winners & losers - foreswinners & losers fores study 2011:1 fores, 2011 jenny von bahr,...

FORES Study 2011:1

”Those who stand to gain from a higher price for carbon emissions are often scattered small and startup companies. The losers are big, well-established compa-nies.”

Jenny von Bahr, Matts Andersson, Jakob Rutqvist, Oskar Taxén

Winners & Losers

Essays on Environmental Economics and Entreprenurship

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Winners and LosersJenny von Bahr, Matts Andersson, Jakob Rutqvist, Oskar Taxén

1:a print in english© FORES 2010

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Winners & Losersfores study 2011:1

FORES, 2011

Jenny von Bahr, Matts Andersson, Jakob Rutqvist, Oskar Taxén

!is publication is part of the FORES initiative »Essays on Environmental Economics and Entrepreneurship« — 4Es. !e aim of the initiative is to conduct and publish research

on environmental economics with clear policy relevance. !e 4Es initiative is made possible through the support of the

Tom Hedelius and Jan Wallander Foundation.


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About the authors

Jenny von Bahr is an environmental economist with special com-petence in climate economics. She is an economist/agronomist from the Swedish University of Agricultural Sciences and works as a consultant at WSP Analysis and Strategy. Prior to this, Jenny has worked as an environmental consultant on green growth, and been CEO for her own company Green Index, which examined and ana-lysed the carbon emissions and environmental work of all compa-nies listed on the Swedish stock exchange.

Matts Andersson is an economist with special competence in so-cietal analysis of infrastructure investment and regulatory incen-tives. He works as a consultant at WSP Analysis and Strategy. Prior to this, Matts has worked at SIKA and at the Ministry of Enterprise, Energy and Communications.

Jakob Rutqvist is responsible for Fores’ environmental pro-gramme and has a background in political economics and environ-mental economics from Harvard University and Uppsala Universi-ty. Jakob has worked on the WWF initiative GlobalFOCUS, which he was involved in founding. He has been a delegate at the Clinton Global Initiative University, taken part in an expedition to the Arc-tic as climate ambassador, and published, among other reports, “12 Climate Entrepreneurs”.

Oskar Taxén is a lawyer and political scientist, and has worked as coordinator and research assistant at Fores. He has worked as editor for the TV programme Ekonomiklubben. Oskar currently works as court clerk at the Administrative Court in Stockholm.

FORES—Forum for Reforms, Entrepreneurship and Sustain-ability—is a think tank that seeks to renew the debate in Sweden with a belief in entrepreneurship and opportunities for people to shape their own lives.

Environment and the market economy, migration, entrepreneur-ship and civil society, integrity, gender equality, global democra-tisation and modernisation of welfare—these are some of the is-sues on which we focus. FORES is an open and independent forum for civil society, academics and policy makers throughout Sweden and Europe. Together with people in Sweden and abroad, we will find solutions to better meet the challenges that globalisation and climate change brings. We function as a link between the civil so-ciety, entrepreneurs, policymakers and serious research. FORES produces research papers and books, and organises seminars and debates.

Visit our webpage www.fores.se

About FORES

About the Study

Which sectors and companies stand to gain from a rise in the price of carbon emissions? How can we promote the emer-gence of these companies and sectors that will be the drivers of Swedish growth? And who are the losers? This study tries to address these questions.

Many companies that could be viewed as the losers in the event of a rise in carbon emissions prices have over fifty employees. The winning sectors, on the other hand, are dominated by small and startup companies that lack much of the influence of the large companies. These companies are found in the fields of anything from energy e!ciency to systems-changing technology, which have quickly demonstrated how to make money out of climate adaptation.

The study also presents seven recommendations for how more companies can gain from the transition to a sustainable economy.

Contents

Foreword ______________________________________________________ ix

1. Summary _____________________________________________________ 1

2. Introduction ________________________________________________ 4

3. How carbon emissions are priced ________________________ 14

4. Future carbon prices in Sweden __________________________ 22

5. The losers _________________________________________________ 38

6. The winners _______________________________________________ 70

7. Example companies ______________________________________ 81

8. Conclusions and recommendations _____________________ 85

9. Annex, interviews _________________________________________ 95

10. Comments ________________________________________________ 111

List of tables ________________________________________________106

List of figures ________________________________________________ 107

References __________________________________________________108

ixix

Foreword

Five hundred small winners is more than four big losers

The Stern Report showed us that it would make economic sense to take action to reduce carbon emissions as soon as possi-ble, rather than having to handle the considerable costs resulting from climate change later.

Similarly, Fores believes that it would be economically advanta-geous to take robust action to reduce Sweden’s carbon emissions. We would avoid the cost of the climate crisis, and new income would be generated by new companies taking the opportunity to develop and make money from the new economic conditions. Historically, countries that have prepared for and implemented new technology at an early stage have gained in the long term. What is more, the majority of projections show that the transition costs incurred are relatively modest.

Despite this, paradoxically, the dominant media image in the wake of the financial crisis is that the necessary transition threatens jobs, competitiveness and welfare.

x

One explanation, which is suggested by the data in this study, is that those who lose out on reduced emissions are big, established companies, whereas those who gain are young and small compa-nies. Even if the need for action against the climate threat makes the headlines, the perspective is reversed when a single source of emission has to handle the costs. Large companies with high emissions then protest loudly against higher costs. The next step in demanding - and achieving - exceptions “for the sake of jobs” is not big.

Fores wants to change this perspective. Which actors and which sectors gain from an increase in the price of carbon dioxide? What characterises these sectors and companies? How can the emer-gence of these companies and sectors, that will be the drivers of Swedish growth, be facilitated?

To explore these questions more closely, we have collabo-rated with environmental economists Jenny von Bahr and Matts Andersson from WSP to produce this study. In order to collect important external input, we have invited Birgitta Resvik from the Confederation of Swedish Enterprise and Stefan Henningsson from WWF to contribute with their opinions on our analysis and recommendations.

The underlying question for the study is “which actors in the economy gain and which actors lose if the price of greenhouse gas (GHG) emissions increases?”

Many of the companies that can be labelled losers in the case of a higher GHG emissions price have over 50 employees. The sector that gains is that of small business and newly started companies which lack much of the influence of the big losers. These compa-nies are found within energy e!ciency and systems changing tech-

xixi

nology, which have quickly demonstrated how to make money out of climate adaptation.

With this study we are aiming to give these companies some well-deserved attention and remind decision-makers that they can facilitate further growth of these companies with relatively simple measures. We also wish to draw attention to the losers - the sectors that are at present furthest from a profitable transition, and that, for this reason, should take on the business challenge. Perhaps they can learn about new approaches from their often smaller and considerably fresher colleagues.

FORES would like to thank the authors and, in particular, Birgitta Resvik and Stefan Henningson for their interesting and relevant contributions, as well as Ulrika Kroon who has edited and processed the text. Thank you also to Jakob Rutqvist and Oskar Taxén from FORES who have made a considerable contribution to the realisation of this study, the addendums and the in depth analysis. Thank you also to Therese Lindahl from FORES Scientific Advisory Board, for proof reading and commenting on the study, and to Klas Eklund who reviewed an earlier version. The transla-tion from Swedish is by Selma Oliver.

Martin Ådahl, CEO, FORES Mattias Johansson, Vice-CEO, FORES Mars 2010

1

Summary Chapter 1

The purpose of this study is to identify those sectors and busi-nesses that stand to lose and those that stand to gain from a rise in the price of carbon emissions. The issue has been tackled by first identifying a likely price range, given the Swedish climate goals, and then studying the e"ects of this price on emission sources in Sweden.

To begin with, the study reviews Swedish climate taxation and explains the changes that are taking place today, where the majority of large emitters in industry will, in the future, pay for all their emis-sions on the European market for emission rights. Emissions from households and transport will be paid for through taxation.

This review will lead to a projection of how the price of emis-sions will change up until 2020. With the climate goals as a basis, we will show that the costs of emission are going to increase and we conclude that the large emitters will face a steep increase in costs in the future.

Who would typically lose out, in the face of this kind of change? The 20 biggest emitters in industry account for almost 26 percent of all Swedish emissions and the top four businesses account for almost 17 percent. These businesses are in energy intensive sectors

2

and an analysis of the correlation demonstrated that these have a comparatively high number of large companies (more than 50 employees).

We come to the conclusion that those who will lose from a rise in the price of carbon emissions are primarily large companies in the energy-intensive industries. In the structural conversion to a low carbon economy, these actors are likely to be loud protes-tors against rising emission costs. What is more, these actors have established channels of influence and can a"ord professional lobbying.

So who are the winners in the case of a constant rise in the price of carbon emissions? With the rise in costs for emissions, invest-ment in technology that reduces emissions will become more profitable and companies providing these solutions will be the winners. The winning sectors are dominated by smaller companies and “startups”, which often lack the power to influence that the bigger “loser” companies enjoy.

The profit potential for di"erent sectors and technologies are also analysed in this study, by considering the costs for these tech-nologies and the emission reduction potential. We come to the conclusion that the greatest profit prospects up until 2020 are to be found in:

Summary

3

In the short term, it is often e!ciency technology companies that stands to gain. In the long term, however, it is likely that many will gain in sectors specialising in the development of systems-chang-ing technology.

This study presents seven recommendations for supporting the winning sectors and driving the structural conversion which will follow a rise in carbon emissions prices:

ahead, it is easier to make the required investments. Predictability also results in faster and more widespread adaptation. It is therefore beneficial to formulate long term climate goals with a clearly defined and gradually increasing carbon emissions price (or reduced quota within emissions trading).

-opment and adaptation of the electrical grid for renew-able and small-scale electricity production. Another is the overhaul of the network companies’ monopoly and the introduction of so-called net metering.

unanimously to a significant need for more people educated in areas such as energy e!ciency, wind energy technology and bio energy.

4

-ards should be used as an instrument to reward the use of the most climate e!cient technology available. It is, for example, reasonable that the environmental taxa-tion and other environmental costs are di"erentiated in a way that takes actual climate impact into full consider-ation. State-owned companies could take the lead here.

and “miljonprogram” housing (a state driven project to build one million flats in ten years between 1965 and 1974). Use BAT to give the new winning sectors and companies a platform to build up markets and demon-strate new technology.

granting of wind energy permits, where the process can be shortened and further reduced to one-stage proce-dure.

-tant to ensure that it is not only the larger and penal-ised companies that sit at the table for discussions on systems reform and regulation changes.

To identify the winners, the study also includes a presentation of three companies who act as a blueprint for this kind of business, and of the job opportunities that are created through increased carbon emissions prices. These are the O2-group who sells wind

Summary

5

energy solutions, TAC Svenska AB who provides energy e!ciency services and WEG Scandinavia who sells energy e!cient motors to industry.

7

Introduction Chapter 2

“Which actors stand to gain and which stand to lose when the price of carbon emissions rises?”

This question provides the background for the FORES study “Winners and Losers”. The study was initiated in order to critical-ly examine the widespread perception that the high costs involved in reducing carbon emissions threaten jobs and that we need to be careful and “hurry slowly”. With this study we hope to increase un-derstanding of the economic dynamics of the transfer to a sustain-able economy by posing and answering the following questions; Which industries and sectors will gain from an increase in carbon emissions prices? Given that emission-intensive jobs will disap-pear - will new jobs appear? And if so where?

By indentifying and highlighting the sectors and companies that will potentially gain, by comparing these possible gains with the losers’ losses, and by analysing the structures surrounding each group, we hope to be able to enrich the debate about industry and the transfer to a sustainable economy.

