germany and Poland, Finland and Denmark. However, in Sweden

most of the emissions come from transport sector. Hoverer, in Latvia and Lithuania

agriculture sector is one of the main contributors to the climate change (Fig. 3).

[18]



Fig. 3. CO2e emissions by sectors, 2012. (Source: OECD, 2014)

However, in the policy circles emissions in EU are divided between emissions generated by

sectors participating in the EU emissions trading system (ETS) and sectors not taking part in

ETS (read more about this division in section 4.1. EU policy). Share of EU ETS emissions in

total emissions in the region differ significantly. According to EEA in 2013 in Estonia it was

75%, in Finland and Poland 52%, in Denmark 41%, in Lithuania 37%, in Sweden 36%, but in

Latvia only 24% on total GHG emissions. These differences can be explained by differences

in the carbon intensity of the energy sector and industrialization of the countries. This

means that countries form the BSR have different policy focuses, e.g. Latvia has to deal

more with the emissions coming from transport and agriculture, while primary concern for

Estonia is decarbonization of its energy sector. Figure 4. demonstrates trends in emissions

from non-ETS sectors in the BSR and the targets for 2020.

[19]



Fig. 4. Progress in non-ETS emissions in the BSR (index 100 = 2005 base year) (EEA, 2014)

Both per capita production and consumption emissions significantly differ between

countries of the BSR. Lowest per capita production emissions in 2012 were are in Latvia,

Lithuania and Sweden, respectively, 5, 7 and 6 tons of CO2e per capita. But the highest

emissions in Estonia and Germany, 14 and 12 t CO2e per capita (see fig. 5).

0

20

40

60

80

100

120

140

Denmark Estonia Finland Germany Latvia Lithuania Poland Sweden

2008 2009 2010 2011 2012 (proxy) 2013 target 2020 target

[20]



Fig. 5. Per capita production emissions in the BSR, 2012 (t CO2e/cap/a) (OECD, 2014)

While highest household consumption emissions in 2011 where in Finland, Germany,

Denmark and Estonia, 12.9, 11.8, 11.4 and 10.8 t CO2e per capita per annum, but the lowest

emissions in Latvia – 6.6 t CO2e per capita and Lithuania and Poland – 8 t CO2e per capita (see

Fig. 6). Consumption clusters with most significant supply chain emissions are housing and

utility, food and transport. In most of the countries of the BSR consumption based emissions

are larger than production based emissions, except for Estonia and Poland where

production based emissions exceed consumption based emissions by more than 30%. The

lowest per capita household emissions in Latvia can be explained by low emission intensity

of the heat and power sector and fire wood use for household heating.

Fig. 6. Per capita household consumption emissions (t CO2e/cap/a) by consumption

clusters (2011) Authors calculations

[21]



Highest emission intensity in the BSR is in Estonia and Poland, 0.86 and 0.76 kg CO2e/USD in

2012 respectively (see fig. 7). But the lowest emission intensity is in Sweden and Denmark,

0.10 and 0.17 kg CO2e/USD, respectively. The emission intensity between 2000 and 2012 has

improved considerably in all the countries of the BSR.

Fig. 7. Carbon intensity of GDP in the BSR (kg CO2e per PPP $ of GDP) (OECD (2014) data;

authors calculations)

Innovation research demonstrates that substantial improvements in environmental

efficiency (a factor 2) may still be possible with innovations of an incremental kind. But

larger jumps in environmental efficiency (Factor 10) are only possible with system

innovations. Such innovations of socio-economic systems not only involve new technologic

development, but also new markets, user practices, regulations, infrastructures and cultural

meanings. System innovations are multi-actor processes. All societal groups – all

stakeholders - have their own perceptions of the future, values and performances,

strategies and resources (such as money, knowledge, contacts). Although they have some

independency they are related to each other and interpenetrate each other (Elzen, Geels, &

Green, 2004).

Data provide some evidence in support for the Environmental Kuznets curve hypothesis

(Arrow et al., 1995), which envisages an inverted-U-shaped relationship between income

and environmental degradation per capita. Figure 7 demonstrated several patterns in

emission trajectories - emissions in the Baltic States gradually increasing as their economies

growth, but emissions of more affluent countries of the BSR are slowly falling. According to

the per capita GDP and per capita CO2 emissions countries can be divided into four blocks.

Estonia and Poland with comparatively high emissions and lower affiance, Latvia and

-

0,20

0,40

0,60

0,80

1,00

1,20

1,40

Denmark Estonia Finland Germany Poland Sweden Latvia Lithuania

kg C

O2

e /

USD

PP

P

2000 2012

[22]



Lithuania with the lowest emissions and lowest GDP. Sweden has comparatively low

emissions and high GDP, but Finland, Denmark and Germany has highest emissions and

income (see Fig. 8).

Fig. 8. EKC for BSR economies (2000 - 2012) (OECD (2014) data; authors calculations)

Results also demonstrate significant differences in emission elasticity of income2 (also

known as decoupling index - DI (Diakoulaki & Mandaraka, 2007)) between 2000 and 2012

among countries. Data for Denmark, Sweden, Germany and Finland demonstrate absolute

decoupling of economic growth and GHG emissions between 2000 and 2012 with

decoupling index being as low as -1.5 in Denmark (see table 4). But Estonia (DI=0.24), Latvia

(DI=0.28), Lithuania (DI=0.28) and Poland (DI=0.05), countries with the lowest economic

2 Emission elasticity of income (EL) = gI /gA, where gI represents the percentage of changes of CO2e emissions

and gA the percentage of changes of affluence over the certain time period. EL≥1 denoting coupling; 0<EL<1 denoting relative decoupling; EL≤0 denoting absolute decoupling.

[23]



performance, show relative decoupling in the same time period. However, during the time

of the great recession (2007-2009) the Baltic States, Germany and Sweden also demonstrate

coupling between economic growth (recession) and emissions. Denmark, Estonia and

Finland also demonstrate coupling in some of the years in early 2000s.

Table 4. Decoupling index for countries of the BSR (OECD (2014) data; authors

calculations)

20

00-

20

01

20

01-

20

02

20

02-

20

03

20

03-

20

04

20

04-

20

05

20

05-

20

06

20

06-

20

07

20

07-

20

08

20

08-

20

09

20

09-

20

10

20

10-

20

11

19

90-

20

12

20

00-

20

12

Den

mar

k

0.7

4

(-0

.72

)

2.8

9

(-1

.91

)

(-1

.29

)

1.7

3

(-1

.76

)

(-6

.81

)

0.9

2

0.1

8

(-3

.41

)

(-6

.40

)

(-1

.53

)

Esto

nia

0.2

7

(-0

.34

)

1.0

9

0.1

9

(-0

.35

)

(-0

.25

)

1.5

4

4.7

9

1.3

5

5.6

0

0.3

2

(-2

.09

)

0.2

4

Fin

lan

d

1.6

3

0.8

5

2.4

5

(-0

.87

)

(-4

.20

)

2.0

1

(-0

.35

)

(-6

.13

)

0.8

0

2.5

5

(-2

.72

)

(-7

.47

)

(-0

.57

)

Ger

man

y

0.3

4

(-1

.54

)

(-0

.13

)

(-0

.30

)

(-0

.66

)

0.1

3

(-0

.41

)

0.1

6

1.7

9

0.7

9

(-0

.39

)

0.6

3

(-0

.31

)

Po

lan

d

(-0

.23

)

(-1

.05

)

0.5

9

0.1

6

0.0

4

0.4

2

0.0

3

(-0

.35

)

(-1

.91

)

0.9

9

0.0

4

(-0

.17

)

0.0

5

Swed

en

0.2

6

0.1

9

0.0

5

(-0

.27

)

(-0

.87

)

(-0

.15

)

(-0

.59

)

(-6

.97

)

1.5

4

1.4

5

(-1

.36

)

(-3

.24

)

(-0

.76

)

Latv

ia

0.6

5

0.0

7

0.3

2

0.0

4

0.1

9

0.3

5

0.3

7

5.3

5

0.2

8

7.2

6

(-0

.85

)

(-0

.33

)

0.2

8

Lith

uan

ia

0.6

5

0.3

4

0.1

2

0.4

2

0.4

7

0.2

1

0.8

1

(-0

.77

)

1.3

7

1.1

7

0.3

9

0.0

9

0.2

8

Relative decoupling - a decrease in environmental intensity per unit of GDP; the GHG growth slower than GDP.

[24]



Coupling GHG emissions change at the same rate as GDP.

Absolute decoupling occurs when ecological intensity declines in “absolute terms,” or an overall decrease as GDP increases.

3.2 Carbon sinks

In this report, the main focus is on the consumption and production related GHG emissions

from the BSR, described above. However, also carbon sinks (marine and terrestrial) play an

important role in the BSR carbon balance. In some countries, like Latvia, they are also of

high political concern due to perception of the national forest as a source of global

commons. LULUCF is a significant carbon sink in the BSR, removing the equivalent of 7% of

total emissions. In 2010, the net terrestrial carbon sequestration in the BSR amounted to

116,525 Gg of CO2e and it is assumed to increase in the future. Germany is the only country

from the region with positive LULUCF emissions, but Latvia is the only country with negative

total net emissions.

The biological management of carbon in tackling climate change has essentially two

components: the reduction in emissions resulting from damage of natural ecosystems or

unsustainable management practices of human-dominated ecosystems, and the increase of

carbon storage in biological systems. The reduction in emissions from biological systems and

the increase in their storage of carbon can be achieved in three ways (EUCC, 2010):

protecting existing sinks,

replenishing historically depleted sinks by restoring ecosystems and soils, and

creating new sinks by encouraging greater C storage in areas that currently have

little.

Apart from the terrestrial sinks marine sinks are believed be even more important in carbon

sequestration. Research show that on average, the Baltic Sea as a whole absorb 1.8 ± 1.6 Tg

C yr−1 (or 4.3 ± 3.9 g C m−2 yr−1) of atmospheric CO2 (Gustafsson, Deutsch, Gustafsson,

Humborg, & Mörth, 2014), however earlier studies had demonstrated a net CO2 emission

from the Baltic Sea to the atmosphere being around 1.05 Tg C yr−1 (Kuliński & Pempkowiak,

2011). There is still a lot to study on the carbon sequestration potential of the Baltic Sea,

which should be explored more and actions developed to enhance it. Another question for

further research is how climate change will affect soil organic carbon and whether or not

the vast carbon reserves in northern soils will turn from a sink into a net carbon source

stimulating additional climate change.

Carbon sequestration is important element of the climate change mitigation strategy.

However, enhancements of carbon sequestration should augment rather than undermine

[25]



overall mitigation action in the BSR as it is a non-permanent solution and could have

adverse impacts on the broader ecosystems functions. Action should therefore focus on

reducing GHG emissions, by promoting agro-ecological farming practices, preventing the

conversion of grassland to cropland, incentivizing the restoring and rewetting of peatlands

and wetlands, replanting forests and conservation of natural forests, and reducing other

pressures on nature.

A biological approach to carbon management offers also different other benefits that

simultaneously contribute to climate mitigation and conservation and sustainable use of

biodiversity, e.g. preservation and restoration of degraded land, forests, peatlands, organic

soils, wetlands, reduction in conversion of pastureland, less slash and burn practices, and

improved grassland management (European Commission, 2009), which in turn will have

positive impact on livelihoods of local people.

3.3 Climate change impacts

Climate change caused by anthropogenic emissions of greenhouse gases is among the most

threatening environmental problem confronting the world today. The 2014 Fifth

Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) confirmed

earlier conclusions that all regions of the globe will be affected (Field, Barros, Mach, &

Mastrandrea, 2014). Research also has concluded that for several key parameters, such as

global mean surface temperature, sea-level rise, ocean and ice sheet dynamics, ocean

acidification, and extreme climatic events, global climate systems are already moving

beyond the patterns of natural variability within which our society and economy have

developed and thrived. Despite the uncertainties that surround climate change projections,

it has become clear that there is a significant risk that many of the described trends will

continue, or even accelerate, thereby leading to an increasing risk of abrupt and irreversible

climatic change.

Main climate change impacts in the Baltic Sea Region, as based on current scientific

knowledge, are changes in air and sea surface temperature, sea level rise, changes in

precipitation, and sea ice (Schmidt-Thomé & Klein, 2013) and all related outcomes.

Climate change impacts on water resources is obvious in all the Baltic States (Kriauciuniene

et al., 2012). Increases in the number of days with heavy precipitation and in the intensity

of heavy precipitation has been observed in Latvia (Avotniece, 2010). As the results of

climate change precipitation is projected to decrease in the summer months up to Southern

Sweden and increase in winter (Schmidli et al., 2007). In Northern Europe, a decrease of

long term mean snow pack (although snow-rich winters will remain) towards the end of the

[26]



century is projected (Räisänen & Eklund, 2012). Major storms in Sweden and Finland

already have led to loss of trees, with damage to the power distribution network, leading to

electricity blackouts lasting weeks, as well as the paralysis of services such as rail transport

and other public services that depend on grid electricity.

In the Baltic Sea, although some new species would be expected to immigrate because of an

expected increase in sea temperature, only a few of these species would be able to

successfully colonize the Baltic because of its low salinity (MacKenzie, Gislason, Möllmann,

& Köster, 2007). In response to climate change and intensive fishing, widespread reductions

in fish body size (Daufresne, Bady, & Fruget, 2007) and in the mean size of zooplankton

(Grégory Beaugrand & Reid, 2012) have been observed over time and these trends further

affect the sustainability of fisheries (Gregory Beaugrand & Kirby, 2010; Pitois & Fox, 2006).

Aquaculture can be affected as the areal extent of some habitats that are suitable for

aquaculture can be reduced by sea-level rise. Observed higher water temperatures have

adversely affected both wild and farmed freshwater salmon production in the southern part

of the distribution areas (Jonsson & Jonsson, 2009).

Europe’s northern seas are experiencing greater increases in sea surface temperatures than

the southern seas, with the Baltic sea warming at 2-4 times the mean global rate (Belkin,

2009; Philippart et al., 2011). In the Baltic, decreased sea ice will expose coastal areas to

more storms, changing the coastal geomorphology (BACC, 2008; Helsinki Commission,

2007).

Nevertheless, there are also some positive news, e.g. due to the decreasing number of cold

days, under the changing climate, the length of the growing season has increased

(Avotniece, 2010) and spring crops from tropical origin like maize for silage could become

cultivated more efficiently in Northern Europe by the end of the century (Peltonen-Sainio,

Jauhiainen, & Laurila, 2009).

Cost estimate of planned adaptation are huge. Sweden estimates them to be up to €10

billion in the time period between 2010 and 2100 (Swedish Commission on Climate and

Vulnerability, 2007). Additionally to climate change costs unsustainable transport, energy,

waste and industrial systems also causes significant health costs. Climate change affects

major social and environmental determinants of health, such as availability and quality of

drinking water, ecosystems, agriculture and food production, economic development and

migration.

[27]



Climate change also increases the frequency and intensity of extreme weather events.

Floods in the European Region affected 3.4 million people and killed more than 1000 in the

period from 2000 to 2011 (Jakubicka, Guha-Sapir, & Heidelberg, 2010). However, BSR so far

has been least affected, but it could change in the future, e.g. it is forecast that in Poland

alone, up to 240,000 people would be affected by increasing flood risk on the Baltic coast

(Pruszak & Zawadzka, 2008).

The intensity of rainstorms has increased throughout Europe during the past 50 years, and

it is estimated that heavy rainfall will increase in frequency and intensity in the coming

decades, increasing erosion and the likelihood of flooding (Kļaviņš, 2007; Parry, 2007). More

frequently European is also suffering from strong heat-waves. However, projection trends

of mortality are small for northern Europe (Ballester, Robine, Herrmann, & Rodó, 2011).

Climate change also affects air pollution and the pollen season. In addition to carbon

dioxide, the combustion of fossil fuels produces a wide range of short-lived air pollutants

with global warming and cooling effects. Some of these pollutants account for most of the

direct damage to human health from global energy use. Over 80% of Europeans are exposed

to particulate matter (PM) concentrations exceeding the WHO Air Quality Guidelines,

reducing the life expectancy of each citizen by an average of nearly 9 months. The long-term

objective for the protection of human health was exceeded in all EU Member States except

Estonia during summer (April–September) 2012. From the BSR countries the annual limit

value for PM10 was exceeded most often in Poland (Guerreiro, de Leeuw, & Foltescu, 2013).

Global warming has extended the pollen season in Europe by an average of 10–11 days over

the last 30 years. The amount of airborne pollen is also increasing in Europe, in urban more

than in semi-rural or rural areas. Scientists believe that increases in airborne pollen account

for part of the strong increase in the burden of respiratory allergic diseases worldwide

(Ziello et al., 2012).

Some vector-borne diseases are climate sensitive. Lyme Borreliosis is the most common

vector-borne disease in Europe, with more than 90 000 cases reported annually. It is

transmitted by ticks from the genus Ixodes, which can also transmit tick-borne encephalitis.

Global warming has increased the risk of tick-borne diseases in Europe by allowing ticks to

survive at higher altitudes and at more northern latitudes (Jaenson & Lindgren, 2011).

Global warming can increase food- and water-borne diseases. Several pathogens thrive

with warmer temperatures, which can contribute to an increase in the incidence of food-

borne and water-borne diseases. For example, by the period 2071–2100, climate change

[28]



could cause an additional 50% in temperature-related cases of Salmonella infection than

expected without climate change (Watkiss & Hunt, 2012).

Several studies have been explored regarding climate change impact on BSR, for example,

under BALTADAPT and BaltCICA projects. Besides negative impacts mentioned above also

positive economic effects are expected in some sectors. Most of them are related to

increased yields in agriculture and increased export in tourism services. Theoretically that

increases risk of appearing some political ambitions to profit from those positive effects and

tending to avoid implementation of active measures against global warming. On the other

hand level of current political culture in BSR makes such risk negligible. Besides, due to

social phenomenon of perceiving negative messages as more important, political agenda of

negative impact on BSR is expected to overcome potential economic benefits in forming

overall climate change policy. But awareness should be high due to new geopolitical

changes that aroused in Ukraine – local political focus is expected to be more ductile if

geopolitical development would cause expansive negative impacts on BSR. Anyway BSR

could be seen as one of the top examples of moral environmental political dilemma

concerning climate change. It is not only about taking responsibility of highly vulnerable

regions in the world (especially in third world countries), but also about refusing local

potential economic benefits. However, countries with high non-renewable resource base

face this tension even more.

[29]



4 Policy approach

In order to address problems of climate change, societies need to assess risks and decide

how to mitigate it. At the level of the UN, since the end of the 1980s international policy

making has been going on, resulting in a range of agreements and policy packages, including

the UNFCCC and the Kyoto Protocol3 and underlying decisions arranging modalities and

procedures for these packages. This policy making is based on the long term vision that GHG

concentrations in the atmosphere need to be stabilized at levels that prevent dangerous

interference with global ecosystems. In order to avoid irreversible damage to global climate

and ecosystems, average global temperatures should not rise by more than 2°C above pre-

industrial levels. This target has been included in the Cancún Agreements and EU climate

policy.

4.1 EU policy

The European Union is addressing climate change policy through several strategies. Ten-

year EU growth strategy Europe 2020 is addressing the shortcomings of current growth

model and creating the conditions for a smart, sustainable and inclusive growth (see fig. 9).

It sets targets for the EU to achieve by the end of 2020 in following areas: employment;

research and development; climate/energy; education; social inclusion and poverty

reduction. These targets are supported by seven ‘flagship initiatives’ in innovation, the

digital economy, employment, youth, industrial policy, poverty, and resource efficiency.

Within the framework of the Europe 2020 strategy the European Commission and the

Parliament have developed a long-term vision for climate change policies. The 2020 EU

Energy and Climate Package contains specific targets, known as the "20-20-20" targets,

aiming by 2020:

A 20% reduction in EU greenhouse gas emissions from 1990 levels;

Raising the share of EU energy consumption produced from renewable resources to

20%;

A 20% improvement in the EU's energy efficiency.

3 At the Doha meeting of the parties to the UNFCCCC on 8 December, 2012 an agreement (Doha Amendment)

was reached to extend the Kyoto Protocol to 2020 and to set 2015 as a date for the development of a successor document, to be implemented from 2020.

[30]



Figure 9. Hierarchy of Europe 2020 strategy priorities and initiatives

In order to achieve these targets, a range of policy measures are available which all aim at a

low carbon society through accelerating the development of low-carbon technologies, their

deployment and diffusion in the market. It is of crucial importance, however, that the

selection of low carbon technological solutions and policies is embedded in countries’

priorities, such as energy security of supply, and deals with demographic developments

and climate change effects and is socially and economically accepted.

The flagship initiative “A resource-efficient Europe” (COM(2011)21) encompasses the

reforms in agricultural, fisheries and regional development policies, while including

initiatives in the field of biodiversity, water and air policy, as well as raw materials, the bio-

economy, construction, taxation, research and innovation. The Communication

COM(2011)571 “Roadmap to a Resource Efficient Europe” takes forward the overarching

aim of the Resource Efficiency Flagship initiative to decouple economic growth from

resource use and its environmental impacts, and proposes a long-term vision, 2020

milestones and a number of short-term actions to start the transition.

Another Communication "Towards a circular economy: a zero waste programme for

Europe" establishes a common and coherent EU framework to promote the circular

economy. It aims for maximizing the sustainable use and value of resources, eliminating

waste and benefiting both the economy and the environment. These aims should be

reached by:

boosting recycling and preventing the loss of valuable materials;

creating jobs and economic growth;

showing how new business models, eco-design and industrial symbiosis can move us

towards zero-waste;

Europe 2020

Smart growth

Innovation Union

Youth on the move

Digital agenda for

Europe

Sustainable growth

Resource efficient Europe

An industrial policy for the globalisation

era

Inclusive growth

An agenda for new skills

and jobs

European platform against poverty

[31]



reducing greenhouse emissions and environmental impacts.

The circular economy package has been presented as a set of voluntary measures (on

resource efficiency, marine litter, etc) and a legislative review (on waste). Several indicators

are proposed to measure success of the implementation:

Lead indicator: resource productivity (GDP/Raw Material Consumption)4.

Dashboard of indicators: at the moment, this includes indicators on land, water and

carbon to be developed by the Commission.

Roadmap for moving to a competitive low-carbon economy in 2050 (The low-carbon

Roadmap for 2050) is a key building blocks of the LCD in EU, setting an overall mitigation

target for 2050, a sectoral break-down of this target, and milestones to be achieved in the

interim decades. Key targets are an overall 80% GHG emissions reduction by 2050 and a

25% reduction by 2020. The low-carbon Roadmap for 2050 highlighting the need for

development of sectorial policies going into greater depth on costs, trade-offs and

uncertainties and invites all the EU member states to develop national and regional policies

taking into account the aims for achieving low carbon economy by 20505. The Roadmap is

one of the long-term policy plans put forward under the Resource Efficient Europe flagship

initiative intended to put the EU on course to using resources in a sustainable way.

One more EU policy tool is EU Energy Roadmap 2050 specifies how the energy sector,

particularly the power sector, should contribute to meeting the Low-carbon Roadmap 2050

reduction targets.

The second priority object of the 7th EU Environmental Action Programme “Living well,

within the limits of our planet” to 2020 is intended to boost sustainable resource – efficient

low carbon growth. A number of measures under this objective are aimed for policy

improvements, providing the implementation of Climate and energy package.

And finally the 2030 policy framework for climate and energy proposed by the European

Commission in 2014 and discussed on the Council meeting (November 2014) aims to reduce

4 If member states do not have data on their Raw Material Consumption, they can use their Domestic Material

Consumption indicator (which does not include any imported materials). 5 Developed countries under UNFCCC decision 1/CP.16 (Cancún Agreements), article 45 should develop low-

carbon development strategies or plans, but Chapter 2, Article 2 of the EU regulation Nr.525/2013 states that Member States shall report to the Commission on the status of implementation of their low-carbon development strategy by 9 January 2015.

[32]



EU domestic GHG emissions by 40% below the 1990 level by 2030. This target will ensure

that the EU is on the cost-effective track towards meeting its objective of cutting emissions

by at least 80% by 2050. However, many think that the target for 2030 should have been

closer to 60% GHG reduction. To achieve the overall 40% target, the sectors covered by the

EU emissions trading system (ETS) would have to reduce their emissions by 43% compared

to 2005. Emissions from non-ETS sectors would need to be cut by 30% below the 2005 level.