The study, which is produced by FORES together with environ-mental economists Jenny von Bahr and Matts Andersson from

8

WSP, is divided into three sections. We begin with a brief account of Swedish companies’ cost coat for their carbon emission. This is followed by a calculation of the likely range of future carbon emissions prices, which will serve as a basis for the study’s primary purpose - to analyse which sectors and companies will gain from a rise in the price of carbon emissions. The study finishes with a discussion about how to understand the changes in price that are occurring now, and how we at FORES believe these changes should be managed.

11

The actual costs faced by a carbon-emitting company can be hard to grasp at first. The Swedish tax system is diversified; a large number of taxes interact with di"erent exceptions to the rules, and the industry is also broadly influenced by the European emis-sions trading system. When combined, the di"erent factors make up what could be called the carbon tax burden, or the net price of carbon emissions.

Three components are key to the tax burden: The kind of emis-sion source (for example the kind of fuel or electricity); the sector within which the company operates, and whether the company is included in the EU’s market for carbon emissions trading (EU ETS).

This structure follows the EU Energy Tax Directive which regulates the framework for how member states are to tax fuel and

How carbon emissions are priced—a short over-view of the situation in Sweden

Chapter 3

12

electricity. The Energy Tax Directive establishes the minimum tax levels and stipulates that fossil fuel use is taxed partly per kilo of emitted carbon dioxide, and in some cases, partly with an energy tax per kWh.

In practice, the individual household pays the majority of energy and carbon dioxide tax at the moment due to the wide-spread tax reductions that exist for agriculture and industry (see table 1). To illustrate, the general energy tax on electrical energy is 2.4 öre/kWh for the manufacturing industry (from 2011) and between 18 and 27 öre/kWh for households, which is between 750 and 1125 percent higher. The concerns for negative e"ects of taxes on industry’s international competitiveness are the reason for tax reductions. All bio fuels are exempt from both the above mentioned taxes.

The tax levels change considerably depending on how the fuel

Kind of tax

House-holds

Manu-factur-ing In-dustry

Agricul-ture and Forestry

Trans-port

compa-nies

Elec-tricity,

Gas and Heating

Build-ing

Indus-try

Wholesale and Retail, Repairing

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and fuel)62 % 1,5 % 2 % 6,7 % 3,1 % 3,1 % 7 %

Carbon tax 44 % 7,3 % 6,3 % 19 % 4 % 6,8 % 7,9 %

Table 1. Who pays the environmental taxes in Sweden? (percent of total tax intake)

Source: Miljöräkenskaper 2006 (most recent available year)NB: The items do not add up to 100 percent, other taxes are spread out among smaller sectors such as the public sector and some service industries.

13

How carbon emissions are priced—a short overview of the situation in Sweden

is used. If, for instance, diesel is the fuel used in mining, a di"erent tax level is set than if it is used for regular transport, and a di"erent tax again is used if it is used for heating. If the fuel is used in industry or agriculture, another tax level is used than if it is used in a household.

The methodology is even more complicated due to the fact that there are a number of sector-specific exceptions. For the produc-tion of electricity, fuel is entirely exempt from tax - instead, the taxation is at the consumer level. Fuel that is used in aviation and shipping is basically not taxed today, but aviation will be included in emissions trading from 2012. Another exception is made for fuel that is so called “fossil fuels used in certain industrial processes”. This means that fuel used in particularly energy intensive activi-ties such as furnaces and other metallurgical processes enjoy are also exempt from carbon and energy taxes.

According to the Swedish Environmental Protection Agency and the Swedish Energy Agency the carbon tax has had no signifi-cant impact on the emissions within industry during the past twenty years, mainly due to all the exceptions and reductions that have been made. The total level of taxation has, in fact, decreased since 1999 for industries outside the EU ETS.1

Some changes are being made to taxes in line with proposi-tion 2009/10:41. The carbon dioxide reductions for heating fuels that are covered by EU’s Energy Tax Directive and that are used outside the EU ETS will be decreased from today’s 79 percent to 70 percent in 2011 and to 40 percent in 2015. The so-called 0.8 percent rule - which means that energy intensive industrial enter-prises outside the EU ETS have enjoyed greatly reduced taxes if

1. Energimyndigheten & Naturvårdsverket (2008), p. 204

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the carbon tax has exceeded 0.8 percent of their turnover - will be phased out in two stages by 2015. The carbon tax on fuel that is used in industrial plants within the EU ETS will be eliminated from 2011. The energy tax for industry both within and outside the EU ETS will be increased from 0.5 to 2.4 öre per kWh from 2011.2

The changes will mean a gradual increase in tax on emissions for those companies that lie outside the EU ETS, including agri-culture, forestry and transport, and a reduction for those compa-nies that are within the EU ETS. This means that the majority of the bigger individual emitters will pay for their emissions on the market, and not through taxation, since the EU ETS is growing and including more and more sectors and gasses. Carbon tax will therefore be used primarily for domestic transport and agricul-ture, which in Sweden together make up circa 46 percent of the total emissions.3 The energy tax will however be used, if in varying degrees, across the whole economy.

For the smaller industrial activities that are not included in the EU ETS, the exception that exists today for “fossil fuels used in certain industrial processes outside the EU’s system for emissions trading” will continue to be valid. As these emitters neither take part in emissions trading nor pay energy or carbon tax, they are essentially not covered by any regulation at all in this area. From 2013, it will be easier to have smaller industrial plants outside the EU ETS, which means that more and more emissions will end up unregulated. Sweden’s ambition is to cover these emissions with some kind of taxation, but in proposition 2009/10:41 the government decided that more knowledge was required to do this

2. Minimum level in the EU’s energy tax directive3. This and many other statistics on Swedish emissions can be found on the Swedish Environmental Protection Agency’s website: www.naturvardsverket.se

16

successfully so the issue is under further examination.The development of taxation during the last few years is

welcome in many ways. Regulating emissions through tax or through trade with emission rights is in essence the same method of dealing with emissions, just with di"erent regulation. With a tax, the price of carbon emissions is fixed and actors within the economy adapt their emissions. With emissions trading, the total emission allowance is fixed and actors within the economy adapt the price.

An emissions market has two clear advantages compared to a carbon tax. On the emissions market, the total permitted emis-sions are set, and thereafter the price. A carbon tax has the e"ect of the total permitted emissions being a"ected by the set price. So the total permitted emissions varies according to the price and it becomes, in practice, very di!cult to predict how high the total emissions will be. The second advantage is that a global emissions market is feasible from a political point of view, which a global carbon tax is not. The e"ect of carbon emissions on the climate is global and in order to be e"ective enough, a carbon tax would need to be global as well. Given the resistance to supranational taxes even just in the EU, a global tax would seem unlikely.

A disadvantage with emissions trading is however that states lose the right to govern on this issue and have to compromise with other states regarding the emissions ceiling within the trading system. A state could place a carbon tax on actors within the trading system, but if a state were to do this it would not have any e"ect on the emissions (as the ceiling is common for all), and instead it would result in more emissions in other parts of the trading system area. This is the reason why the government has

17


chosen to phase out carbon tax for the ETS sector (those trading on the EU ETS).

Another disadvantage with a trading system is that measuring and reporting emissions can be complicated and expensive. This is predominantly because domestic transport and agriculture are not included in the market. Due to administrative costs, smaller industrial plants have also been excluded.

Many political decision-makers in Sweden and in the rest of the world want a higher price on emissions, through taxes or emis-sions trading. But the ambitions are often held back by the fear of “carbon leakage”. Carbon leakage means the risk that increased emissions prices in one country causes emission-intensive indus-tries and new investment to move abroad. This means that from an environmental perspective, it is less e!cient, for Sweden, for example, to introduce taxes that reduce Swedish emissions while foreign emissions grow by the equivalent amount. In practice, the term refers to the weakened competitiveness for Swedish emis-sion-intensive industries and the risk that job opportunities leave the country if the cost of emitting green house gases becomes too high.

The fear of carbon leakage is prevalent in both the EU and the USA and is one reason for the large amount of emission rights that are handed out free of charge instead of being auctioned out. For the trading period 2008-2012, all the Swedish emission rights were handed out for free. Interestingly, the empirical research done on this has found it di!cult to find proof that an increase in cost leads to widespread emigration of the emission-intensive industries.4

To summarise, it’s important to keep the ETS sector and the

4. See Ja"e et al. (1995) and Brunnermeier and Levinson (2004) for a review of the literature

18

taxed sector apart when discussing the price of emissions. For emitters in the trading sector - which includes circa 750 plants within industrial and energy production and counts for over 35% of Swedish emissions today - this price is set for the European emissions market.5 While the rest of the emissions (non-ETS sector) are controlled to varying degrees by taxation in accordance with deductions and other regulations discussed above. Of these other emissions, circa 52% comes from domestic transport, house-holds and agriculture. In other words, if somewhat simplified, one can say that all big individual emitters lie within the trading system, while smaller emitters and private individuals are taxed outside the trading system. Regarding industry, 80% of emissions lie within the EU ETS.6

5. For more information see http://www.naturvardsverket.se/sv/Lagar-och-andra-styrmedel/Ekonomiska-styrme-del/Handel-med-utslappsratter/Tilldelning-av-utslappsratter/Handelsperioden-2008-2012/6. Energimyndigheten & Naturvårdsverket (2008), note 239

21

Future carbon prices in Sweden

Chapter 4

From the above sketch it is clear that the future emissions price for industry will be decided on the market. As mentioned, the advantage is that the amount of emissions will be a set factor, while the price will vary. For the purpose of this study, the projection for future market prices must be examined as well as the projection for climate tax regarding actors from the non-ETS sector. We will use the Swedish climate targets1 as a starting point:

reduce EU’s collective emissions by 20 percent by 2020 (30 percent if an equivalent action is undertaken inter-nationally).

sector by 40 percent by 2020 compared to 1990 levels.

1. Proposition 2008/09:162

22

e!ciency and 50 percent renewable energy in the energy mix by 2020 (from 44 percent today2).

of fossil fuels by 2030

greenhouse gasses into the atmosphere by 2050.

As for the future price within the EU ETS, the second trading pe-riod ends in 2012 and from the third phase (2013-2020), more sec-tors will be included, the ceiling will be lowered, allocation central-ised, full auctioneering for the energy sector and greatly increased auctioneering for the other sectors.3 The Swedish goal for the non-ETS sector for the period 2008-2012 is a minimum of 4 percent re-duced emissions compared to 1990, and from 2012 an accelerated reduction of emissions will be required.

Without establishing precisely how or which costs that need to change, one can still come to the general conclusions that the future price of carbon emissions:

receive their emission rights free of charge.

To establish a likely range for the future price of carbon emissions, we have studied models where the demand for emissions and the supply of emission rights are used to provide an estimate of the fu-

2. Swedish Energy Agency (2009)3. Directive 2009/29/EC of the European Parliament Council

23


ture price within the EU ETS, based on climate targets, advances in technology and more. We have also gone through the studies we judge to be most reliable for the projection of future carbon taxa-tion in Sweden. Please note however that uncertainty in this kind of study is significant due to the fact that so many of the factors are uncertain; such as advances in technology, global economic growth and political changes.

Future price for the ETS sector As it stands today, one tonne of emissions costs circa 15 Euros on the EU ETS. The majority of projections for 2020 put the price at 40-90 Euros, see the table below, and we use this range in our study for the ETS sector. The upper end of the range represent the price if the EU were to make a joint decision to reduce emissions by 30 percent by 2020.