This effort would be shared equitably between the Member States. It also refers to the need

for a discussion on a (new) effort sharing mechanism for the GHG target in the non ETS

sectors, and most likely less wealthy EU member-states will need to put more effort in

reducing their emissions and that new financial mechanisms need to be considered.

European Council (23 and 24 October 2014) conclusions on 2030 Climate and Energy Policy

Framework sets two additional targets. An EU target of at least 27% is set for the share of

renewable energy consumed in the EU in 2030 (binding at EU level). And an indicative target

at the EU level of at least 27% is set for improving energy efficiency in 2030 compared to

projections of future energy consumption based on the current criteria (see comparison

with 2020 targets in fig. 10).

Figure 10. Agreed headline targets for Climate and energy framework for 2020 and 2030

(baseline 2005 emissions).

EU ETS (Council directive 96/61/EC) launched in 2005 is one of the main policy tools for

achieving set climate targets. The aim of ETS was to make low-carbon energy production

more competitive and to reduce GHG emissions in a coherent, cost-effective manner. All

energy production with capacity greater than 20 MWth as well as all industrial plants were

covered in the scheme, with some exceptions such as chemical industry. The EU GHG

emission trading has been marked by significant and unpredictable changes in the

allowance prices. During the first period 2005–2007, prices first rose to above 30 €/t CO2.

After the publishing of first year's data, it became clear that there were plenty of allowances

2020

• -20% GHG emissions

• non-ETS: -10%

• ETS: -21%

• 20% renewable energy

• 20% energy efficiency

• 10% interconnection

2030

• ≤-40% GHG emissions

• non-ETS: -30%

• ETS: -43%

• ≥27% renewable energy

• ≥27% energy efficiency

• 15% interconnection

[33]



on the market and prices collapsed to about 10 €/t CO2. In 2007, the allowance price was a

few cents. In the second trading period, prices increased again to over 30 €/t CO2 during the

global economic boom, until the sudden collapse in autumn 2008. In the second period, the

banking of allowances, i.e. moving them to the third period became possible. This may have

prevented a total collapse of prices. Both the continuation of the economic recession in

Europe and the rapid increase of renewable electricity in many countries have driven the

allowance prices to 7–10 €/t CO2 in 2012. So far ETS has failed to generate a stable and

credible price signal. Instead, the unpredictable price has probably been a major obstacle to

actual investments in emission reductions (Syri, Kurki-Suonio, Satka, & Cross, 2013).

EU ETS has gone through a comprehensive revision and strengthening for the third trading

period starting from 2013. Major changes include the introduction of a single EU-wide cap

on emission allowances in place of the existing system of national caps. The cap will be cut

each year so that by 2020 emissions will be 21% below the 2005 level. The free allocation of

allowances will be progressively replaced by auctioning, starting with the power sector. The

sectors and gases covered by the system will be slightly widened.

All the other sectors not included in the ETS (transport, agriculture, waste, as well as the

parts of the energy sector and industry not subject to the ETS) are the subject for national

policy interventions to reach the goals set by The 2020 and 2030 EU Energy and Climate

Packages. EU Effort Sharing Decision sets the shard but differentiated targets for EU

member states for 2020 based on their GDP. From countries of the BSR highest reduction

target is for Denmark (-20%), Sweden (-17%), Finland (-16%) and Germany (-14%), but

Estonia, Latvia, Lithuania and Poland can increase their emissions by 11%, 17%, 15% and

14% respectively (see fig. 11).

[34]



Figure 11. EU member states GHG emission limits in 2020 to 2005 levels (EC, 2009)

Besides that there is a list of other regulations having impact on GHG emissions:

• The Landfill Directive (1999/31/EC) obliges EU member states to reduce the amount of

biodegradable municipal waste that they landfill to 35% of 1995 levels by 2016 (The

Baltic States and Poland by 2020). National legislation of Denmark, Germany and

Sweden include complete bans on depositing biodegradable waste on landfills;

• ‘The Common Agricultural Policy (CAP) towards 2020: meeting the food, natural

resources and territorial challenges of the future’ (COM(2010)672). This communication

describes major policy options and sets strategic goals such as support for farming

communities which provide European citizens with a valuable variety of foodstuffs of

good quality produced in a sustainable manner, taking into consideration our aspirations

related to requirements for the environment, water, animal health and welfare, plant

health and public health. It also highlights importance to further unlock the agricultural

sector’s potential to mitigate GHG emission via improvements in energy efficiency,

biomass and renewable energy production while keeping the structure of the CAP rural

development where member states draw up and co-financed multiannual programmes

under a common framework;

• F-gas Regulation (2006/842/EC) on certain fluorinated GHG and the MAC Directive

(2006/40/EC) related to emissions from air conditioning systems in motor vehicles: The

F-gas Regulation stipulates that by 2010 end-of-life recollection of refrigeration and air-

conditioning equipment should be in place as well as adoption of good practice

measures involving leakage control and improved components of refrigeration and air-

conditioning equipment in use. From 2011, the use of HFC-134a in mobile air

conditioners should be replaced by a cooling agent with a greenhouse warming

potential of less than 150 in all new vehicle models placed on the market. In addition,

the F-gas Directive stipulates an increased use of alternative blowing agents for one-

component foams, use of alternative propellants for aerosols, leakage control and end-

of-life recollection and recycling of high- and mid- voltage switches, SF6 replaced by SO2

in magnesium production and casting, and a ban of use of SF6 in soundproof windows,

sports equipment etc.;

• Action Plan for Energy Efficiency outlines a framework of policies and measures with a

view to intensify the process of realizing the over 20% estimated savings potential in EU

annual primary energy consumption by 2020. The plan lists a range of cost-effective

measures, proposing priority actions to be initiated immediately, and others to be

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initiated gradually over the Plan׳s 6-year period. Further action will subsequently be

required to reach the full potential by 2020;

• Regulations on use of energy from renewable sources (2009/28/EC), transport-related

emissions and the Biofuels Directive (2009/28/EC). Member State have a target

calculated according to the share of renewable energy sources (RES) in its gross final

consumption for 2020. This target is in line with the overall '20-20-20' goal. Moreover,

the share of energy from renewable sources in the transport sector must amount to at

least 10% of final energy consumption in the sector by 2020. However, some scholars

think that supplementing an ETS with a quota on renewable energy is likely to be

counterproductive to achieving a cost-effective climate policy - if the emissions cap is

binding, the renewable energy quota will have no effect on emissions – unless the quota

becomes so stringent that the renewable policy alone causes emissions to fall below the

emissions cap (Böhringer, 2014);

• Regulation No 2009/443/EC setting emission performance standards for new passenger

cars which aims at attaining the Community’s goal of achieving an average emission

standard of 95g CO2/km for new vehicles has been approved and will apply in 2020.

• Regulation no 2011/510/EC setting emission performance standards for new light

commercial vehicles sets an average of 175g CO2/km and 147g CO2/km emissions in

2014 and 2020 respectively, which is to be achieved through the enhancement of

vehicle technology, and regulation (EC) 692/2008 concerns motor vehicles with respect

to emissions from light passenger and commercial vehicles (Euro 5 and Euro 6) and on

access to vehicle repair and maintenance information (OJ 2008 L 199, p. 1);

• “Energy 2020 − A Strategy for competitive, sustainable and secure energy” (COM(2010)

639 final) the implementation of ensuring energy saving and eco-design requirements

for energy-intensive products is also foreseen.

European Strategy for the Baltic Sea Region (EUSBSR) (SEC(2009)712/2) aims to save the

sea, connect the region and increase prosperity, but under the Horizontal Action of

Sustainable development and bio-economy among others it aims for becoming a low-carbon

region. To do so several tasks are set: support the transition towards a climate adapted and

low carbon Baltic Sea region, cluster already existing activities and projects and promote

sustainable consumption and production.

4.2 Scenarios

The Low-carbon Roadmap and EU Energy Roadmap for 2050 foresees several emission

redaction scenarios. E.g. emission reduction pathway of The Low-carbon Roadmap for the

power sector is ambitious: a close to complete GHG phase-out by 2050 (93 to 99%). This is

[36]



based upon economic assessments that suggest that the power sector has the lowest long-

term mitigation costs. The Low-carbon Roadmap assumes that in 2050 renewable sources

will account for 50 to 55% of total electricity production, whereby a continued reliance on

nuclear and coal and gas with CCS fill the gap. However, a decarbonization strategy mainly

relying upon a nuclear renaissance and strong deployment of CCS can be illusionary (Hey,

2012).

EU Energy Roadmap for 2050 was accompanied by an Impact Assessment study which has

used results of modelling analysis based on the PRIMES energy system model and other

models. It uses the same data, but compared to the Low-carbon Roadmap is much more

favorable for renewable energies (in all the scenarios renewables achieve a share between

59 and 97% of total electricity generation) but they also assumed either CCS, nuclear or both

of them to be providing very substantial shares of emission reductions in the energy sector.

Indeed the balance between different scenarios shows the importance of achieving a high

share in at least one of these technologies for achieving a carbon neutral power sector – for

example under a delayed CCS scenario, the share of nuclear power in over 19% in 2050,

whilst under a low nuclear scenario the required share of CCS is almost 32% in 2050

(European Commission, 2011). While the roadmap does foresee an alternative high

renewables scenario with an 86% share of RES electricity, this scenario is burdened by much

higher generation and network costs and is therefore doubted to be economically feasible.

The electricity sector would also contribute a significant amount of reductions in other

sectors by demand-side substitution via e.g. electrification of transportation. Also energy

efficiency plays an important role in all scenarios.

According to the impact assessment overall energy system costs will be similar in all

scenarios including the reference scenario, which only assumes an overall reduction of GHG

emissions of 40%, and that they will reach levels of around 2 600 billion Euro annually

between 2011 and 2050. The key difference between a moderate and a low-carbon scenario

is that – independent of technology choice – a low-carbon scenario requires a considerably

higher level of capital investment during the transition period.

Decarbonisation targets are found feasible even in cases with technological limitations

regarding CCS and nuclear technologies and delays in transport electrification albeit with

higher costs. Delaying emission reduction action until 2030 has significant adverse effects on

energy system costs and stresses the system capabilities for decarbonisation (Capros et al.,

2014). Höglund-Isaksson et al. (2012) found that more than half of the mitigation achieved

in 2050 in the baseline Reference scenario, and most of the mitigation achieved in the

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baseline Decarbonisation scenario, can be attributed to the expected carbon price levels in

the ETS and non-ETS sectors.

Another approach on how to look at emissions allowances countries can operate with is so-

called carbon budget approach. It is calculated on the assumption that to have at least a

66% chance of keeping to less than 2oC, mankind must emit no more than 2900 Gt of CO2e

during the rest of this century (IPCC, 2014). More than half of this budget has already been

used up (1630 to 2150 Gt of CO2e were already emitted by 2011), so with current emission

levels the emission budget would be used up within 15 to 25 years.

National carbon budgets can be determined on the basis of an equal per capita allocation.

Using this approach demonstrates that for example increase in emissions in Latvia until

2030 would require very steep reduction curve between 2031 and 2050 or 2100 as most of

the carbon budget would be used up until 2030. However, if emission reductions are

implemented immediately transition to low carbon economy would be more gradual (see

fig. 12).

Figure 12. Carbon budget allocation for Latvia.

Source: Authors calculations.

4.3 National characteristics and policies

National country profiles were prepared to summarize progresses in LCD policy

development in the BSR. Each country profile includes a brief introduction in the country

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specifics and most recent policy developments to give an overview and help better

understand countries needs and situation. Different targets set by the EU and countries of

the BSR are listed in the table 5.

Table 5. Energy and climate policy targets in the Baltic States for 2020

Country

RES in gross final energy

consumption by 2020*, %

(share in 2012)

Limit for the non-ETS GHG emission

s (compare

d to 2005)**,

%

Final energy consumption***,

%

Transport sector

Policy goals for 2050

Estonia 25 (19.4%) +11 -11 compared to 2010

Latvia 40 (34.1) +17 -14.5 compared to 2008

Lithuania 23 (16.6%) +15 -17 compared to 2009

Denmark 30 (19.6%) - 20 -40 compared to 1990.

-10% 100% renewable energy by 2050

Germany 18 (8.2%) -14 -40 compared to 1990

-10 % from 2005 levels by the year 2020

80% of its electricity and 60% of its total energy from renewables by 2050

Poland 15 (8.8%) +14

Decrease of primary energy use to 96.4 Mtoe and final energy consumption to 70.4 Mtoe

-6 % from 2010 levels by the year 2020

Finland 38 (30.4%) -16 End-use energy consumption up to 310 TWh

80% GHG reduction from the 1990 level by 2050

Sweden 51 (41.6) -17 -40 compared to 1990

Net carbon neutral by 2050

Note: * Directive 2009/28/EC; ** Decision No 406/2009/EC; *** National reform programs

for implementation of EU 2020 strategy.

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4.3.1 Finland

Finland’s cold climate, long distances, and energy intensive industries (e.g. paper/pulp)

result in a high energy intensity of the economy. The energy mix is quite diverse with half of

the energy coming from fossil fuels, about 22% from biomass and about 17% from nuclear.

It has extensive industrial-scale use of biomass and 1/3 of the country’s total energy

consumption comes from renewable (Velten et al., 2014). Climate change and particularly

energy efficiency are well integrated in Finland’s policy mix.

The Finnish government adopted the foresight report on long term climate and energy

policy in 2009. A target was set to reduce Finland's GHG emissions by 80% from the 1990

level by 2050. VTT started a strategic project "Low Carbon Finland 2050" to assess the role

of new technologies in moving Finland to a new low-carbon economy (VTT - Technical

Research Centre of Finland, 2012). In 2013, the National Climate and Energy Strategy was

published outlining measures until 2020; the Climate Act is expected to come in 2015.

In spite of a comparatively high share of CHP, district heating, biomass and hydro energy,

other renewable options are hardly supported. Finland has some policies to stimulate the

use of renewable energy, but all of these are on a voluntary basis (Climate policy tracker for

the European Union). Finland is clearly focusing on nuclear energy by aiming at two

additional nuclear reactors besides the one under construction. Renewable energy and

clean-tech are defined as key priorities for the Finnish industry and a key to strike a balance

between climate and environmental objectives and economic competitiveness (Velten et al.,

2014).

Key policy developments: One of the earliest national adaptation strategies (Finland) has

been evaluated, in order to compare identified adaptation measures with those launched in

different sectors. It has found that while good progress has been made on research and

identification of options, few measures have been implemented except in the water

resources sector (Ministry of Agriculture and Forestry, 2009).

4.3.2 Sweden

Sweden has long been a leader in climate-friendly policies, 53% of its electricity production

come from hydropower and 40% from nuclear but wind power is quickly gaining speed. The

resulting low CO2 emissions from electricity production is supported by a wide-spread use of

CHP, predominantly using biofuels, where the heat is used in district heating. Current fuel

taxes are among the highest in the EU. Transport was once quite inefficient by European

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standards, but has rapidly transformed due to policy changes (Velten et al., 2014). Sweden

adopted a vision becoming net GHG emissions neutral by 2050. This is possible due to the

vast resources of forests and biomass.

Biomass is regularly used for CHP and as heat source in industry. Standards in buildings and

incentives for transport are also relatively high. Energy efficiency of households scores low

in comparison to other EU Member States. Residential buildings currently account for 21 %

of Sweden’s overall energy consumption (EEA, 2014). The concentration on biomass has

turned the focus away from developing electricity end-use-efficiency, restructuring industry

and investing in infrastructure for a modal shift (Climate policy tracker for the European

Union, 2011). While there was a moratorium on new nuclear capacity, this has just recently

been lifted, opening the possibility of extending the dependence on nuclear energy and

diverting resources away from much-needed investment in efficiency and renewables.

Sweden is currently on its way to meet its short term clime goals, but not the 2050 goals.

GHG emissions originates mostly from industries such as pulp and paper industries, cement,

steel, refineries as well as transport. There is a focus on reducing fossil fuels in transport and

increasing wind power parallel to overall focus on energy efficiency and a proposed 85%

reduction in CO2 equivalent emissions (Swedish Department of Environmental Protection,

2012).

Key policy developments: In the last year Sweden has committed significant funds towards

research in renewable energy development and deployment, supporting projects to

improve the efficiency of hydroelectric installations and solar photovoltaic cells, to enhance

wind turbine siting to utilize more potential locations without interfering with weather

radar, and to create efficient processes for the production of renewably produced natural

gas alternatives. Significant funds were also dedicated to supporting new solar PV

installations. The government has also proposed to impose a biofuel blending quota for

transport fuels in its 2014 budget (Velten et al., 2014).

4.3.3 Denmark

Denmark puts an emphasis on the importance of green growth as part of its economic

strategy and brands itself as a “green lab”. Currently 80% of its energy originates from fossil

resources and they are aiming for 100% renewable energy by 2050 (The Danish

Government, 2013). To reach this goal, Denmark has been increasingly substituting oil and

coal with natural gas and renewable energy, first and foremost wind energy - oil for heating

and cooling is forbidden from 2030 and the heat supply should be 100% renewable by

2035.

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A number of strategic policy documents were published in the past years, addressing all

relevant areas with respect to GHG emission reductions such as energy generation, energy

efficiency in different sectors, transport, agriculture, and waste (Velten et al., 2014). A long

history of diversified support for renewables has led to the current comparatively high share

of renewable electricity production. Danish climate policy is especially weak in relation to

the transport sector. Energy efficiency in buildings is another area where much more action

is needed (Climate policy tracker for the European Union, 2011). Energy consumption in

buildings is still relatively high when compared to other EU Member States, and it accounts

for almost 40% of all energy consumption. This is partly due to the fact that a large share of

the buildings was constructed before the first energy performance standards were

introduced in the 1970s (EEA, 2014).

Key policy developments: Denmark published its new Climate Plan, which complements the

2012 Energy Agreement and stipulates a 40% reduction target by 2020 compared to 1990.

A new Growth Plan for Energy and Climate focuses on the creation of green growth as part

of the energy transition. Other important policy developments comprised a new funding

scheme for energy-efficient transport, and the publication of a new smart grid strategy

(Velten et al., 2014).

4.3.4 Germany

Germany is the largest GHG emitter in the EU and has committed to ambitious emission

reductions that go beyond the target set by the EU: the Integrated Energy and Climate

Package of 2007 and 2008 stipulated a 40% emission reduction target by 2020, compared to

1990 levels. In 2010, Germany set a goal to obtain 80% of its electricity and 60% of its total

energy from renewable sources by 2050. As of the end of 2013, it was obtaining about 25%

of its electricity from renewables (compared with only 3% in 1990) (Gullberg, Ohlhorst, &

Schreurs, 2014). The goal of the Energiewende – the German term for an energy transition

to a nuclear-free and low carbon energy supply – is to maintain a competitive economy

while shifting the energy structure from a heavy dependence on fossil fuels and nuclear

energy to a system based primarily on renewable energies. Germany is at the forefront in

the promotion of renewable energy in the electricity sector. It has implemented a package

of diverse measures to promote efficiency and renewables in buildings, which is however

still insufficient to promote the necessary building renovation rates. The target of reducing

emissions by 40% by 2020 is not binding and there is no comprehensive climate and energy

strategy beyond 2020. More ambitious policies are especially needed in promoting

efficiency in industry and transport. In addition, several incentives still exist that increase

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greenhouse gas emissions, like tax rebates for energy intensive industries and for company

cars and travel to work (Climate policy tracker for the European Union, 2011).

Key policy developments: The coalition agreement that was negotiated after the

September 2013 elections outlines the broad direction of policies of the new government,

including climate and energy. The reform of the Renewable Energy Sources Act forms a

centerpiece of the agreement, but specifics are still to be decided. Policy developments

include the adjustment of energy efficiency standards for new buildings, the publication of

mobility and fuel strategy and the adoption of a Federal Plan for the transmission grid.

However, due to the run-up period to the elections, not many changes were made in

climate and energy related policies in 2013 (Velten et al., 2014).

4.3.5 Estonia

Estonia’s economy is more than twice as CO2 intensive as the EU average and does not have

a comprehensive climate strategy in place. In May 2014, the Ministry of the Environment

announced a tender for the development of a climate strategy (EEA, 2014). The country

faces several challenges due to post-socialist economic restructuring such as the collapse of

former key industries, a sudden rise in living standards for part of the population, a high

amount of foreign investment and vulnerability to the economic crisis. Estonia focuses on

measures which are necessary to meet EU targets and to profit from Kyoto but does not aim

at further reductions. As efficiency standards in the building and energy sector are generally

still at a low level, efficiency improvements are economically attractive and in the public and

political interest.

GHG emissions from the transport sector are particularly important and have increased

since 2005. Newly registered cars have very high average emissions and even though the

fuel excise tax rates have been raised 10 times in the last 15 years, there have been no

noticeable results (EEA, 2014). Estonian political sustainability ambitions are specifically

focused on nature protection and the avoidance of pollutants. Estonia is obliged to increase

the share of renewable energy sources in the whole of energy consumption as compared to

the reference year of 2005 to 25% by 2020 (National renewable energy action plan). Estonia

has managed to increase the use of renewables in both electricity generation and in heating

and cooling. For renewable electricity, Estonia’s main support scheme is a feed-in tariff

(EEA, 2014).

Key policy developments: Changes in the Liquid Fuel Act, presented in August 2013, foresee

biogas mixing obligations starting from January 2016. A program to subsidize electric car

purchases and to improve the network of chargers received additional funds and electric

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cars have been made available for rent in Tallinn and Tartu. Moreover, the Estonian

government tightened energy efficiency requirements for public buildings bringing

legislation up to date with the EU Energy Efficiency Directive. Also the support scheme for

renovations of apartments was extended in August 2013 (Velten et al., 2014).

4.3.6 Latvia

Energy security is a key concern, as Latvia remains isolated from EU energy networks and is

highly dependent on Russian gas. Therefore, “National Energy Strategy 2030”, in force since

March 2013, sets long-term actions to ensure energy supply, competitiveness, energy

efficiency and the use of renewable energy. In the transport sector, emissions steadily

decreased between 1990 and 2011. However, since 2005 the overall trend is negative and

emissions have slightly increased (EEA, 2014). Latvia is one of the most energy-intensive

Member States due to the high energy intensity of industry, transport and households. For

example, the housing stock consumes 40–60 % more energy than necessary (EEO, 2013).

With one fourth of all of Latvia’s emissions, the transport sector is the main greenhouse gas

(GHG) contributor (EEA, 2014). Efficiency levels in the building and industry sector are low,

which makes efficiency improvements economically attractive.

LCD in Latvia is integrated in several national programmatic and conceptual documents, e.g.

"Sustainable Development Strategy for Latvia until 2030" and "National Development Plan

2014-2020". "The Guidelines of the National Environmental Policy for 2014-2020" refer to

EU 2020 and highlights necessity to move towards LCD. It also sets the goal to develop

national low-carbon development plan during 2014. “National reform plan for

implementation of EU 2020” aims for LCD and sets several goals for non-ETS sectors

(support for renewables, sustainable transports and energy efficiency improvements) and

research and development.

Key policy developments: The main renewable energy support scheme (a feed-in tariff) is

still under revision. A draft Renewable Energy Law was submitted to the Parliament for

consideration, but has not been adopted yet. At the same time, a new tax for subsidized

electricity producers was approved in November 2013 and is introduced since January 2014:

the tax is paid by companies receiving financial support for power generation from

renewable energy sources or from combined heat and power plants, making those low

carbon technologies less attractive. In 2013 the Ministry of Economics issued the Building

Certification Rules (Regulation No. 383) that introduce a comparative assessment scale and

emphasize audits, in line with the new Law on Energy Performance of Buildings and is

planning to develop a long-term energy efficiency strategy.

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4.3.7 Lithuania

Taking into account that Lithuania as well as other countries from former Soviet bloc

inherited highly inefficient use of natural resources, especially energy (Dagiliūtė & Juknys,

2012), National strategy for sustainable development (2003, amended in 2009) focused

largely on the increase in eco-efficiency and energy intensity (use of final energy per GDP

unit was reduced approximately 2.5 times over 1990 - 2010 time period).