Forecaster Projection

Barclays Capital (2010) 40 euro

New Carbon Finance (2009) 44-63 euro

ICF International (2009) ~70 euro

Point Carbon (2009) 25-60 euro (in 2016)

Societe Generale (2008) 45-93 euro

Table 2. Projection for the price of one emission allowan-ce within the EU ETS in 2020.

24

Future price for the non-ETS sector

In order to reach the target of a 40 percent reduction in emissions in the non-ETS sector between 1990 and 2020, the yearly emis-sions have to reduce by 20 million tonnes (of which two thirds is to be in Sweden according to a government decision) from circa 48 down to 28 million tonnes every year. Today, emissions from the non-ETS sector are circa 42 million tonnes and in addition to taxes, mechanisms such as support for advancing technology, the energy transition and changing product standards will mean that these targets are met.4

Carbon tax and other taxation mechanisms will be strength-ened to reduce emissions by two million tonnes within the non-ETS sector between 2010 and 2020. In proposition 2009/10:41 the government writes:

“The level of carbon tax should, over and above the yearly adjustments according to the consumer price index, be adapted to the degree and at the speed which, together with other changes in economic regulatory incentives, result in a total reduction of GHG emissions outside the EU’s emissions trading system by two million tonnes by the year 2020.” 5

The government goes on to state that the outsourced chang-es in pricing of emissions described above are expected to result in a 0.68 million tonne reduction in emissions by 2015.6 In other

4. Sweden’s national climate targets (Proposition 2008/09:162) and statistics from the Swedish Environmental Protection Agency5. Proposition 2009/10:41,p. 1266. ibid. chapter 11.2

25


words, one can conclude that the further strengthening of the mechanisms will be required to achieve the reduction of emissions of two million tonnes by 2020.

For actors in the non-ETS sector, the actual price of emis-sions will increase in parallel with the reduction of the carbon tax discount to 40 percent by 2015; with today’s carbon tax levels this means a minimum of 630 SEK/tonne CO2e. In 2008, the Climate Committee wrote the following about emissions outside the EU ETS in its final report;

“Control may need tightening in the long run in order to moti-vate further measures. The industry’s taxation level should in time move towards the levels that apply to households.”7

This would mean a minimum of 1005 SEK/tonne CO2e. Consider-ing the fact that carbon tax probably will be raised, the non-ETS sector can expect the price of emissions to land somewhere be-tween 630-1605 SEK/tonne CO2e, calculated with a maximum car-bon tax increase by 60 öre, which is equivalent to the upper end of the increase that was proposed in parliament. This price range for the non-ETS sector is approximately on a level with projections for the EU ETS, which is a realistic result given that decision-makers want to price emissions in the same way for similar actors within and outside the EU ETS in order to avoid distorting competition.

7. SOU 2008:24, s.313

26

Future price for the transport sectorThe biggest emitter by far in the non-ETS sector is domestic trans-port, and special targets and conditions apply. Fossil fuels are heavily taxed by both carbon tax and energy tax, and Sweden’s goal is to have a vehicle fleet independent of fossil fuel by 2030. A factor in achieving this will be, for example, to greatly decrease levels of repayment of carbon tax for diesel in agricultural and forestry ma-chinery starting in 2011, at the same time as the tax on diesel goes up.8

The Swedish Climate Committee wrote in its final report that the emissions prices in the transport sector will have to go up by about 70 öre per litre, and proposes that this is done by raising energy tax on fuel.9

In other words, one can conclude that emissions prices in the transport industry will rise and that the sector will be exposed to higher price increases from energy tax than other areas in the non-ETS sector. Energy tax on fuel is circa 1000 SEK/tonne CO2e, which means that the total range will be 1630-2605 SEK/tonne CO2e.10

8. Proposition 2009/10:41, chapter 6.7 and 7.2.19. SOU 2008:24, p. 3110. Calculated on an average for petrol and diesel, with the energy tax for diesel according to the announced increase of 40 öre/litre which is fully valid from 2013. The emission-intensity per litre is calculated according to the Swedish Environmental Protection Agency’s method, see Naturvårdsverket (2009).

29

The LosersChapter 5

So who stands to lose out when the emissions prices go up in the future, and what is their attitude towards the rise in prices?

Figure 2. GHG Emissions in 2020 according to the inspection assignment projection – divided up into different sectors.

EU ETS (CO2)

Transport

Agricultu

re

Machinery

Industry

(excl. E

TS)

Energy (e

xcl. ETS)

Housing, Serv

ice

Waste

Other

CO2 CH4 N2O

30,0

25,0

20,0

15,0

10,0

5,0

0,0

Mto

nn

eCO

2 e

qu

iva

len

t

Source: SOU 2008:24, “Svensk klimatpolitik”, s. 124 http://www.regeringen.se/content/1/c6/09/96/94/8393cd02.pdf

30

It is hardly surprising that the companies who initially stand to lose the most in the face of a rise in the price of emissions are to be found in the manufacturing and transport industries. However, it is not clear how these sectors’ outlook compares to other sectors, or how their production stands in relation to the rest of Swedish trade and industry.

To study who the losers are, how a rise in the price of carbon emissions a"ects companies and what impact resistance to a higher price can be expected to have, this study analyses the loser-companies from the perspective of two questions:

higher would their costs be were the price of emissions to go up?

their relative energy use?

These questions are based on the hypothesis that there are a small number of big emitters in industry in Sweden who have a large number of employees and a great deal of influence on the political process not least in the areas of energy, employment, industry, tax and environment. These companies’ costs will increase consider-ably if emissions prices go up, which will probably lead to strong protest from these companies.

31

The losers

Who are the biggest emitters in Sweden?

As discussed above, the majority of the biggest individual emit-ters are found in the ETS sector, while the non-ETS sector con-sists of smaller actors and private individuals (the latter primarily through households and domestic transport). In the latter sector there are also a few big individual emitters, primarily in the trans-port sector and the chemical industry. Agriculture also consists of a number of smaller actors, but has historically been characterised by successful organised lobbying, and whose influence is not to be underestimated.1

Table 3 has been produced from the Environmental Protec-tion Agency’s statistics about companies in the ETS sector. Every company in the top 20 list of the biggest emitters are to be found in just a few sectors, but even companies further down the list are generally found in the same few sectors. It is also clear that four companies are in a league of their own and together account for not less than 17 percent of Sweden’s total emissions (some may have expected to see Vattenfall higher up on the list, but the majority of their fossil fuel emissions are emitted outside Sweden). If one combines the emissions of all 20 companies it comes to approximately 26 percent - in other words a quarter of the total emissions in Sweden.

The same pattern can be found when looking at individual emis-sion sources. Just a few plants account for the highest emissions of both carbon dioxide and other greenhouse gasses in Sweden.

1. See ÅF (2007) for an analysis of industry in the non-ETS sector.

32

Company Sector Emissions 2008 (tonne)

Percentage of Swe-den’s total emis-sions (accumulating percentage)

SSAB Metal 3 913 416 6,1

Preem Petroleum Refinery 2 309 209 9,7

Lulekraft Energy 2 229 736 13,2

Cementa Mineral cement 2 202 989 16,6

Fortum Energy 666 794 17,7

Borealis Energy Chemistry 636 444 18,7

Mälarenergi Energy 608 695 19,6

LKAB Ore production 572 595 20,5

Shell Raffinaderi Refinery 535 850 21,4

Nordkalk Mineral Calcium 340 239 21,9

E.ON Energy 336 659 22,4

Göteborg Energi Energy 323 093 22,9

Vattenfall Energy 315 553 23,4

SMA Mineral Calcium 279 633 23,9

Höganäs Iron and Steel 257 408 24,3

Stora Enso Pulp and Paper 241 034 24,6

Ovako Metal 226 798 25,0

SCA Pulp and Paper 210 096 25,3

Nynas Refinery 186 632 25,6

Outokumpu Stainless Metal 170 630 25,9

Total (tonnes) Total (percentage of Sweden’s total emissions)

16 563 503 25,9

Table 3. The 20 companies who emit most carbon dioxide in Sweden in 2008.

33

The losers

By how much will costs rise?In the current system, these companies essentially pay no energy tax. Their carbon tax is reduced by 85 percent and they receive all emission rights free of charge. These are the companies that, if we take the transition to a low carbon economy seriously, will face a

Operator Plant Sector Emissions 2008

Percentage of Swedens total emis-sions (accumulating

percentage)

SSAB Oxelösund AB SSAB Oxelösund Iron and Steel 2 334 970 3,6

Lulekraft AB Kraftvärmeverket Electricity and dis-trict heating 2 229 736 7,1

Preem Petroleum AB Preemraff Lysekil Refinery 1 769 903 9,9

Cementa AB Slitefabriken Mineral Cement 1 541 171 12,3

SSAB Tunnplåt AB Metallurgi, Luleå Iron and Steel 1 252 730 14,3

Borealis AB Kracker- anläggningen Energy Chemistry 615 596 15,2

AB Fortum Värme (samägt med Stockholms stad)

Värtan Electricity and district heating 610 389 16,2

Preem Petroleum AB

Preemraff Göteborg Refinery 539 306 17,0

Shell Raffinaderi AB

Shell raffinaderi Göteborg Refinery 522 275 17,8

Mälarenergi AB KVV, Block 4 Electricity and district heating 490 242 18,6

Total (tonnes)Total (percentage of Swe-den’s total emissions)

11 906 318 18,6 %

Table 4. The 10 industrial plants that emit most carbon dioxide in Sweden in 2008.

34

heavy increase in costs in the future. As they participate in mis-sions trading, they will not pay carbon tax in the future (apart from the heat production in Combined Heat and Power Generation, which will pay seven percent of the general carbon tax), but they will, to varying degrees, pay for emission rights by auction.

If one presumes 100 percent auctioning and use the range of 400-900 SEK/tonne, the increase in costs reaches billions for some of these companies. A smaller proportion of auctioned emis-sion rights decrease the costs, of course, but in the long run full auctioning is a reasonable target and therefore these cost estima-tions are highly realistic.

An interesting observation from the tables above is that there is a relatively large number of state-owned companies. In the debate today, it is often claimed that state-owned energy company Vattenfall is at the forefront of developing green technology and is driving the transition to carbon neutral trade and industry.

Company Cost when auctioned, per year (M SEK)

SSAB 1 565–3 522

Preem Petroleum 924–2 078

Lulekraft 892–2 007

Cementa 881–1 983

Fortum 267–600

Borealis 255–573

Mälarenergi 243–548

LKAB 229–515

Shell Raffinaderi 214–482

Nordkalk 136–306

Table 5.

35

The losers

The question is whether LKAB, Göteborg Energi, Lulekraft and Mälarenergi AB, who are all partly or fully owned by the state or municipality, should join in the action.

The relationship between energy use and company size If one divides Swedish trade and industry into sectors, one can see that the manufacturing industry accounts for two thirds of the energy usage (electricity, gas and heating) for all the sectors pre-sented below. After manufacturing comes real estate (13 percent), transport companies, wholesale and retail, and the electricity, gas, water and treatment plant sector (all three sectors with 5 percent). Agriculture accounts for four percent, while the other three sectors (hotel and restaurants, the building industry and post and telecom-munications) together account for three percent of energy use.

Of the total national electricity consumption of circa 150 TWh, less than half is used in households and service, a third is used by industry and 13 percent disappears as various kinds of losses.2

at statistics from Statistics Sweden (SCB) where companies are

categories is extremely uneven. A total of 99 percent of all companies have between 0 and 19

employees. 0.8 percent of companies have 20-49 employees, 0.2 percent have 50-99 employees. There are approximately 1250 companies with over 100 employees. These account for only 0.2

2. Swedish Energy Agency, see: http://www.energimyndigheten.se

36

Manufacturing ind. 64%

Transport

5%

5%

5%

4% 2%

Real Estate 13%

1%

1%

AgricultureHotel and restaurant

Building ind.

Postal and tele-communications industry

Wholesale and Retail

Electricity gas heating and water and treatment plants

Figure 3. Relative Energy consumption of nine chosen sectors.

Energy consumption in Sweden, divided according to percent by sector in 2005

Source: SCB, Statistics database, yearly energy statistics for the latest year available for these actors (2005)

Figure 4. Companies categorised by sizeDistribution of companies according to size measured by number of employees in 2005

760 000

5 800 1 600 800 400

0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

0-19 employees employees employees employees employees

20 -49 50 -99 100 -249 250+

Note: Data from 2005 has been used because it is to be used together with the energy statistics above, where 2005 was the most recent available year.

37

The losers

percent of the total of approximately 768 600 companies in 2005.We have done a brief analysis of correlation by sector. We have

defined “small companies” as companies with fewer than 20 employees, and “medium and large companies” as companies with 50 or more employees. We get the following result:

Figure 5 shows that the correlation is weak, which is mainly due to the fact that agriculture is characterised by a high rela-tive energy use (in terms of number of GWh per billion crowns in production value) and by a particularly high proportion of small companies (99.9 percent). If the agriculture sector is excluded from this analysis, the correlation is considerably clearer.

0

10

20

30

40

50

60

70

86 88 90 92 94 96 98 100

GWh per billion SEK in production value

Proportion of small companies (0-19 employees)

Agriculture

Figure 5. The relationship between the proportion of small companies and energy use in 2005

The relationship between the proportion of small companies (0-19 employees) and energy use (GWh/Bn SEK in production value) in 2005

38

Figure 6 shows that the di"erence between the relative energy use varies between sectors from approximately five GWh to approxi-mately 35 GWh, or by a factor of seven. The electricity, gas, water, heating, and treatment plants, use approximately 35 GWh is per billion crowns in value of production. Moreover, the proportion of small companies is at its lowest in this sector at 88 percent.

The manufacturing industry uses 34 GWh per billion crowns in production value and consists of 93 percent small companies.

At the other end of the scale there are five sectors, all of which have a relative energy use of between 4 and 18 GWh, and whose proportion of small companies is between 96.5 and 98.7 percent.

The correlation becomes equally apparent when studying the

0

5

10

15

20

25

30

35

40

86 88 90 92 94 96 98 100

Real EstateWholesale & Retail

Hotel & restaurant

Transport



Electricity, gas, heating, water and treatment plants

Postal and tele-communications industry Building industry

Manufacturing industry

Relationship between proportion of small companies (0-19 employ-ees) and energy use (GWh/bn SEK in production value) in 2005, excluding agriculture.

Figure 6. Relationship between proportion of small companies and energy use.

39

The losers

relationship between the proportion of medium and large compa-nies on the one hand and the relative energy use on the other, see figure 7 below.

If one divides up the manufacturing industry into sectors, the same analysis can be done with the subgroups. The same pattern appears here with SCB statistics from 2008 covering the propor-tion of small companies and the electricity use per employee in each sector.3 It is well worth noting that energy intensity per

3. The sectors are, from highest to lowest energy consumption per employee: Manufacture of coal, refined petro-leum products and nuclear fuel, pulp and paper, and paper products, steel and metal production, mineral extrac-tion, manufacture of chemicals and chemical products, manufacture of non-metal mineral products, the timber industry (not furniture), Food, drink and tobacco products, the plastics and rubber industry, the textile, leather and leather products industry, manufacture of metal goods (not machines and appliances), the transport industry, other manufacturing industries, publishing, graphic and other reproduction of recorded media, metal products, machinery, electrical and optics industry.

0

5

10

15

20

25

30

35

40

0 1 2 3 4 5 6

Electricity, gas, heating, water and treatment plants

Manufacturing industry

Hotel & restaurant

Real Estate

Wholesale & RetailTransport

Building industry

Postal and tele-communications industry



Figure 7. The relationship between the proportion of large companies in a sector and energy use year 2005, excluding agriculture.

The relationship between the proportion of large companies (over 50 employees) and energy use (GWh/Bn SEK in production value) year 2005, excluding agriculture.

40

employee varies considerably from sector to sector. Manufacture of coal, refined petroleum products and nuclear fuel top the list with 6 914 MWh per employee and 72 percent small companies, while metal products, machinery, electrical and the optics industry is at the bottom of the list with 33 MWh per employee and 85 percent small companies.

To conclude, the statistics indicate that the relative energy usage is greatest among large companies in the manufacturing industry and in municipal technical plants. For the sectors comprising a high proportion of small companies however, the relative energy use is low. The exceptions from the rule are the agricultural and forestry sectors. These sectors are characterised by a high relative energy use as well as a high proportion of small companies.

Our HypothesisHow do the results shown above compare to our hypothesis that the industrial actors who really stand to lose from a higher carbon price are a few large companies?

All in all, the results confirm our hypothesis. A small number of companies are the big losers, even fewer are really big losers. What is more, there is a general connection between energy intensiveness and big business, probably as a result of the consid-erable benefits from large-scale operations in emission-intensive and capital-intensive industry. One can also see that many of the major losers are owned by the state and the municipality. One can therefore without doubt claim that influential parts of the Swedish manufacturing and energy industry will be severely a"ected by an

41

The losers

10

100

1000

10000

65 70 75 80 85 90 95 100

MWh/employee


Figure 8. The correlation between the proportion of large companies and energy use per employee in 2008 for sectors in the manufacturing industry.

increase in emissions price. Many of these companies are influential both in industry and

in politics, and have clear interests in protesting loudly to resist higher emissions prices. It is probably exactly this factor that is behind the various compensation systems of today, in the form of reduced fees and subsidised conversion.

This factor must not be underestimated in environment poli-tics, or in industry’s conversion to low carbon production. To a

42

large extent it is the losers who o"er potential solutions when standards and regulations are set. It is the losers who can a"ord representative associations and professional lobbying. The winners, as we will see below, lack these possibilities to a large extent, and can therefore be expected to gain a disproportionally small amount of airtime in the decision-making processes.

45

The WinnersChapter 6

During times of restructuring and technical shifts, the focus ends up on those who lose out from the changes that are taking place in society. In the early 1800s, the Luddites in the United Kingdom smashed up machines in protest against indus-trialisation that threatened their jobs and security. During the 1900s, farmers in Europe and the USA opposed free trade and other developments that threatened their privileged position. In the 1970s, the ship building industry was artificially supported in an attempt to resist the restructuring that had already begun. Today we see the same tendencies in the automobile industry for example, and in the climate debate the losing companies and sectors are the subject of detailed and drawn out discussion.

Without in any way wishing to undervalue the di!culties incurred by having to change jobs, retrain, and the insecurity that a restructuring involves for people, we want to study which sectors and companies that will gain in the event of a conversion to a low carbon economy in this chapter. Where will new jobs appear and where will new exports be created?

In earlier chapters it has been claimed that emission costs will increase for both the ETS sector and non-ETS sector, given the

46

climate targets for 2020. For the ETS sector a likely scale would be 400-900 SEK/tonne CO2e, for the non-ETS sector 630-1605 SEK/tonne CO2e and for the transport sector 1630-2605 SEK/tonne CO2e.

When the price of carbon emissions increases from today’s price to an across the board sector price of about 1000 SEK per tonne and higher, companies will reduce emissions until the costs for reducing by one more tonne exceeds this level. A company that emits carbon will therefore, in theory, invest in measures to reduce emissions until the costs for this are equal to the price companies have to pay to emit, regardless of whether the price is set by the EU ETS or by taxation. A collection of measures will, as today, be used to reduce emissions. These measures can be increasing e!ciency, new technology, routine changes, purchase of emission rights etc.

The principle e"ects of an increase in the price is shown in figure 9.

In this study we are looking for the sectors that gain from this change in carbon price. This refers to sectors/companies whose profits and turnover will increase. A “winning” sector has to both o"er technology that reduces emissions and be able to increase its turnover and profit as the demand for emission-reducing tech-nology grows.

There are of course other ways to define and identify winning sectors, for example:

existing sources, which means that those who lose from the tough climate politics can find comfort in the

47

The Winners

Figure 9. The correlation between the price of emis-sions and emission levels.

When the price of emissions increases from P to P+charge the emis-sion level reduces from q to q+charge.

q+charge

P+charge

P

EmissionsCO2

q

Price of CO2

Demand for fossil fuels

fact that the total costs for their emissions will reduce. These are not “winners” according to this study.

-nities it creates, some sectors will gain from the fact that the relative prices of input goods will change (for example through the fact that an increase in the price of transport and energy will reduce the relative cost of labour).

48

A clear winner in this instance is the food sector, where an increase in the price of transport benefits more labour intensive production (i.e. small scale production close to the end consumer). An analy-sis by WSP has shown that the e"ect of the introduction of a kilo-metre tax in this case can lead to thousands of new jobs.1

companies’ carbon e!ciency relative to similar sectors abroad. This would reveal which Swedish sectors would gain from an internationally higher carbon price when climate e!ciency is a considerable competitive advan-tage.

income from climate tax and emission rights auctioning and see who gains in each instance.

This is How We Identify the WinnersOur analysis is made up of the following four stages:

1. We study which sector has the greatest potential for reduction (see the definition below) of carbon emis-sions today. This stage has the purpose of limiting the scope of the study to the sectors that are most inter-esting.

1. Naturvårdsverket (2007)

49

The Winners

2. We study which low-emission technologies can reduce emissions within these sectors and the profit poten-tial (see the definition below) of these technologies. In order to be a winner, one has to sell products that either replace an existing emission source or reduce emissions from the source.

3. We add up the profit potential for related low-carbon technologies to produce data for entire sectors.

4. We decide if the profit potential for the technologies results in the sector being a winner.

Input in the form of emissions-reduction potential and reduc-tion costs have been collected from the report “Opportunities and costs in reducing greenhouse gases in Sweden”.2 We consider ex-isting technology or technology that is currently being developed. Completely new and/or unknown technology is not included in this study.

It is highly likely that many future winners are found in sectors that do not yet exist. If one studies the history of economics one can see how technology shifts push the emergence of new kinds of companies and sectors that just a few years earlier were unheard of. By examining the winners among existing sectors, one can gain a picture of the winners and what characterises them, and an indi-cation of who the unknown winners of the future will be.

2. McKinsey & Company (2008)

50

Emission reduction potential and profit potential

In our analysis we have studied which low-carbon technologies have the greatest profit potential. The term profit potential refers to how great the maximum yearly profit a low-carbon technology can generate for the supplier of that technology if the opportunity cost is to pay the full fee for emissions.

Naturally, there are many reasons for profit not being as great, in practice, as the maximum profit potential. But in a competi-

maximum profit potential and this method works therefore quite well in identifying the low-carbon technologies that are most relevant to study further.

The profit potential is calculated using the reduction potential and the reduction costs for each technology. The term reduction potential refers to the yearly amount of carbon dioxide the tech-nology in question is able to save, with a neutral reference scenario up until 2020. The reduction potential is a function of, among other things:

sector experts

acquisition etc.