Special attention to the acceleration of growth in renewable energy was paid from the year

2010 when National strategy for renewable energy and National plan for its implementation

were adopted. Lithuania is obliged to increase the share of renewable energy in the final

energy consumption to 26% by 2020. The share of biomass in centralized heating systems is

foreseen to increase to 60%, in private houses – to 80 %. Installed capacity of wind power

stations is planned to increase from 170 MW in 2010 to 1000 MW (700 onshore and 300

offshore) in 2020. These obligations were confirmed in the Law on renewable energy which

was adopted by Lithuanian Parliament in 2011. By 2020, Lithuania also intends to meet the

target of 75 % of heat provided in heating systems from CHP plants (EEA, 2014).

Lithuania is highly dependent on energy imports, especially after the shut-down of the only

nuclear power station. Along with promotion of renewable energy, construction of a Liquid

gas terminal and new nuclear power plant are planned as part of the 2012 Energy

Independence Strategy. Transport fuel taxes, for example, are amongst the lowest in the EU

(EEA, 2014). LG terminal is going to be completed at the end of 2014, however, regarding

new nuclear power station final decision is still not adopted. The 2012 National Strategy on

Climate Policy sets national climate targets and objectives for the short-, medium- and long-

term. A number of measures are outlined in a recently published Action Plan. Policies are

also in place addressing agriculture, waste and forestry.

Key policy developments: An Inter-Institutional Action Plan came into power, specifying

implementation measures for achieving the objectives set out in the National Climate

Strategy. According to the evaluation made by Ministry of Economy, the biggest potential

for energy saving is characteristic of household sector, followed by transport and industry.

Over last two years Lithuania took important steps to spur energy efficient renovations of

soviet style residential block houses with very bad thermal behavior, and is currently

drafting new policies on waste management. Furthermore, the support for solar power was

reduced (Velten et al., 2014).

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4.3.8 Poland

Although Poland has an energy strategy, it only reaches until 2030 and the level of ambition

is too low. Policies in the fields of energy, industry and forestry do exist, but are not

sufficient to reach a low-carbon economy by 2050. In the fields of buildings, transport and

agriculture, big efforts are needed in the future to develop them towards a low-carbon

future (Climate policy tracker for the European Union, 2011). The emission factor for power

generation in Poland is more than twice of that of the EU, with coal being the main fuel

(90% in 2009). Currently, Poland is renewing its outdated complex of power plants (70%

older than 30 years); 24 GW are being planned or built, mainly using coal or gas, while the

renewable energy potentials remain underexploited (Velten et al., 2014). Economic

adjustment cost for Poland hinge crucially on restrictions to where-flexibility of emission

abatement, revenue recycling, and technological options in the power system (Böhringer &

Rutherford, 2013). Large energy savings could be realized in the building sector, where

energy for heating could be reduced by more than 80% (EEA, 2014; Ürge-Vorsatz, Herrero,

Wójcik-Gront, & LaBelle, 2012).

By 2050 the primary energy supply is expected to increase to 4.8 1018 J while final energy

consumption to 3.3 1018 J. Hence, roughly assuming the proportional reduction of 80% to all

GHGs (including CO2 emissions from fossil fuel combustion), the overall carbon intensity of

primary energy can be roughly estimated at 3.89 g C MJ−1 while the overall carbon intensity

of final energy at 5.65 g C MJ−1 (excluding LULUCF) (Budzianowski, 2012).

Key policy developments: Poland is currently developing policies in the energy sector,

mostly concerning nuclear power and shale gas. A draft amendment of the Nuclear Energy

Act was adopted by the Council of Ministers, including requirements related to nuclear

safety and radiological protection for radioactive waste. Furthermore, the final draft of a

new law on the taxing of hydrocarbons, which will govern taxation of oil and gas extraction

in Poland, was published. The regulations are set to enter into force in 2015, but do not

foresee taxes actually being levied until 2020. This delay is intended to encourage shale gas

extraction in Poland, as companies would not face taxes on the resulting fuel in the short

term. A new draft law on renewable energy deployment envisions a new support scheme

based on tendering. Addressing energy efficiency, a new draft law plans to introduce the

obligation to receive energy performance certificates for buildings. Furthermore, a new

nationwide grant program to support energy efficiency in newly built residential buildings

was installed (Velten et al., 2014).

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5 Stakeholder engagement

One reason why political and economic systems are stable is because they are embedded in

society. People adopt their lifestyles to them, favorable institutional arrangements and

formal regulations are created, and accompanying infrastructures are set up. Systems and

especially societies as highly complex systems can only evolve in a co-evolutionary way. In

other words, if we want a LCD to work, we need to understand the preferences of

stakeholders, their perceptions, knowledge, cultural background, average income levels of a

country’s or region’s inhabitants, etc.

That would require transition from market to network-type governance (Bähr & Treib,

2007). Accordingly, executive government is no longer the sole agent and the role of other

interest groups is growing. All stakeholders are responsible for the current state of the

environment and they must become agents of change in the formation of a sustainable

future. To ensure LCD we have to encourage co-operation, partnership and alliances,

thereby creating a network of mutual support and reliance. Participation of all stakeholders,

including businesses, governments, households and mediators (NGOs, educational facilities,

media and other stakeholders mediating information, values and behavioral patterns) is

needed to do that (see Fig. 13).

Figure 13: “Pyramid of Change” (Jānis Brizga, 2012)

However, successful implementation of LCD still depends to a considerable extent on the

active involvement of the governmental bodies (Skea & Nishioka, 2008). To date, only a few

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successful LCD instruments are known, in the application of which the role of executive

government is limited, e.g. various community initiatives and voluntary instruments. Indeed,

executive government is making increasing use of voluntary instruments, engaging in

partnerships with the private sector, as well as using communication instruments. However,

in practice government still makes the broadest use of regulatory and economic

instruments, e.g. in the form of regulations, standards, taxes and subsidies. It is the task of

executive government to prevent market failures by introducing green budget reform,

ensuring fair division of resources within society, forming the infrastructure, the spatial and

legal framework, supporting social (systemic) innovations and social entrepreneurship,

stimulating and encouraging public participation, dialogue, experiments, learning and

diffusion of best practice among the general public in order to encourage LCD (Jānis Brizga,

2012). These functions must be implemented in collaboration with other stakeholders.

Business strategies to support LCD are restricted by profits and the growth effect (with the

exception of social entrepreneurship), because companies operate in the interests of their

shareholders who make investments in companies in order to obtain profits. Therefore, the

corporate approach in the realm of LCD is usually limited to the eco-efficiency approach —

resource efficiency improvements within the supply chain, eco-design of products,

introduction of the principle of green procurement and green marketing. The business

approach to sustainable consumption governance conforms to the market governance

approach currently implemented, which does not resolve the problem of increasing

environmental pressures caused by the volume and rebound effects. Also emissions

embedded in imported products has to be addressed. Global supply chain and current GHG

accounting methodologies may allow having national emissions decrease while contributing

much more to the climate change outside the national borders via consumption of imported

goods.

It is only partially possible to resolve this problem within the parameters of the current

economic model. New business initiatives are increasingly emerging, e.g. companies which

encourage joint use of products (sharing economy), and social enterprises, whose main task

is not to generate profits, but rather to satisfy the needs of the population and to perform

functions of social significance. In the BSR, this type of business is only just beginning to

develop. However, there are many niche businesses in the realms of organic food, eco-

design and eco-technologies.

People in the BSR generally recognize the importance of climate change, hoverer proportion

of people who think that it is one of the most serious problems we are facing ranges from

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81% in Sweden to 28% in Estonia (EC, 2014). In the BSR climate change is perceived to be

the second most serious issue facing the world, behind poverty, hunger and lack of drinking

water (see table 6.). However, people in the 3 Baltic States and Poland are some of the most

skeptical among Europeans in ranking climate change as the problem and put economic

problems in front.

Table 6. Which of the following do you consider to be the most serious problems facing

the world as a whole? (%)

Poverty, hunger and lack

of drinking water Climate change Economic situation

Denmark 78 73 41

Germany 81 70 38

Estonia 66 28 59

Latvia 59 33 61

Lithuania 69 41 70

Poland 65 38 47

Finland 77 59 36

Sweden 85 81 27

Source: (EC, 2014)

People are most likely to think that responsibility for tackling climate change lies with

national governments and business and industry. There is difference between the 3 Baltic

States and Poland and other countries of the BSR in terms of taking responsibility for climate

change: people from Poland and the Baltic States are less likely to think they have a

personal responsibility for tackling climate change (see table 7.).

Table 7. In your opinion, who within the EU is responsible for tackling climate change? (%)

National Governments Business

The European

Union You

personally Environmental

groups

Regional and local

authorities

Denmark 68 53 57 51 15 27

Germany 45 52 41 31 11 12

Estonia 34 35 25 16 21 13

Latvia 32 35 20 12 23 12

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Lithuania 34 41 22 24 33 16

Poland 42 26 36 12 24 22

Finland 48 51 32 32 11 11

Sweden 71 39 59 57 22 33

Source: (EC, 2014)

Also responding to the question have you personally taken any action to fight climate

change over the past six months, there is clear divide between Scandinavia and Germany

and the Baltic States and Poland: first are more likely to be engaged, but only around 30% of

respondents from the Baltic States and Poland have taken any action. Respondents in

Sweden are the most likely to say that they have taken some form of action (80%),

compared with a quarter or less of people in Estonia (25%).

Public opinion polls demonstrate that households willingly engage in is to reduce waste and

regularly recycle, which does not require much effort or money; and, if they are wealthy

enough, they choose environmentally friendly products and services, but are nevertheless

resistant to a reduction in consumption and significant changes in the organization of their

daily lives. The other actions most widely undertaken include: trying to cut down on the use

of disposable items, buying local and seasonal produce whenever possible; choosing new

household appliances mainly because they are more energy-efficient; regularly using

environmentally-friendly forms of transport as an alternative to their own car; and

improving home insulation to reduce energy consumption (see Table 8.).

Socially well-established practices are hard to break and the behavioral habits of consumers

are determined by a complex set of external and internal factors. Similarly production

patterns of businesses are determined by available technologies, market signals and fiscal

instruments. Therefore businesses and consumers cannot be sole held responsible for LCD.

In order to ensure LCD, more extensive collaboration should be encourage between

different stakeholders. The role of NGOs and science is particularly important, because

these interest groups enjoy the high public trust.

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Table 8. Have you personally taken any action to fight climate change over the past six

months? (%)

Reduce waste and regularly recycle

Cut down on the use

of disposable

items

Buy local and

seasonal produce

Choose new household appliances

mainly because they are

more energy-efficient

Regularly use

environmentally-friendly forms of transport

Improve home

insulation to reduce energy

consumption

Denmark 72 58 46 57 46 31

Germany 79 68 44 44 43 21

Estonia 58 54 43 37 31 35

Latvia 33 36 48 24 27 18

Lithuania 45 37 27 20 9 14

Poland 59 36 22 26 12 12

Finland 73 55 38 28 40 17

Sweden 85 61 53 33 61 20

Source: (EC, 2014)

The use of regulatory, economic and communication instruments in realms such as energy-

efficiency is considered to constitute acceptable conduct on the part of various interest

groups that is worthy of support, but, for example, restrictions on the use of vehicle

transport and electrical appliances or changes in people’s diets are perceived as excessive

restriction of the individual’s freedom of choice, and accordingly, there is a lack of

coordinated and targeted actions within these fields aimed at reducing GHG emissions.

Stockholders must encourage cooperation and information exchange among themselves,

providing methodological support for initiatives implemented in regard to LCD. This would

be complex process due to parallel conflicting interests. A prerequisite for the development

of close and coordinated cooperation networks is horizontal and vertical integration

between stakeholders, e.g. inter-sectoral cooperation between businesses and within the

supply chain, as well as collaboration between the state and other interest groups should be

encouraged by building trust.

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6 Best practice examples

Several low-carbon interventions could be implemented in the Baltic Sea region. High-

priority actions that have already been proven and could be scaled up over the next years

include the following:

• Sustainable agriculture;

• Sustainable electricity;

• Wind farm development;

• Cogeneration;

• Local initiatives.

Scaling up these examples will require new policies and the financing of incremental

investments, as well as other institutional and behavioral changes.