51

The Winners

The reduction cost is calculated as the added cost for the low car-bon technology compared to a conventional alternative. The re-duction cost takes into consideration investments, di"erences in operational costs and possible savings from lower energy require-ments. Other costs, such as transaction costs and conversion costs are not included.

The profit potential per year is simply the di"erence between the price of emitting carbon dioxide and the reduction costs for a low-carbon technology, multiplied by the reduction potential for the technology in question.

Profit potential = (S – RK) * RP

where:S = emissions price level (SEK/tonne)RK = reduction cost (SEK/tonne)RP = reduction potential (tonne)

52

Figure 10. Profit potential is illustrated by the striped area in this figure.

Our model for analysis is built on a so-called bottom-up method, which means that some technologies are profitable according to the analysis, but don’t ever get o" the ground. Our term “profit po-tential” is therefore not entirely accurate, but it will provide a good indication (the more the potential profitability of a technology in-creases, the more likely it is to be implemented), and serves there-fore perfectly well as a starting point for this analysis.

It is also important to point out that the profit potential in our calculation is the premium that a company will be willing to

investments, the amount of money that would have been used for conventional investments in the baseline scenario will of course

S

Reduction cost SEK per tonne

=

Reduction potential

Profit potentialtotal for all technologies

53

The Winners

be added in the case of technology exchange. The total potential -

ment costs for conventional technology + Profit potential.Lastly, one can include a premium share, “#”, that customers

are willing to pay for climate friendly technology over and above the price of conventional solutions. For example, willingness to pay a little bit more than the minimum price for renewable energy, energy e!cient buildings, carbon free car fleet etc. can be related to CSR (Corporate Social Responsibility), PR or risk management, to give some examples.

-gies. For example # is often greater for technologies that are visible externally, like vehicles, while on the other hand it is often lower for technologies that are less visible and therefore do not contribute as much to the company’s external profile, such as low carbon technology in machines and buildings.

The total potential premium for low-carbon technology is therefore:

(1 + ) * Profit potential

The result of the equation is the advantage that the low-carbon alternative has over the conventional technology, in economic terms. The premium can be a profit, or be swallowed up by added cost incurred because the low-carbon alternative is more expen-sive to produce that the conventional one. In the analysis below, the profit potential is calculated.

54

Where is the greatest potential for emission reduction?

In order to identify the sectors that gain from a high carbon price we began by studying where the greatest reduction potentials are for each technology. Table 6 illustrates which sectors have the greatest reduction potential.

Profit potential for low-carbon technologyIn this section we study how great the profit potentials are by sector for di"erent low-carbon technologies. We have chosen to limit the

Energy Industry Residential and commercial

property

Transport Agriculture Waste

6,9 7,9 5,5 2,2 0,8 0,35

Table 6. The sectors with the greatest reduction poten-tial until 2020, in millions of tonnes of CO2.

Reduction potential, million tonnes of CO2

Profit potential, Billion SEK

Energy 6,9 2,8 – 6,2

Industry 6,8 3,2 – 7,1

Residential & commercial property 6,1 3,5 – 8,8

Transport 1,6 3,6 – 5,7

Table 7. Reduction and profit potential in different sectors in 2020.

55

The Winners

study to the four sectors with the greatest reduction potential: The transport, energy, industry, and residential and commercial proper-ty sectors. We will present the situation of each sector below.

In the calculations we have used the three di"erent ranges that were calculated above for each sector, and so the profit potential will be presented as a range relevant to each particular sector.

The Energy Sector Sea and land-based wind energy has the highest profit poten-tial among low-carbon technologies within the energy sector. At present, wind energy counts for 1.99 TWh out of Sweden’s total electricity production of approximately 146 TWh (2008).3 Not very much, one might say, but signs suggest that investment in wind energy is growing considerably in Sweden.

Between 2007 and 2008, wind energy production increased by 40 percent and the government’s new planning targets for 2020 are 30 TWh produced by wind energy. From our telephone research of wind energy companies, it was clear that there was an atmosphere of optimism and a sense of security about the future. Many of the companies had already set targets of 2.5 to 3 TWh by 2015, which show that the government’s planning targets are mirrored in the wind energy companies’ own business plans.

The Swedish Energy Agency highlights a number of important factors necessary for the realisation of the government’s plan-ning targets, including: a quicker permission process by removing

-ties, having one single system for investors as opposed to many, and raising the percentage of renewable energy that electricity

3. Swedish Energy Agency’s fact database, see: http://energikunskap.se/sv/FAKTABASEN/

56

suppliers are obliged to have in the electricity certificate system.Other ways of reducing carbon emissions are by reducing the

peak loads on the electricity grid. This can be achieved by making industry spread their electricity consumption evenly during each 24 hour period by using di"ering tari"s. Reducing oil consump-tion by reducing the peak load does not however produce a clear winner. The design of the electricity tari"s is a more important factor. Lastly, there is also a small amount of peat and coal to replace with biofuel in Swedish electricity production.

One low-carbon technology that is not mentioned here is nuclear power. Our view is that, due to its controversial status, as well as long time scales for projections and unclear costs, nuclear power will not be expanded before 2020. Technology development is moving fast however, and if attitudes change it is possible that an expansion may be initiated before 2020. The winners in Sweden, in this case, are the big energy companies who also lose from a high carbon price due to their fossil fuel intensive energy production.

Low-carbon technology

Reduction potential Million

tonnes of CO2

Cost SEK per tonne of

CO2

Profit potential, billion SEK

Land-based wind energy 3 -200 1 800 – 3 300

Offshore wind energy 2 300 200 – 1 200

Replace oil, peak load 0,7 430 0 – 329

Replace peat 0,6 250 90 – 390

Replace coal, combined heating and power 0,5 450 0 – 225

Load-levelling 0,05 70 17 – 42

Table 8. Profit potential for low-carbon technologies in the energy sector in 2020.

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The Winners

National uranium mining is also controversial, but this sector is a potential winner.

The residential and commercial property sector The low-carbon technology that has the greatest profit potential with regards to the residential and commercial property sector is energy-saving light bulbs. It is however unlikely that one particular sector would gain significantly from this development in Sweden. This is due to the fact that the profit lies primarily with those who procure energy-saving light bulbs, while retailers of these bulbs are more likely to lose income as the sale of standard light bulbs, which do not last as long, decreases. Those who would stand to gain the most from this development are the manufacturers of energy-sav-ing light bulbs and the majority of them are outside Sweden.

If the profit potential for existing and new buildings, apartment buildings and houses are added together, the companies working with energy e!ciency in residential and commercial property would be a winning sector.

There are many measures worth implementing in this sector, even after excluding increased carbon tax due to the fact that it has a negative cost per tonne of carbon dioxide. This of course means that there is great potential for improvement, but it also suggests that there is a serious structural problem. Even if it would be prof-itable to change to energy saving light bulbs, optimise operation in apartment buildings, and adjust heating and lighting in residential and commercial property, it is not done to the extent that would be profitable.

The reasons for this are, among others, the many hindrances

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Table 9. Profit potential for low carbon technology in the residential and commercial property sector in 2020.

Low-carbon technology Reduc-tion poten-tial, million

tonnes of CO2

Cost SEK per tonne

of CO2, ap-prox.

Profit potential, billion SEK

Energy saving light bulbs 1,2 -2 200 3 396 – 4 566

Indoor lighting 0,7 880 0 – 508

heat pumps, housing 0,6 950 0 – 393

district heating for houses 0,54 100 286 – 557

50% reduction in heating, existing buildings 0,5 -900 765 – 1 253

110 kWh/m2 existing houses 0,42 1 000 0 – 254

efficient white goods 0,37 -2 250 1 066 – 1 426

operating efficiency, multi-dwelling units and other com-mercial properties

0,31 -6 400 2 179 – 2 481

80 kWh/m2 existing houses 0,31 1 500 0 – 33

Geothermal heat pump commercial properties 0,23 -750 317 – 542

15% reduction in heating, existing buildings 0,22 -4 200 1 063 – 1 277

50% reduction in heating, new build-ings 0,2 -800 286 – 481

Reduced standby 0,2 0 126 – 321

Efficient office equipment 0,15 -2 000 395 – 541

20% reduction in heating, new build-ings 0,1 -2 600 323 – 421

50 kWh/m2 new houses 0,085 -300 79 – 162

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The Winners

and barriers in the form of the property owners’ lack of knowledge, and the division of responsibility regarding administration and financial management.4 The residential and commercial property sector is fragmented in that di"erent actors take care of design, project management, building and administration of the buildings. The motivation to save energy is therefore weak as the profits do not often benefit the individual who makes the initial investment, instead it benefits an anonymous “commons”.

There is, on the other hand, much to suggest that a rise in carbon tax could lead to more interest from the public and stronger motivation for actors to cooperate with regards to these issues. There could, however, still be a structural problem that makes it harder for the sector to react to economic measures in an economically rational way. There is room for political deci-sions here that could increase actors’ interest in cooperating, exchanging knowledge and taking action on this issue.

Industry Low-carbon technologies that are associated with the industrial sector, and which have high profit potential are listed below. CCS (Carbon Capture Storage) is recurrent in this list. CCS is the cap-ture of carbon dioxide as it is emitted, its compression, and then storage, for example in old mine shafts. This debated technology has both high potential for emissions reduction and a relatively low expected cost.

For Swedish manufacturers alone, this technology is expected to be able to reduce Swedish emissions by 5 percent with a cost

4. Interview with Margot Bratt, WSP Analysis and Strategy

60

of just under two billion crowns per year. In this projection the reduction potential of CCS for the lime and cement industry is included, but it is not included in the table below.

CCS-technology is, however, not fully developed yet and some doubt that it will be commercially viable any time soon. Anders Hansson, a researcher from Linköping University, Sweden, who we interviewed, is optimistic but worried that the technical di!-culties could mean that CCS is more expensive than originally calculated.

An interesting dimension to CCS is that if the technology is used for bio-energy plants the greenhouse e"ect can be driven backwards by taking carbon dioxide from the atmosphere and storing it in bedrock. This is possible because the bio-energy used comes from vegetation, which has bound carbon from the atmos-phere during its lifetime. This technology has considerable poten-tial to reduce the net flow of carbon dioxide into the atmosphere at the same cost per reduced tonne as other CCS technologies. In 2008, biofuel counted for 123 TWh out of the total energy produc-tion of 612 TWh in Sweden, which is more than either nuclear or hydropower.5

Another low-carbon technology with a high profit potential is more e!cient industrial engines. According to WSP’s expert on energy use in industry, Agneta Persson, engines are used every-where in the industrial sector: To drive pumps, tools, lathes and machines. Some engines become so hot that they have to be cooled, which increases energy requirements. It is possible to change to engine models that use less energy. One reason why this is not happening today is that the costs of changing engine

5. Energimyndigheten (2009)

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The Winners

Table 10. Profit potential for low-carbon technologies in the industrial sector in 2020.

Low-carbon technology Reduction potential,

billion tonnes CO2

Cost SEK/tonne CO2,

approx.


CCS (iron and steel) 2,25 650 0 – 563

Efficient engine systems 1,4 -940 1 876 – 2 576

Biofuels 0,58 580 0 – 186

CCS (refinery and petrochemical) 0,5 650 0 – 125

Efficient buildings 0,45 -780 531 – 756

Direct reduction (iron and steel) 0,28 60 95 – 235

Bio-product synergies 0,25 220 45 – 170

Increased private electricity genera-tion 0,23 140 60 – 175

Drying biomass 0,13 -2000 312 – 377

Efficient burners 0,13 -740 148 – 213

Efficient fibre line 0,1 -160 56 – 106

Pre-heating scrap 0,1 10 39 – 89

Raw material integration, ethane 0,1 550 0 – 35

CCS (cement and lime) 0,09 750 0 – 14

Heat integration 0,05 -375 39 – 64

Reduced clinker content 0,05 -100 25 – 50

Direct reduction iron powders (iron, steel) 0,03 540 0 – 11

Anaerobic degradation of sludge, di-gestion 0,02 -980 28 – 38

Hot flow (iron, steel) 0,01 260 1 – 6

Digestion of sludge after aerobic deg-radation 0,007 -520 6 – 10

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CCS – What does research say?

Anders Hansson, researcher from Linköping University, has recently pre-sented a thesis about CCS. According to Hansson, Carbon Capture and Storage is an important part of the EU’s strategy for reducing greenhouse gas emissions in Europe and the rest of the world. Extensive investment is being made in CCS research in the EU’s seventh framework program, and even the USA and Norway are investing. The idea is to capture the carbon dioxide from a power plant or an industry’s combustion gasses, compress the carbon dioxide to liquid form and then permanently store it underground in suitable geological formations. The technology is al-ready being used on a small scale, but there are a number of practical problems yet to be solved. For example, it is not always possible to store the carbon dioxide near to where it is collected, also it is not clear for how long carbon dioxide remains stored in di"erent kinds of bedrock. There are known technologies at all stages and the main problem is to keep the costs down when combining technologies. According to Hansson, the biggest risk with CCS is that if it were to be delayed for some reason, the hopes that had been set on its success would have delayed necessary ac-tion by other means.

The example of SSABSSAB accounts for about 6.5 percent of Sweden’s carbon emissions, as shown above. The reason for this is that iron ore consists of di"erent iron oxides and to remove the oxygen atoms, a reducing agent is required. This reducing agent is often coke, which is made either from coal, or straight from carbon. A carbon atom combines with two oxygen atoms to make carbon dioxide. The reason one uses carbon, rather than natural gas or biofuel is cost. For a company such as SSAB, CCS is a way of lower-ing carbon emissions to a lower cost, even if the cost still is considerable due to the fact that emissions are so high.

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The Winners

and the disruption this causes are not included in the original cost analysis.

There are considerable gains to be made from increasing e!-ciency by investing in more energy e!cient industrial proper-ties. Investments in both engines and properties that are more energy e!cient would make economic sense for industry today. There are, in other words, thresholds for the implementation of these measures that are not apparent from the current economic calculations. Examples of obstacles are the costs for making the change, lack of knowledge, lack of time etc. We presume however that a future carbon price according to the scale used in this study would encourage companies to implement these energy e!ciency measures.

There is also a high potential for the reduction of carbon emis-sions in the industrial sector by exchanging the raw materials used in refineries and the chemical industry, and by increasing use of biofuel.

The transport sectorThe profit potential for low-carbon technologies in the transport sector are generally slightly lower than in the other three sectors. The explanation for this is that the costs for emissions reduc-tion in this sector are relatively high as no clear alternative to fos-sil fuels has been developed, so the range of technology is lim-ited. Many of the low-carbon technologies that are discussed in the transport sector are more expensive than the maximum limit in the price range that we are using and therefore end up having a negative profit potential, which means they are dropped from the analysis.

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Given the target of a fossil fuel free vehicle fleet by 2030, there is however enormous potential for profit for those technologies that do replace petrol and diesel in the end. It can be noted that those who develop new technology in the transport sector are big winners but di!cult to identify. The field is very open at the moment, with both full hybrids and plug-in-vehicles. Despite this, combining the profit potential for all existing low-carbon technol-ogies gives a relatively big total potential.

Other low-carbon technologies for which we lack input data are, for example, video conferencing, train travel, and freight trains. We can see that videoconferencing and other forms of non-physical travel have considerable future potential. Those able to arrange video conferences in the right way will benefit from a higher carbon price, as will those who provide broadband and other IT-services. Both the provider and the user of such technolo-gies will profit, in the form of reduced costs for travel and saved work time.

Costs for train tra!c will rise with an increase in carbon price as the majority of train tra!c is driven by electricity. The costs for the trains first substitute - the car - will however increase even more, which should result in an increase in train travel. Gener-ally speaking, one can say that substitutes for car and air travel will gain from a higher carbon price. These substitutes could be rail travel, companies that provide systems for carpools or systems for increasing e!ciency of transport routs.

Furthermore, tax exemptions and reimbursement rights for fuel use in machinery will be reduced, which is why technology that can increase fuel e!ciency in such machines will experience a growth in demand in the future.

65

The Winners

Hybrid vechicles

Electric hybrids like the Toyota Prius and the Honda Civic are already on the market and they reduce fuel consumption by approximately 35 per-cent compared to a conventional vehicle. Hybrids cannot be charged up directly; they are driven by petrol and are charged up when the vehicle brakes. The next development stage for light-duty vehicles is the conver-sion to run directly on electricity. To start with, there will be chargea-ble hybrid vehicles, which mean that the car has a battery that is charged with electricity from the grid and that is combined with hybrid technol-ogy and a combustion engine.

The study The King Review of low-carbon cars states that the supply of chargeable hybrids will be the most important contribution to increas-ing e!ciency in vehicle fleets. Many manufacturers will combine the chargeable hybrid technology with renewable fuel, which will further re-duce emissions. The chargeable hybrid technology increases e!ciency by approximately 50-75 percent compared to today’s technology. Battery development is the critical factor for the success of chargeable hybrids and large sums are being invested here. The dominant solution today is nickel-metal hydride batteries (NiMH), but lithium ion batteries are ex-pected to appear on a large scale.

The additional costs for chargeable hybrid technology is still high at ap-proximately 100 000 SEK per vehicle. Since these cars will have double motors they will be more expensive than today’s cars, but the additional costs will reduce with greater production of a series and technological maturity. This is the case both for hybrid technology and for batteries.

When will they appear on the market?According to The King Review of low-carbon cars the supply of chargeable hybrids will increase after 2015. Given the big investments being made today in this area, we consider this to be entirely possible. Economic measures that benefit energy e!cient vehicles can further speed up their introduction onto the market.

Source: Kristina Birath, miljöbilsexpert på WSP.

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Table 11. Profit potential for low-carbon technologies in the transport sector in 2020.

Low-carbon technology Reduction potential,

billion tonnes CO2

Cost SEK/tonne

CO2, approx.


Etanol 0,27 580 284 – 547

30% weight reduction (petrol) 0,25 0 408 – 651

Mild hybrids (lorry/buss) 0,17 1900 0 – 120

Small engines (petrol) 0,1 100 153 – 251

Electric auxiliary equipment (petrol) 0,077 -1000 203 – 278

Reduced friction losses (petrol) 0,07 -1000 184 – 252

Thermal optimisation (diesel) 0,07 -1000 184 – 252

Variable Valve Control (petrol) 0,085 370 107 – 190

Biogas 0,085 625 85 – 168

30% weight reduction (diesel) 0,07 -500 149 – 217

Reduced tyre friction 0,06 -830 148 – 206

Thermal optimisation (petrol) 0,054 -850 134 – 187

Small motors (diesel) 0,05 250 69 – 118

Reduced friction losses (diesel) 0,044 -950 114 – 156

Electric auxiliary equipment (diesel) 0,044 -900 111 – 154

Torque maximisation (diesel) 0,03 -1100 82 – 111

Advanced automatic gear box (diesel) 0,03 1150 14 – 44

Start-stop (petrol) 0,02 1050 12 – 31

Bio aviation fuel 0,025 2000 0 -15

Start-stop (diesel) 0,01 1600 0 – 10

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The Winners

Which technologies will create winning sectors?

In chapters 3 to 5 we analysed which technologies will be the win-ners. There are two stages to the analysis of what winning sectors will be created by these winning technologies. The first stage is to aggregate the techniques to sectors, and the second is to analyse whether the sector will be a winner.

This section is limited to the study of known technologies, and technologies that are close to imminent breakthrough on the market, such as a number of hybrid technologies for vehicles. We presume that there are no unexpected technological break-throughs before 2020, which makes the analysis relatively static and probably means that the profit potential is higher in reality than in our projection, since costs decrease with innovation and the refinement of production rates and technologies.

The low carbon technologies that reduce emissions within the sectors for energy, industry, residential and commercial property, and transport are sometimes similar regardless of which sector they are in. For example, measures for converting to bio fuel can be found in many di"erent sectors. In this chapter, we have grouped together similar technologies for di"erent sectors. We have then calculated the total profit potential for each sector.

The winner sector that has the highest profit potential is the wind energy sector, which is a sector which is already doing very well. In our communication with wind energy companies, we have noticed a great force of expansion and strong belief in the future. The high price of electricity, combined with the electricity certificate system, has brought a boom for wind energy in Sweden.

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According to the government’s planning targets, the electricity production by wind energy is to increase from approximately two TWh to 30 TWh by 2020, an expansion factor of 15.

A series of telephone calls to Swedish wind energy companies has shown that they believe the government planning targets to be reachable. If a high emissions price is introduced, the future looks even better. The barriers that the wind energy companies face today are, among others, a slow licensing process, delayed delivery of wind energy plants, and inadequacies in the capacity of the electricity grid.6 According to our judgment, the market will soon solve the problem of delayed delivery, but the problems with the grid and licensing process need to be solved by political measures. All in all, the wind energy sector is in a period of strong growth, and would gain considerably from an increase in emissions price.

Industrial technologies for increasing energy e!ciency are also clear winners. This “sector” consists of a number of greatly varying technologies and processes that we have, for the sake of simplicity, grouped into one sector; low energy industrial technology. There is very high profit potential for those companies that will be able to deliver this kind of solution to industry. Low-energy indus-trial engines have the highest profit potential, and will therefore serve as our example for the whole sector. In our communication with companies that manufacture and sell low-energy motors to industry, we noticed strong optimism and a growing demand for their products.

According to a sector expert7 , it already makes economic sense to change to low-energy motors. It is not, however, being done to a

6. Interview with Ingmar Ung, CEO for Rabbalshede Kraft7. Agneta Persson, WSP.

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The Winners

particularly great extent yet, and this is partly due to lack of knowl-edge, but also because the initial cost calculations do not take conversion costs or disruption into account. An increase in emis-sions price would give the sector a boost. To conclude, industrial technology for increasing energy e!ciency is a winning sector.

The same goes for increasing energy e!ciency in residential and commercial property. This sector consists of a combination of energy e!ciency consultants, energy e!ciency installations and technology companies. Even in this sector there are already a number of measures that are profitable but that are not being implemented. The reason is, among others, that users and admin-istrators in the residential and commercial property sector are often an array of legal entities without shared accounting.

Motivation to increase e!ciency is simply too weak for those who administrate residential and commercial property, because the costs for energy consumption are paid by those who use the buildings. The latter, in turn, have inadequate knowledge of energy e!ciency.8 The result is a market imperfection which partly or wholly disappears in the event of an increase in carbon price. All in all, the sector for increasing energy e!ciency in residential and commercial property has great expansion potential.

Our analysis shows that the sector for bio-energy and biological raw materials is another clear winner. Higher emissions prices will lead to a expanded market for these products and Sweden has good access to materials, for example forest commodities in various forms. This sector is diversified, with both small and large companies. Some companies will be disfavored by carbon tax in other sections of their operation, but this will e"ect only a few.