6.1 Agriculture in Denmark

Agriculture is of great importance for both economy and nature in Denmark, as 64% of the

total area is agricultural land and food makes out 15% of total export value. During the last

decades agricultural production has become highly specialized and intensified and is

characterized by high efficiency and increases in productivity. This has meant that the

number of farms has fallen from 200,000 in 1960 to 57,000 forty years later, and of these

are only 27,000 full time farmers (Making Agriculture sustainable, 2000). The intensification

of agricultural production has partly been possible due to a substantial increase in the use of

fertilizers and pesticides.

A range of low cost mitigation options exists also to mitigate emissions coming from

agricultural. However, they are mostly restricted to a proportion of the emissions (e.g.

methane emissions from cows) and is limited by institutional, social, educational and

economic constraints (Knopf et al., 2010; Smith et al., 2007). Measures to overcome these

barriers are crucial for a LCD. Emission reduction in agriculture could be driven by policy

instruments such as the EU Nitrate directive and as an integral part of a wider approach for

promotion of best available practices in agriculture and rural development.

Therefore, a string of measures have been introduced in Denmark to prevent the loss of

nitrogen from agriculture to the aquatic environment, for example the Nitrogen, phosphor,

organic matter Action Plan (1986), Action Plans for the Aquatic Environment (1987, 1998,

2004), the Action Plan for Sustainable Agriculture (1991) and the Ammonia Action Plan

(2001). These actions plans and initiated measures have brought about a decrease in animal

nitrogen excretion, improvement in use of nitrogen in manure and a fall in the use of

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synthetic fertilizer, all of which have helped reduce the overall NH3 emission significantly

(Mikkelsen, Albrektsen, & Gyldenkærne, 2014). Some of the measures covered by these

Plans are:

Optimization of manure handling during housing of cattle, pigs, poultry and fur

animals;

Rules on covering storage facilities for solid manure and slurry tanks;

Ban on surface spreading and reduction of the time from field application of manure

to incorporation;

Ban on ammonia treatment of straw.

The trend in the emissions of N2O in the period 1985 to 2011 and reveals that the emission

has decreased from 28.1 Gg N2O to 17.8 Gg N2O, which corresponds to a 37% reduction.

The main reason for the drop in the emissions of N2O in the agricultural sector by 31% from

1990 to 2007 is legislation to improve the utilization of nitrogen in manure. The legislation

has resulted in less nitrogen excreted per unit of livestock produced and a considerable

reduction in the use of mineral fertilizers. As the result the emissions of nitrogen reduced by

15-20,000 t annually. This means that ammonia evaporation from agriculture reduced from

90,000 t of nitrogen in the mid 1990s to approximately 60,000 t of nitrogen in 2004. A

shorter period of manure spreading has the greatest effect of emissions reductions - 13,000

t of CO2e annually.

Denmark has also promoted development of organic farming. Before 1987 there were only

a small number of organic farmers supplying goods to a limited market. A market hardly

existed until 1980. This began to change when a new certifying organization was founded in

1981: The Danish Organization for Organic Farming. Contact was made to the largest

supermarket chain in Denmark, which began to sell a few organic products. During the

1980s consumer awareness to organic products grew. A group of organic farmers made an

alliance with the Danish Family Farming Union, and this alliance led to a political process

that resulted in a pilot program for organic agriculture in June 1987 (Making Agriculture

sustainable, 2000).

Proportionally, the organic market in Denmark is the biggest in the world, with organic food

making up 8% of the total food market. The Danes prefer organic dairy products, eggs,

oatmeal, wheat flour and carrots. One in three liters of milk bought by Danish consumers is

organic and every other liter of milk consumed by pupils in Danish schools carries the red

organic label. The production of organic eggs accounts for 17% of total egg production. Also

consumers’ appetite for organic fruit and vegetables has grown; organic fruit and vegetables

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have increased their share of the total food consumption from 19% in 2006 to 23% in 2010.

The market share of organic meat, however, remains relatively low. In 2011, Denmark had

2,650 authorized organic farms and almost 7% of the total agricultural area are cultivated

organically.

6.2 Electricity certificates

As an alternative to feed-in tariffs for renewable energy, Sweden introduced electricity

certificates in 2003 - the most important policy instrument in promoting renewable

electricity production. Norway joined the system in 2012. The objective of the common

certificates market is to increase the production of renewable electricity with 26.4 TWh by

2020, compared to 20126. This corresponds to approx. 10 % of total electricity production in

both countries. For consumers who fail to buy enough certificates, there is a financial

penalty.

Wind power, wave power, biomass and peat CHP, solar power, geothermal power and

(some) hydro power are qualified for the quotas. The certificates are tradable on the Nordic

power exchange NordPool.

Producers of electricity from renewable energy sources receive an electricity certificate for

every MWh of electricity produced. By selling these certificates, the producer receives an

extra income in addition to the sale of electricity, making it profitable to invest in new

renewable electricity production. To create a demand for certificates, a quota obligation is

in place which is an annual obligation on the part of electricity suppliers to hold electricity

certificates corresponding to their sale and use of electricity during the previous calendar

year.

During the first years almost all new production was from biomass combine heat and

power, a technology which was already in wide use and with little need for innovation.

Compared to the feed-in tariff, for example in Germany, it has been cheaper but also

produced less innovation. Sweden was several years behind Denmark, Spain, and Germany,

and photovoltaics is still insignificant. But wind power is gaining in. In 2011 wind power

contributed more than 6 TWh or 4%, and it is still growing very fast.

One characteristic of the certificate system is that the prices are up to the market. The

prices have fallen from about €3.5 to about €1.5 per MWh, but, as said, this has not stopped

6 http://www.iea.org/policiesandmeasures/pams/sweden/name,21727,en.php

http://www.iea.org/policiesandmeasures/pams/sweden/name,21727,en.php

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a high investment level into wind power (J. Brizga et al., 2012). The explanation is that wind

power development has gathered momentum and that costs are falling, so it is profitable

even with a lower subsidy.

However, the practical design of the system has several disadvantages.

Peat, which is considered equivalent to fossil fuels by the IPCC, the EU, the

international Energy Agency (IEA) is subsidized along with bona fide biomass;

Heavy industry is exempt from the obligation to buy certificates for their electricity.

This is in line with a long standing Swedish practice of supplying cheap and polluting

electricity to the industries.

Hydro power is very heavily exploited in Sweden any further expansion comes at a

high cost for nature, according to the NGOs, and should therefore be discouraged

and, at least, not be subsidized. This aspect may be even more important in Norway.

6.3 Territorial planning for Wind farm development

Development of the wind energy in the Baltic Sea are has been quick, especially in Denmark,

which has a highly decentralized electricity system, where 20% of all electricity generated

comes from wind turbines. Denmark also has diversified support system for renewables,

encouraging a variety of technologies through a system of price premiums, a tendering

system for offshore wind and additional measures provided by the transmission grid

operator. It has been very successful in integrating a high share of fluctuating renewable

sources, especially wind, into its grid.

In Denmark, wind power is included in land-use planning, and in the 1990s, good land-use

planning, including sites for wind power, was part of the Danish success of wind power in

the 1990s.

The benefit of removing bureaucratic obstacles in wind energy development lies in enabling

the feed-in tariff to be effective. On the flip side, simpler regulation as regards the complaint

procedure in wind energy development may be problematic from the point of view of

nature protection. This is a common point of view of NGOs focusing on nature conservation.

On the other hand, if regional planning is carried out to allocate the optimum sites for wind

power, nature conservation concerns can be included in the evaluation criteria before

developers start to push for permits for specific sites. When the planning application is

submitted it simplifies the planning decision process for the individual projects and speeds

up projects.

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Similar approach is also used by Estonia. The thematic spatial planning for the development

of wind energy has been prepared in four municipalities in the Western part of the country.

Spatial planning approach creates opportunities to speed up approval of construction of

wind generation capacities. The area covered by the planning process may be suitable for up

to 1300 MW of wind power. One result of the planning process is increased acceptance of

wind energy.

Offshore wind power is also being considered in Estonia with a new regulation for use of sea

areas for construction of offshore installations. This regulation creates the opportunity to

seek permits for establishment of offshore wind parks. Three wind park projects are under

preparation with an expected installed capacity of 1490 MW. Construction of the offshore

wind parks is expected to take place in 2013-2020 (J. Brizga et al., 2012).

6.4 Combined of heat and power

Promoting combined of heat and power (CHP) and district heating is important for the

transition to LCD as it improves efficiency of the energy system (avoiding wasteful

condensing power production) and improves flexibility to use many heat sources for district

heating and to store heat in easy ways using hot water tanks. This has secured early markets

for district heating technologies and a cheap avenue for the use of many renewable energy

sources like straw, municipal waste, wood waste and geothermal energy.

CHP is popular all over the BSR. Increased use of CHP and enlarged district heating areas

have been the main elements of the Danish strategy to promote RES and the efficient use of

energy resources since the end of the 1970s. Now more than half of Denmark's domestic

electricity consumption is co-generated with heat at CHP plants, even though some the CHP

is coal-fired, and the potential for further use of CHP is limited. For this reason, only a

smaller increase in CHP production is expected in the future, but the share of CHP in

thermal electricity production could increase up to about 90% with more heat storage, more

PV to produce electricity in the summer when less heat is needed, and more intelligent

energy networks. CHP has been promoted partly by the tax system, partly by electricity

production grants for small-scale CHP plants and, lastly, by prioritizing electricity from small-

scale CHP plants.

In Lithuania and Latvia promotion of CHP is part of the national energy strategies and

supported by feed-in tariffs. In Lithuania plans suggests the promotion of biomass in district

heating up to 2020:

CHP using biomass, currently 80 MW, planned 600 MW;

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boilers using biomass, currently 310 MW, planned 525 MW;

boiler additional capacity with support schemes 300 MW (currently 0 MW).

Studies on biomass CHP (Evald, 2006) propose that:

larger plants have lower own consumption and better availability, which means that

larger plants perform significantly better in fossil fuel substitution and in operational

economic performance;

there is a general tendency that the CHP plants are built with a too high capacity. A

large plant, covering close to or even more than the peak heat demand in winter will

show a low utilization of installed capacity the main part of the year, and it might

even have to shut down during summer due to limitation in low load operation;

heat and power should be balanced;

The higher pressure and the higher temperature in the steam cycle the better.

Generally larger plants operate at higher steam data and modern plants are also

better in this context than older plants;

CHP plants built to provide steam and other heat demand for an industrial facility

seem to provide a less solid foundation for an efficient biomass CHP operation;

The different CHP technologies show rather large difference in own consumption,

meaning a sensible choice of technology is important.

6.5 Local initiatives

Local initiatives by municipalities, NGOs, etc. are important parts of many national climate

and energy policies, and they are also important to realize future sustainable energy

transitions. In municipal level the actions can be included as: 1) renovation of public and

private buildings 2) improve of local road infrastructure, 3) implementation of efficient

street lighting, 4) implementation of renewable in local district heating and local electricity

generation, 5) improvement of waste management and waste water treatment systems and

use of collected biogas from landfills and waste water for generation (Streimikiene,

Baležentis, & Kriščiukaitienė, 2012).

In 2008, five Finnish municipalities launched a climate project, known as carbon-neutral

municipalities, that is unique not only in Finland but internationally too. The objective was

to reduce GHG emissions by more than required by EU. These municipalities have

committed to an 80% emission reduction by 2030 from the level of 2007 (J. Brizga et al.,

2012). Sixteen municipalities, which have joint this project, have cut their GHG emissions by

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an average of 19% in six years. The municipalities, which recorded the greatest emissions

reduction, are Hanko (-34%) and Ii (-31%).

The project aimed at creating tools and procedures to enable Finnish municipalities to

mitigate climate change and promote the adoption of climate-friendly technologies.

Suitable solutions were sought through close cooperation between researchers, the public

sector and businesses. The aim was that successful tools and practices could also be applied

elsewhere in Finland and abroad. The municipalities were to define short-term goals and

plan required measures together with experts. Consequently, achieving concrete results

within just a few years was envisaged.

One of the project’s most significant private sector measures comes in the shape of the Yara

fertilizer plant’s investment in N2O catalyst technology. This will cut the factory’s

greenhouse gas emissions by approximately 90%. Another remarkable initiative is the closed

circulation energy solution devised by Sybimar Oy. This facilitates the utilization of nutrients,

water and carbon dioxide in energy and food production.