8. Margot Bratt, energy expert WSP.

70

Some production will take place outside Sweden, for example the production of ethanol. On the other hand, there will be opportuni-ties to increase export of bio-fuel due to the fact that other coun-tries are also expected to up the pressure for a conversion away from fossil fuels. All in all, the sector for bio-energy and biological raw materials is a winner.

A brief review of the companies that sell energy saving light bulbs, o!ce equipment and white goods suggests that they are the same companies that today sell “standard” goods. This means that, as a whole, they are not a winning sector (even if some companies can be winners by operating at the very forefront). Energy saving light bulbs are primarily manufactured outside Sweden and are more expensive than normal light bulbs, but since they have a considerably longer life, the retail sales will decrease when more consumers buy energy saving light bulbs. For fridges and o!ce machines a higher energy price could increase pressure to renew the goods, but our assessment is that the e"ect will not be strong enough for this sector to be a clear winner.

The companies that develop and eventually deliver CCS solu-tions appear at first glance to be winners. A closer look however shows that the companies that invest the most in CCS will be the biggest losers from a higher carbon price since other sections of their production have much higher emissions. Their investment in CCS appears in fact to be a way to reduce the expected future financial losses. In other words, CCS reduces their losses from tougher climate politics, but does not make them into winners.

Energy e!cient vehicles have a lower profit potential than the sectors mentioned thus far since the costs for technology are still relatively high, but the profit potential is still significant. From our

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The Winners

communication with sector experts 9, our assessment is that tech-nology is developing quickly in this area, even for Swedish vehicle manufacturers. Sales of energy e!cient vehicles will however, just as is the case for white goods, replace sales of normal cars. This means that the car industry as a whole will not be a winning sector even if hybrid technology as such will be.

It is however likely that separate sectors of subcontractors to the vehicle industry will emerge where di"erent kinds of low-fossil fuel components are developed and sold. It could be tech-nology for transport planning, fuel technology or simply services for handling batteries or charging stations for electric cars. These sectors will be clear winners when the vehicle fleet becomes inde-pendent of fossil fuel in 2030.

Building low energy houses is a technology with profit potential. Construction firms are however not likely to be a winner sector. According to the WSP sector expert, Margot Bratt, all signs suggest that conventional building firms will adopt these technologies. This technology conversion will not increase their sales, it will mean that they build fewer conventional houses. The construction industry will therefore not be a clear winner.

However, as with the transport industry, big opportunities will open up for those who develop and deliver technology for the construction industry, primarily for energy e!ciency and integrated energy production. For example, geothermal energy has a clear profit potential. Companies that carry out geothermal drilling and install geothermal energy will not su"er from a higher carbon price. This sector is therefore a clear winner.

9. Kristina Birath, environmentally friendly vehicles expert, WSP Analysis and Strategy, and EVA Håkansson, Green Drivers (Gröna Bilister).

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District heating is an energy e!cient way of heating residential and commercial property, and will be an interesting solution when the price of emissions increases. Today, district heating is delivered primarily by municipal (more or less privatised) energy companies.

Depending on how these companies produce their electricity and heating, they will also, to a varying degree, lose out from a higher carbon price. Our assessment is that this sector will not be a clear winner, even if some district heating providers who primarily deliver energy produced from bio-energy will be winners.

According to our analysis, solar energy and wave energy have a very low profit potential up until 2020, and we base this assess-ment on the fact that costs are still high today, compared with conventional technology. In the long term, these can be leading winner sectors, particularly solar energy, but we consider it to be too early to identify these sectors as clear winner already in 2020. In markets other than the Swedish market, solar energy will be interesting from a cost point of view sooner and companies exporting solar energy technology can be winners in the event of an increase of emissions prices in these markets.

All in all this study indicates six clear winner sectors. These all benefit unequivocally from an increase in emissions prices:

-erty

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The Winners

The winners and the losers

groups:

An example of an entirely new system is battery technology for electric cars. Energy e!cient heating and cooling of housing is an e!ciency improvement technology, and services such as energy e!ciency consultants is an example of implementation technol-ogy.

In order to compete economically and create winning sectors, a new technology needs to stay within the following cost limits:

(1 + ) * Vinstpotential

This means that the technology’s additional costs, which are great-er than they would be for conventional technology, must not ex-ceed this level if they are to be competitive. There are many ways of achieving this level of cost e!ciency; technological maturity, by raising the cost of the fossil fuel alternative (a higher emissions price), by subsidies and other support mechanisms, by consumers having a higher demand for the clean alternative (higher #), etc. As soon as new low-carbon products and services can survive within these margins, new winning companies and winning sectors will be created.

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In the short term, e!ciency improvement technologies will create the majority of the winners, as fossil fuel technology systems are made more e!cient and less harmful. In the long term, completely new systems will become cost e"ective and will lead to a greater structural change and to new winning sectors. Implementation services will be winners throughout the whole process.

The di"erent segments of the economy do however di"er and need to be analysed separately in order to establish the relative importance of new systems and gradual e!ciency improvement in each segment. Completely new systems, for example, have become relatively important within the energy sector (for example wind energy) but less so in the vehicle industry. On the other hand, there is more potential in the housing and manufacturing indus-tries for e!ciency improvement technology.

There is another important factor to consider when finding the winning sectors. Will the new technologies’ marketing operators lose out from a higher emissions price in another section of their operations? And if so, will the profits balance with the losses?

A good example here is CCS technology, where there is doubt as to whether the profits will outweigh the losses. In this case, a company selling this new technology can become a separate activity in a separate sector, which becomes an isolated winner. Companies in this sector would be winners if they are detached from other activities.

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Study Methodology

It is of course not easy to predict which companies who will be winners in 2020, not even for fund and equity analysts. For that reason, this chapter should be seen as an attempt to identify some examples of companies that have good chances of success given tough climate politics. We cannot guarantee that those companies we identify here will succeed much better than other companies in the same sector, but they are chosen to serve as good examples.

Since we have chosen to only highlight three companies, the identification of appropriate companies has to be limited to those sectors that have the greatest profit potential, which are wind energy, energy e!cient industrial technology and improving energy e!ciency in residential and commercial property. We have chosen one company from each of these sectors.

For each sector, a primary selection of five to ten promising companies has been made. This selection is based on contact with

chosen companies have then been contacted and they have given us a more detailed picture of their projected performance poten-

Example companies Chapter 7

78

tial.1 Information from these interviews has then provided the basis for our choice of company from each sector.

The basic questions have been which company has the greatest growth potential up until 2020, given a significant increase in emissions price. We have also tried to create an overview of each

comparison with other companies. We have posed di"erent ques-tions to the di"erent sectors. From these questions, an assessment was made of which company will increase its turnover most up until 2020. We have also assessed whether an increase in emis-sions price will incur losses in any other section of their opera-tions, which is considered to be negative.

Wind energyThe wind energy sector in Sweden is now expanding a great deal after quite a slow start. Among the companies we contacted we noted a clear potential for expansion. Many companies stated that they would produce more wind energy before 2020 than the whole of Sweden produced during the early 2000s. The selection of companies for examination was complicated because the major-ity of companies were in their start-up phase. After making contact with three Swedish wind energy experts2, the answers to our ques-tions were evaluated and resulted in the following eight companies being selected for further examination: Vattenfall Vindkraft AB, Stena Renewable AB, Södra Vindkraft, Arise, O2-gruppen, Mor-phic, Rabbalshede Kraft and HS-Kraft.

1. The interviews were conducted by Alexandra Odevall.2. Mattias Rapp, Åsa Elmqvist and Ola Trulsson from WSP

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Example companies

Each company was contacted and interviewed. Some of the companies responded to the questions in writing and more information was collected from the companies’ websites. From this information, we analysed each company’s future potential to profit from an increase in carbon price in 2020. Their expected turnover for the years up until 2020 was the primary factor under scrutiny. Whether the company would be negatively a"ected in other sections of their operations was also taken into considera-tion in the assessment.

The companies that got the best results were O2-gruppen, closely followed by Rabbalshede. Both these companies have very strong business concepts and potentially very high turnovers in 2020. O2-gruppen plan to have expanded to 2.5 TWh of wind energy by 2015, and Rabbalshede are aiming for 1.5 TWh. Apart from the higher milestone, O2-gruppen has slightly better chances than Rabbalshede due to their long experience in the sector.

Improved efficiency of industrial enginesBetween 60 and 70 percent of energy consumption in industry goes to various kinds of electric motor operation, to drive pumps, ven-tilation, compressors etc. The potential for increasing energy e!-ciency is therefore significant. The cost of buying an electric motor is generally not greater than the cost of electricity consumption for 8-12 weeks of constant operation.3 There is a big di"erence in elec-tricity consumption between an e!cient and an ine!cient motor.

3. The Swedish Energy Agency

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The Swedish Energy Agency is running a campaign to inform companies about which motors are most e!cient. E!ciency clas-sification has been developed by IEC (International Electrotech-nical Commission) and divides motors into three categories. The classification system so far covers motors with a nominal e"ect of between 0.75 and 375 kW.4

In this study, we presume that there will be an increase in emissions price leading up to 2020 and therefore the demand for energy e!ciency measures within industry will be higher than it is today. Measures that are already profitable will definitely be carried out, and this, of course, means that the demand for e!-cient industrial engines will rise.

We have therefore chosen to examine the eight largest providers of industrial engines that are found on the Swedish Energy Agency’s list: ABB, Leroy Somer, Siemens, Busck & Co, BEVI, WEG Scandinavia and NORD Drivsystem. Out of these eight we have studied and analysed Busck & Co, BEVI, WEG Scandi-navia, VEM motors Sweden AB and NORD Drivsystem.

The analysis showed that WEG Scandinavia AB is the company with the best chances of success. This company has a high (though not the highest) turnover for energy e!cient motors, in combina-tion with a high growth rate for the products. They also have an extensive development program for new, even more energy e!-cient products.

4. The Swedish Energy Agency’s website

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Example companies

Energy efficiency in residential and commercial property

Improving energy e!ciency in residential and commercial prop-erty is a fast growing sector. Three out of four companies that we have studied have reported at least a doubling of sales of their serv-ices during the last two years and all the companies believe that there will be continued strong growth during the coming years, particularly if there is an increase in carbon emissions prices.

It has been di!cult to choose appropriate companies to study due to the fact that the sector is big and sprawling. So a number of experts within the area have been consulted. Even if the list cannot be exhaustive, a number of interesting and widespread companies have been identified. We have tried to make an assess-ment of which companies have the greatest potential to achieve a high turnover by 2020. We have also tried to assess whether the company will su"er losses from a high emissions price in other sections of their operations.

The companies that we have studied are the following: Göte-borg Energi, TAC Svenska AB, Vesam AB and Honeywell. The clear winner among these was TAC Svenska AB.5

Conclusion—winner companiesThe purpose of this study is to examine which sectors and compa-nies will gain from tough climate politics. The sectors have been chosen in the most scientific way possible. The companies are pri-marily chosen as good examples and have been selected with the

5. TAC Svenska AB changed name to Schneider Electric on the 1st October 2009.

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help of a survey and information analysis in each sector.The first step in identifying the winners in the face of tough

climate politics is to define “winners” and “tough climate politics”. A winner is a sector/company whose profit and turnover will grow. The “tough climate politics” that has been studied here is a 20-30 percent reduction in emissions for the ETS sector and circa 40 percent reduction in the non-ETS sector between 1990 and 2020. We have used the upper cost range because it is the winner tech-nologies that have been highlighted. Should even tougher climate politics be analysed, our winners would come out even stronger, and opportunities would emerge for completely new technologies that fulfill the additional cost requirement above.