The activities undertaken in carbon-neutral municipalities vary from enhancing energy

efficiency to installing renewable power capacity. In one case a beneficial “green loan” by a

local bank enabled households to switch from oil heating to renewables, as well as testing a

new technology in biogas production, multiplying the energy output manifold. Some

municipalities have created energy efficiency standards in public procurement for IT and

other office equipment, logistics, building projects and heat and electricity purchases.

The single most important reason for the initiative taking off is the commitment from the

highest possible level – mayors. New forms of cooperation within and between

municipalities are another success driver. The role of the media in showcasing success

stories has also been an important factor.

Similarly also in Latvia ten municipalities have joined the European Covenant of Mayors,

which aims to improve energy efficiency and the use of renewable energy sources in their

territories. Through their commitment, the covenant signatories aim to meet and exceed

the European Union’s 20% CO2 reduction target by 2020. By the end of 2014 around 19

municipalities in Latvia have adopted sustainable energy action plans.

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7 Transition to LCD in the Baltic Sea Region

Numerous studies and EU roadmaps and the impact assessments accompanying them show

that within a coming decades deep cuts in GHG emissions and the transformation of the

energy, transport and other systems are required. However, realizing these visions will not

be easy. First of all, business-as-usual projections by, among others, the IEA show that GHG

emission growth would coincide with growth of primary energy demand (approximately

40% GHG increase), whereas reaching the max-2oC target would require global cuts in

emissions by at least 50% by mid-century, which would imply essentially carbon-free

societies in industrialized countries by then.

Experience since the early 1970s show that the successes in terms of reducing energy

intensity of economy and thus carbon intensities in most industrialized countries were more

than offset by the economic growth patterns. Therefore, “[s]implistic assumptions that

capitalism’s propensity for efficiency will allow us to stabilise the climate and protect against

resource scarcity are nothing short of delusional” (Jackson, 2009). However, data from BSR

demonstrate that emission decoupling from economic growth is possible and thus LCD

could be compatible with a growth agenda (Hey, 2012).

Nevertheless, to implement the EU’s and BSR long-term LCD visions, economic, energy and

societal systems need to change in terms of revising incentives, acceleration of research &

development, deployment and diffusion of low-carbon technologies, improving systems for

these technologies, as well as accelerating adoption of best practices and social innovations

leading towards behavioral change in consumption and production patterns. To facilitate

these changes a wise and joint consideration of technology, policy design and sectorial

aspects are needed (Hübler & Löschel, 2013).

7.1 Co-benefits and trade-offs

When developing LCD strategy we have to take into consideration the entire suite of

associated co-benefits and trade-offs of different LCD policy interventions. Balancing

environment and development needs has long been recognized as a matter of managing the

multiple objectives of different stakeholders, and finding trade-offs and synergies between

conservation and development (Brundtland, Environment, & Development, 1987; Ostrom,

1990; UN General Assembly, 2012). The challenge for policy makers is to identify how to

select the ‘best’ options when faced with both long term and wide spatial distribution of

costs and benefits (Tompkins et al., 2013).

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The benefits to BSR of taking a stronger position on climate change and promoting LCD are

competitive and strategic, because:

It is likely to suffer from the impacts of climate change (storms, sea level rise, etc);

Europe’s ability to maintain world leadership in global climate policy and emission

reduction will depend on whether member states can find a way to work together in

combating differences between countries in difficulty and costs of transforming the

energy system (Josefsson, 2014);

Numerous “no-regrets” low-carbon interventions (interventions that have positive

economic rates of return and should be undertaken irrespective of climate change

considerations) can contribute substantially to economic development in the region;

Many low-carbon interventions have important co-benefits for the region, including

the enhanced energy security (diversifying energy mix, developing renewable energy

and improving energy efficiency); improved competitiveness associated with energy

efficiency (on both the supply and demand sides); the human health benefits from

better transport and energy systems reducing local air pollution; and the

environmental protection benefits that can be achieved through forestry and natural

resource management, waste-reduction programs, and reduced emissions of local

pollutants.

Countries that pursue LCD, including the transfer of financial resources through the

carbon market and public programs that support climate change mitigation, are

likely to reap strategic and competitive advantages.

There are also clear potential synergies between LCD measures and other policy goals.

Replacing conventional energy technologies with alternative ones can have a positive

impact, such as improving air quality and enhancing energy security. Investments in energy

efficiency improve quality of live and industrial competitiveness, decrease energy

dependence and create jobs. In the same time there are different potential co-benefits also

in sectors like bioenergy, which has been much criticized recently for its conflicts with food

supply. Wiesenthal and Mourelatou (2006) argues that there are potential co-benefits

between bioenergy production and nature conservation, especially when: 1) bioenergy is

produced from forest residues which reduces fire risk and reduces the cost of fire

prevention; 2) bioenergy is produced from grass-cuttings which reduces costs for preserving

an open landscape and species-rich grassland; 3) bioenergy is produced from the correct

crop mix and cropping practices which can be better for the environment than intensive

farmland management.

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LCD at the same time can conflict with other environmental, social, political and economic

objectives. In the bioenergy sector, the trade-off problems are explicit. As large-scale

energy crop production will increase the competition for land, water, and other inputs, they

may create conflicts with other development aspects, e.g. food security, land-use emissions,

deforestation, water use and biodiversity loss (van Vuuren, Kitous, Isaac, & Detlef, 2010).

Given the regional specifics and environmental advantages of forest bioenergy compared to

agricultural bioenergy, the demand for forest biomass for production of second generation

biofuels and bioenergy/heat can be expected to grow in the near future (Söderberg &

Eckerberg, 2013). Considering that a conflict already exists within the EU between nature

conservation and forest production (Edwards & Kleinschmit, 2013) an increased wood-for-

energy demand can be expected to further complicate this conflict.

These are just some examples, but decision makers and the public have to be informed

about these trade-offs and synergies to be able to make consolidated decisions about

specific measures. The potential uncertainties and hazards are listed in table 9.

Table 9. Different climate mitigation measures and their associated unresolved challenges

and potential hazards

Mitigation options

Unresolved challenges Societal and Environmental hazards

Carbon capture and storage

Leakage of storage; monitoring costs; warning systems; Emissions from transport; Potential competition with geothermal energy

Abrupt release of large amounts of GHG; Ground instabilities, triggering of seismic activity; Contamination of groundwater; Impact of drilling operation at sequestration site (acidification)

Nuclear energy Disposal of waste; Water pollution due to uranium mining

Proliferation and terrorism, especially with fast breeder; Long-term active waste; Severe accidents

Wind and solar energy

Integration into electricity grid; Fluctuations and variability of demand and supply; Large upfront investments required for technological learning

Impacts on birds and bats

Wind offshore Offshore-parks near coastlines could compete with other purposes (fishery, navigation, military, tourism, maritime conservation)

Bioenergy Food security; Co-emissions of Famines; Irreversible loss of

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N2O, indirect CO2 emissions from land-use change; Biodiversity impacts

biodiversity - intensive biomass production detrimental to biodiversity and protected forests threatened; Climate change - Intensive biomass production for biofuels may increase GHG emissions

Geothermal energy

Groundwater pollution; Possible release of greenhouse gas emissions trapped deep within the earth

Drilling and cracking can possibly trigger seismic activity; Possible subsidence blow out while drilling

Geo-engineering options (influencing the radiative balance by altering the albedo)

Not assessed at all in integrated assessment models (e.g. production of stratospheric sulphur aerosols, space mirrors, cloud seeding)

Often associated with high and unexpected impacts; Unknown effects on regional climate; Does not resolve ocean acidification; Most techniques are unproven

Source: Adopted from Knopf et al. (2010) and Söderberg and Eckerberg (2013)

While co-benefits can obviously provide an important incentive for LCD, the associated

trade-offs could slow down transition. Therefore developing a broad knowledge portfolio is

of key importance to be able to limit trade-offs and hedge against uncertainties.

7.2 Governance approach

At all levels of government, LCD strategy would imply increasing state intervention

(investment, subsidies, regulation, inducements, sanctions and so on) in order to reduce

dependence on fossil fuels and facilitate low-carbon transitions (While, Jonas, & Gibbs,

2010). However, engagement of stakeholders is also crucial for turning the possibility of a

LCD into a reality.

Therefore the governance model proposed here for LCD aims to steer the dynamics of

transitions through interactive, iterative engagement between networks of stakeholders.

The ‘management’ process involves creating shared visions and goals, mobilizing change

through transition experiments, and learning and evaluation of the relative success of these

experiments (Kemp & Rotmans, 2005; Loorbach, 2007).

Transition management is, therefore, a form of participatory policymaking based on

complex systems thinking. A key element of this process is the ‘hardware’ - the

organizations and the procedures of governance for LCD, the ‘software’ - the knowledge to

implement LCD, and the ‘power’ - the political will, is needed (Jordan, 2002).

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Particular institutional arrangements strongly influence the governance of LCD and

consequently frame the ways in which conflicts are resolved. In turn, the institutional

arrangements and governance processes shape the patterns of technological change that

arise.

Policy integration should also be integral part of the LCD as it is relevant to a large range of

policy areas, including fiscal, development, technology, investment, labor, innovation,

adaptation, trade and foreign policies (OECD, 2014). However, LCD objectives should also be

integrated into crossectoral national development plans and budgets (EC, 2013; OECD,

2013). At the same time possible policy conflicts should be identified and dealt with.

Based on these governance elements countries should advance in their LCD strategy

planning, which as a minimum should include visioning, policy integration, investment and

capacity building.

7.3 Strategy formulation

LCD has to start from the base of our today’s system that is characterized by multi-level

governance and the existence of a multitude of actors with converging and opposing

opinions. The challenge therefore is to formulate a strategy which helps realize the long-

term vision for LCD and be credible and attractive to the diverse stakeholders. For such a

strategy it is necessary to respond to the following questions determining LCD policy focus

(see fig. 14):

Should it prioritize development or the environment? How to deal with the general

conflict between economic growth and environmental pollution?

Should it take the happiness or economic efficiency as a point of departure of

policies to promote LCD? Obviously, people's happiness depends on economic

development, but high economic efficiency is not certain to promote socioeconomic

development (The Easterlin Paradox; see e.g. Navaitis, Martinsone, and Labutis

(2013)). Although the rise of economic efficiency is based on a modest development

of economy, in a short time it may slow down economic growth and thus affect

income distribution and socioeconomic development.

Should it favor production or consumption as a focus to promote LCD? Although the

state and government are trying to promote integrated policy measures of

production and consumption, in fact they are difficult to achieve.

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TEH. DEVELOPMENT

ENVIRONMENT

HAPPINESS ECONOMIC EFFICIENCY CONSUMPTION

PRODUCTION

? STRATEGIC OPTIONS

Fig. 14. Dimensions of LCD strategy development

The strategy should identify suitable technological and social innovations and measures and

analyze how these can be embedded in systems of economic, political, social and

psychological perceptions and values, and how the latter need to be adapted to make the

innovations work. The acquisition and absorption of these innovations, and their further

development, are complex processes that demand considerable knowledge and efforts on

the part of those that acquire them. It is the capacity of the countries and the enabling

environment in those countries that will enable them to change to a low carbon economy

(Expert Group on Technology Transfer (EGTT), 2009).

How we make choices among the above mentioned dilemmas and choose innovations

pathways today will determine the future development. From literature there are at least

four pathways to sustainable future (Mont, Neuvonen, & Lähteenoja, 2014):

Singular Super Champions - leap to a new type of sustainable, competitive and

equitable economy supported by the deployment of instruments that radically

reformed market conditions - remove subsidies from industries operating with

inefficient legacy technologies in the energy and resource intensive fields, invest in

massive R&D centers, demonstration projects and education.

Governing the Commons - digital reality enables the smart use of resources and

redirects people’s behavior and focus of attention from material consumption and

their physical surroundings to interaction in the digital realm and helps people to

break free from many cultural constraints and, eventually, to reach sustainability.

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Local Loops – development of local and regional resource loops and self-sufficiency

inspired by transition town and eco-village experiments;

Empathetic Communities - reforms that helped companies, individuals and local

authorities to refocus on nurturing experiments with local energy and food

production, energy retrofitting and peer-to-peer services at the city level.

These pathways illuminate different approaches to the questions of the roles of different

stakeholders, the key technological and institutional changes that are involved, and key

social challenges arising, as well as extent the BSR could play a leadership role, in both

technological and political terms, in relation to the rest of the world.

These approaches can be further aggregated into two contrasting visions differing in mix of

technologies employed. One technology-driven, with citizens placing great emphasis on

comfort and convenience, living urban lifestyles with centralized production systems and

GDP per capita growing at about 2% per annum. Another is of a slower-paced, nature-

oriented society. People tend to live in decentralized communities that are self-sufficient

where both production and consumption are locally based and society emphasizing social

and cultural values rather than individual ambition.

There are also some of the main choices to be made when developing LCD strategy for the

BSR. In any case sustainability criteria should be used to make technology choices in order

to decrease risk of creation of systemic inconsistencies between different technologies and

a shifting of problems (Hey, 2012). Some of such a choices are e.g. on nuclear energy or

development of CCS. In any case, energy efficiency improvements both in industry and in

the households are essential. However, big differences are in transport needs relating to the

very different patterns of special planning and in the energy mix. The technology-driven

society relies heavily on centralized power plants, while localized society is more dependent

on decentralized removable energy and decreased energy demand. And both approaches

should equally focus on demand and supply side management.

Despite optimal choice of strategic directions, action is needed in the following areas to

achieve LCD in the BSR:

Long-term policy signals to strengthen carbon pricing, e.g. through taxation and

enhanced emissions trading, should be established to create appropriate incentives

for business.

Ecological tax reform - shifting tax burden away from income and employment

towards environmental pollution in order to internalize the cost of GHG emissions,

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revising electricity tariffs and increasing the prices of fuels and encourage businesses

and individuals to reduce emissions and consumption. Eliminate fossil fuel subsidies

and build support for advanced low-carbon technologies.

Improving regional cooperation and exchange of low-carbon technologies and best

practices. This can be achieved by expanding financial flows and developing new

financing mechanisms.

Trade regimes should be adjusted to encourage rapid deployment of technologies

and products that enhance sustainable development while lowering CO2 emissions.

Regulations on land use planning, construction, air quality and transport should be

enhanced. Stimulate public procurement to facilitate demand for environmentally

friendly goods and services and investments in energy efficiency in schools,

hospitals, government buildings, and municipal services.

Energy efficiency improvement should be accelerated, using incentives that

encourage institutional and behavioral change.

The demonstration and deployment of near commercial technologies is required, as

is significantly increased investment in R&D for promising technologies in the long

term.

Policies and frameworks should be implemented which enable a change in human

behavior and lifestyle, by removing high-carbon choices and providing households

with the opportunity to benefit from LCD.

Cultural shift to move away from materialism to a new standard of ‘good life’ build

around wellbeing, community and equity.

The required level of trust can be built by continuing and enhancing coordination by

national and local governments and by different stakeholders. Regional cooperation

should be enhanced, as should the sharing of expertise and best practice between

national, regional and international stakeholders.

Although new technologies and social innovations will be critical to meet the longer-term

goals needed to avoid the most severe impacts of climate change, many promising low-

carbon technologies will not be commercially available for more than a decade, during

which time the world will lose valuable degrees of freedom in stabilizing atmospheric

concentrations, if short-term options have not been simultaneously and vigorously pursued.

Taking into account these priorities we can identify several promising areas for mitigating

climate change in terms of LCD in the BSR, including:

• Expanding energy efficiency both in industry and households;

[66]



• Increasing development and use of sustainable renewable energy and reduce the

growing dependence on imports of fossil fuels;

• Decreasing demand for energy and resource consumption by better design of

products, services and space and by redefining ‘good life’ and progress;

• Increasing ecological carrying capacity or the region, by avoiding deforestation and

land degradation;

• Improved waste management ;

• Rethinking transport system in general, focusing on electrification of transport.

Those areas would have preferences in forming short term strategy with focus on fastest

GHG decrease. But due to limits in absolute emission reduction long term strategy should be

based on list of general areas described above.

Mutual structure of short and long term preferences will depend on strategic choices of

environmental vs technological focus; centralization vs decentralization; production vs

consumption focus described above.

7.4 Investment

In moving to a LCD countries from the BSR will need to experiment and gain experience,

especially with new investment mechanisms and regulatory policies to both stimulate new

innovation and support short-term solutions. One of the greatest challenges countries will

face is financing the (generally higher) upfront costs of low-carbon investments. To establish

domestic support for a LCD, countries should begin with measures that have positive

economic rates of return. Marginal abatement cost curve show, such interventions are

plentiful. Another priority is to promote interventions that have positive social and

environmental benefits, such as those that reduce local air pollution and health impacts.

However, it’s should be acknowledged that marginal abatement costs differ not only

between the EU ETS and the residual non-ETS segments but also across non-ETS emission

sources within each EU Member State (Böhringer, 2014). Thus, EU emission abatement is

becoming more costly than necessary.

It’s estimated that the transition to a low-carbon economy would need an additional

investment of 1.5% of European GDP, which would bring investment in the European

economy back to pre-crisis levels (European Commission 2011a). Covering these costs

would requires rebalancing national budgets, redirecting international financial streams and

shifting part of the total energy sector investment from supply expansion to energy

efficiency and the demand side management.

[67]



Some of this is happening already. There are several existing financial instruments, e.g. in

Latvia significant support for low-carbon technologies and climate mitigation measures have

been done via Climate Change Financial Mechanism. In the same time the EU has agreed

that at least 20% of its €960 billion budget for the 2014-2020 period should be spent on

climate change-related action. This is on top of climate finance from individual EU Member

States. This budget marks a major step forward in transforming Europe into a clean and

competitive low-carbon economy. However, the assessments on how this is implemented in

practice are critical (see for example Bankwatch report on climate spending in Central and

Eastern Europe - http://bankwatch.org/eastern-Europe-climate-spending-interactive).

Expanding capacity for demand-side investment will require innovation and structural

change within the finance sector. Most current financial mechanisms are ill prepared to

handle barriers associated with energy efficiency programs. These include financial

constraints on individual consumers, high implicit discount rates, partial information on

energy performance of end-use appliances, the need to organize a large number of

individual actions, and partial information on the potential savings to demand-side

investment (Skea & Nishioka, 2008).

To support the further expansion of financing mechanisms for low-carbon investment, clear,

stable, long-term signals are needed, particularly in terms of a global price for carbon.

Market mechanisms, such as carbon taxation and emissions trading systems, are key to

ensure this. Energy subsidies and tariff barriers need to be dismantled. The removal of

barriers, such as high transaction costs, technology risks and policy uncertainty, could

enable an increase in the scale of these investments in the BSR.

Economic factors are important in attracting low-carbon investments, but a strategy that

includes implementation of a policy framework with a low-carbon perspective, market-

creation policies, measures to promote technology transfer and a targeted investment

promotion programme considerably enhances a location’s offer (United Nations, 2013).

Therefore, putting in place supportive policies and programs to overcome the regulatory,

institutional, and market development barriers are important.

It should be noted that renewable energy investments and efficiency improvements

generally have higher initial costs. These costs are often compensated for by lower

operating costs, yielding a net economic benefit (in present value terms). Even where the

discounted life-cycle costs are lower, however, higher upfront investment costs often inhibit

such investments. For some interventions, in particular in energy efficiency, the initial

investments are offset by the savings in new generating capacity, resulting in “negative”

http://bankwatch.org/eastern-Europe-climate-spending-interactive

[68]



investment cost differences when upstream effects are considered. Investment by the

public sector will be critical, but financing will not have to come entirely from the

government; there is considerable room to involve the private sector in financing

investments in energy efficiency, renewable energy, and sustainable transport.

Some of these interventions could be supported by resources from the Cohesion Policy

programme 2014-2020, The EU Framework Programme for Research and Innovation

Horizon 2020, EU Structural funds (especially for Estonia, Latvia, Lithuania and Poland) or

international and local carbon finance mechanisms. Understanding the mitigation potential,

net costs, and implementation barriers is therefore crucial in the light of LCD.

7.5 Action plan

An eventual action plan for the BSR is developed below assuming that list of problems

addressed and activities included are a sample and should be expanded in detailed analysis.

LCD priority areas listed above are cross-included in action sets according to relevance.

Activities are derived not from strategic goals, but from the roles of LCD policies in BSR. The

main advantage of such approach is avoidance of discrepancy between scale of planning on

one side and authority and funding on other.

[69]



Role of BSR united LCD policies

Harmonizing LCD between BSR countries

Optimizing use of BAT and approaches to reach

EU Global Warming reduction targets

Support climate change public

awareness raising

Spread of complex competences and

information

Global positioning for fair sharing of

responsibility and support

Harmonization of regional, national and local LCD policy

plans regarding period in focus - 2020/30/50

Harmonization of business

environment among BSR countries

Main problems to be addressed

Some national/ local plans are more focused on short term set of solutions (2020/30) others – long term (2030/50) resulting in different approaches and instruments

-Business not always has clear market regulation signals for LCD -Some national policies can attract business from neighboring countries with less restrictive

LC policy

-Different political and economic LCD levels (post-Soviet countries versus Scandinavia); -Lack of complex approach in particular cases (including LCA)

In context of

2020/30 targets

In context of

2030/50 targets

-Choice between supply/ demand side approaches; -Choice between technological/ life style change approaches; -Choice of technological pathways (nuclear/hydrogen e.t.c.)

-Significant part of society receiving support for LCD activities (EE, RES) focuses on short term economic gains and not long term climate impacts; -Local information campaigns often show lack of deep competence and

low efficiency

Difficulties of fair share of responsibility and support in GHG reduction process among countries and

regions.

Areas of action (tasks)

-Explore differences in time scale focus in national/ local policies; -Support harmonization in national/ local/ time scale planning profiles ensuring effective movement towards long-term (2050) LCD goals

-Explore business environment differences among countries regarding LCD liabilities; -Support harmonization if necessary

Spread of best available data, tools, and technologies in LCD

Activities

- Research on policy planning compliance with long-term (2050) LCD goals; -Development of e-based harmonization and improvement tools; - Support for coordination and

cooperation

Spread of best available long term approaches in LCD and tools for inclusion and

harmonization

-Increase LCD personal value in society. -Support low-carbon lifestyles.

-Promote clear share of responsibility on world’s LCD arena; -Communicate best available approaches in

other regions.

-Research on business environment concerning LCD; -Support for planning authorities in harmonization of rules if necessary; -Support for business support organizations to foster LCD

- Development of user friendly comprehensive databases for LCD research and policy development needs; - Faster dissemination of knowledge and deployment of best available technologies; -LCD research cooperation and focused involvement of research capacities from post-soviet countries

-Research on LCD long term approaches to be most efficient in BSR in regional/national/local scale; -Provision of planning authorities with comprehensive information on long term LCD

alternatives

-Promotion of highly sophisticated and targeted information campaign with the best available social tools created centrally but distributed locally

Participation in global LCD projects

[70]



Conclusions

Main conclusions emerging from the study:

LCD is essential if GHG concentrations in the atmosphere are to be stabilized at a

safe level. Modelling and scenario work has shown that this transition is possible.

It will be less costly to move towards a LCD than it will be to delay climate change

mitigation efforts and experience the more extreme impacts of climate change.

Long-term certainty is needed to create the market conditions for investment in low-

carbon solutions – a comprehensive approach to R&D for low-carbon technology as

well as emerging markets, products and services is required to underpin this

investment.

Some of the more substantial changes will be required in the built environment,

transport, and power sectors.

The LULUCF sector should not be used to offset efforts in sectors where major

emission reductions are needed as this would delay the transition to a low-carbon

society.

There are major synergies between policies that promote sustainable development

objectives and those that encourage the transition to a LCD. Pursuing these policies

can deliver significant economic, social and environmental co-benefits

The role of government is critical and top-level political leadership will be essential.

Governments must establish the enabling conditions under which individuals,

business and organizations can benefit from the opportunities offered by new low-

carbon markets, technologies, products and services. A mix of policies will be

required to achieve this.

The building of trust within and between nations and between stakeholders is

essential to reinforce the credibility of LCD.

Consumer choice and individual action, in the context of clear policies that enable

low-carbon options and lifestyles, can be powerful drivers in delivering the level of

behavior change required to enable the LCD.

[71]



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