A winning sector must market a technology that reduces carbon emissions, and increase its turnover and profit as a direct result of that technology. Some technical solutions reduce carbon emis-sions greatly, but only actually reduce the losses for a company that in fact loses out from tough climate politics. In some cases the company that manufactures the low carbon technologies also manufactures the standard technologies that are not low carbon. Examples of the latter are manufacturers of energy saving light bulbs, o!ce equipment and white goods as well as the majority of energy e!cient vehicle manufacturers.

The six clearest winning sectors according to our study are the following:

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Example companies

will increase significantly. The sector is already growing fast and those obstacles that do exist, for example the permit process and lack of capacity in the grid, appear to be manageable.

consists of a number of di"erent technologies and proc-esses. The greatest profit potential seems to lie with energy e!cient industrial engines.

commercial property. There are already measures that are profitable but that are not being implemented for various reasons. Implementation would probably take place in the face of a strong increase in carbon price.

price means that the market for these products will grow. Sweden has access to, for example, forest commodities.

The demand for new technology that reduces the net consumption of energy in buildings in a cost e"ec-tive way will increase with the carbon price and energy prices. An example of such a technology is geothermal energy.

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transport sector is to be fossil fuel free by 2030 and the alternative technologies that are available today are quite expensive. There is high profit potential for companies that develop and market technologies that make transport with low emissions possible.

It should be noted that the analysis model in this study is relatively static, this is due to the fact that no predictions are made regarding the breakthrough of completely new technologies (this method is the standard method used in similar studies). There are howev-er, both in Sweden and internationally, many examples of break-through technologies in all sorts of areas, from algae fuel to fossil fuel free transport technologies, and several innovations are being developed every day. It is di!cult to formalise these technologies in analysis models and they often are often excluded from studies like this one, which means that we are most likely overestimating conversion costs. It is, however, likely that many of these technol-ogies will make a breakthrough in the sectors and with the dynam-ics that we have discussed here.

We chose to only present three example companies and limited therefore the selection to the three sectors that have the greatest profit potential: wind energy, low-energy industrial technology and energy e!ciency improvement in residential and commercial property. The chosen companies are:

and a potentially very high turnover in 2020.

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Example companies

-nology. High turnover today for energy e!cient motors, high growth for these products and an extensive devel-opment program.

commercial property . High figures and fast growth in sales of energy e!ciency improvement services.

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Chapter 8

8The purpose of this study has been to identify which sectors and companies will lose, and which will win from a high emissions price. The task has been tackled by first identifying a probable price range given the Swedish climate targets, and there-after studies what this price means for emitters in Sweden.

Our first conclusion is that emissions prices will increase significantly between now and 2020 and that the structure for how these charges are collected will change significantly in the coming years as the EU ETS and the tax system are reformed.

The second conclusion is that the biggest losers of a high emis-sions price are a small number of large actors, many of which are state owned. These large companies can be found in sectors that are energy intensive and that employ large numbers of people.

The clearest winners of an increase in emissions price are to be found in six sectors; wind energy, energy e!cient industrial tech-nology, energy e!ciency in residential and commercial property, bio fuel and biological raw materials, energy technology for the construction industry, and low-carbon technology for the trans-

Conclusions and recommendations

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port sector. Of these sectors, the first three cover the biggest short-term winners. In these three winner sectors we have found three examples of clear winner companies. O2-gruppen, WEG Scandi-navia AB and TAC Svenska AB. These companies have significant potential to expand, create job opportunities and export income, and lead technological development in their sector.

What should be done from the political side to facilitate the growth of the winners? FORES makes the following recommenda-tions:

1. Create predictability. If a company knows what future awaits them it is easier to make the necessary invest-ments. Predictability also has the general e"ect of making adaptation happen more quickly and more broadly. If you think that something is temporary you consume less, if you think that the increase in price is permanent you might instead choose to consume some-thing else (for example switch to a low carbon car). This is why it is important to have clear long-term climate targets with clearly defined and gradually increasing emissions prices (or reduced quota in emissions trading).

2. Provide infrastructure. A hands-on example is the expansion and adaptation of the electricity grid for renewable and small scale electricity production. It is also important to review the electricity companies’ monopoly to make sure it does not become too expen-sive for smaller producers to connect new electricity

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Conclusions and recommendations

into the mains, net metering could be a good reform.

3. Invest in research and education. There is a need for more people with knowledge of energy e!ciency, wind energy technology, bio energy etc.

4. Apply BAT (best available technology). Use technolog-ical standards, to a greater extent than today, as steering mechanisms to reward use of the most climate e"ective available technology. It is, for example, reasonable that environmental taxation and other environmental fees are di"erentiated in a way that takes into full considera-tion the actual environmental burden. Since energy e!-cient technology delivers a greater socioeconomic profit compared to alternatives by generating fewer negative externalities (emissions), there is reason to reward the use of such technologies. State-owned companies could take the lead in this area.

5. Improving energy e!ciency in publically owned build-ings and “miljonprogram” housing (a state driven project to build one million flats in ten years between 1965 and 1974) and use BAT in order to give winner companies and sectors a platform to create markets and demonstrate new technology.

6. Facilitate legal processes. The clearest example is permission for wind energy. The application process for permits should be reduced to one stage.

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7. Listen to the winners. It is important to actively ensure that it is not only the losers that sit at the table where decisions for changing the rules and reforming the system are made. Opportunities must be created to enable winning sectors to give their input, bearing in mind that they lack the formal access to channels of influence that established industries have built up.

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O2-gruppen

Linda Magnusson is CEO of O2-energy, the electricity company in the O2 group. Linda Magnusson is driven and is passionate about creating a greener society. She thinks it is a fantastic privilege to work with something she believes in together with others who are driven by the same commitment to the environment.

The O2 group has just over thirty employees, spread across a number of subsidiary companies that all work with wind energy in some form, or with energy e!ciency. The whole company is bound by a vision of a green society. The company’s contribution to this is a large scale investment in the expansion of wind energy.

Since the nineties, the subsidiary company Vindkompaniet has been behind the construction of a third of all land-based wind energy in Sweden today. By 2015 the company plans to create 25 to 30 percent of Sweden’s wind energy, or for 2,5 to three TWh of the government’s planning target of 10 TWh.

At present only a few TWh of energy are being produced in Sweden, will you really reach the target?

– We have good base conditions for achieving it. In 2007 we

InterviewsChapter 9, Annex

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built eight plants, in 2008 we increased that to 35 plants, and in 2009 we count on building around 80 plants. We have a very good project portfolio and long and extensive experience of wind energy project management, says Linda Magnusson.

O2-Energy is not like all the other electricity companies.

customers, they have developed a completely new concept. They invite their customers to join a wind energy cooperative that invests in wind energy plants. For every 1000 kWh per year that a customer wishes to purchase, they pay an investment of 5500 SEK. The customer gets back the 5500 SEK if they choose to leave the cooperative. As member of the cooperative, the customer can buy electricity at the cost price of 13 öre per kWh. All in all this leads to a return on the invested money that is equivalent to 7 to 10 percent per year.

– It’s important to let everyone be part in the expansion of wind energy, which is shown to be a profitable investment by all economic calculations.

The O2 group takes a management fee from the wind energy cooperative, to cover the operation and administration of the wind energy plants. So far two thousand customers have joined the wind energy cooperative and invested a total of 80 million SEK into their own wind energy.

– Interest in our product is constantly growing, especially now that electricity prices are going up.

Linda Magnusson says that their consumer perspective benefits them. More customers turn to them because the big electricity providers sell electricity to marginal cost price, which is equiva-lent to the cost of producing the most expensive electricity at

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Interviews

the margin. The customers also experience an added value in the opportunity to influence the development and expansion of wind energy.

Linda Magnusson says that the customers appreciate the fact that O2 is a clean, green company that builds wind energy without any hidden carbon/coal anywhere.

– We stand tall, we’re trustworthy and we’re driving this issue!How come there is so much happening in wind energy right

now?– Electricity certificates have pushed investors to make the

judgment for the first time that there are now stable economic rules that promote renewable energy. The electricity certificate system is valid until 2030, which creates long term and clear rules. Unfortunately, Sweden is dragging behind other countries like Germany and Denmark. In Germany, which has a smaller land area than Sweden, 40 TWh of wind energy is already being produced. They have been consistent in their investment into green politics for a long time.

Are there any obstacles for development?– The permit process for wind energy is being reviewed at the

moment. This is important. As it is now, one can appeal di"erent questions in a number of di"erent forums. I think it’s important to be able to appeal, but it has to work in such a way that all opinions and arguments are handled in one go in an independent forum. This is important if we are seriously supposed to invest in wind energy on a large scale.

– The grid problem has to be solved as well. Today, network companies have a monopoly on their electrical grid and they can take a fee from those who wish to connect to their grid.

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Do we really need wind energy, don’t we have enough elec-tricity already today?

– No, we definitely need wind energy to replace coal and fossil fuels. From a European perspective, Sweden has fantastic possi-bilities to expand wind energy and perhaps even be a net exporter of wind energy. Wind energy has the lowest costs of all renewable energies today. In the long run, hopefully solar energy and wave energy will be able to come forward on a bigger scale.

Why do you think that the nature conservation interest has been so negative?

– I think it’s two sided. The Swedish Society for Nature Conser-vation is positive towards wind energy in general, but sometimes they are negative to individual projects. Locally there will always be varied opinions. This is why it’s important to have an inde-pendent forum to weigh up the pros and cons.

– There are plenty of opportunities to expand wind energy without destroying our nature. Wind energy is a clean energy source, after three to six months a wind turbine is environmentally neutral and then it stands there for twenty, twenty-five years and delivers clean energy. When it’s life is over it just needs disman-tling. If we want energy we have to pay a price and I think that wind energy has strong pros compared to other kinds of energy. One simply has to weigh up the pros and cons.

Do you personally think that wind turbines are ugly?– No, I don’t. We have had windmills for thousands of years.

Compared to electricity masts I think that wind turbines are quite beautiful.

Do you have a message to the politicians?– Take the climate issue seriously, think long term and dare to act!

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Interviews

TAC Svenska ABInterview with Matts Lager, head of marketing and business devel-opment for Energy solutions.

Over lunch near Ericssons old premises near Telefonplan in Stockholm, Matts Lager tells of a sector that is hardly known and that is growing very fast. Matts explains how their company helps countless property owners to reduce their energy consumption by over 10 percent. If this number was reflected onto all energy consumption in properties in Sweden it would mean a reduction in energy consumption by 12 TWh.

TAC:s business concept is to take a holistic approach to customers’ energy consumption, identifying and implementing profitable measures to improve energy e!ciency. It could be transition to geothermal energy, changing ventilation systems, optimising heating systems, reviewing operation routines etc. says Matts Lager.

– There’s money to be saved here. The situation we have at the moment means that electricity consumers pay too much money to the electricity companies. This money could be invested in renew-able energy, for example.

Property owners are not always aware of how much they can lower their energy costs. In Matts’ experience, many property owners focus on the day to day operation, which means that they don’t really have time for the long term planning that is needed to review energy consumption. They’re stuck in their every day oper-ations. Another common mistake is that property owners don’t take big enough steps - instead they implement one small energy e!ciency improvement project at a time.

When TAC is employed they take a holistic perspective and

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work with the whole energy consumption system. Equally impor-tant is the fact that they make sure all the operation routines func-tion as they should. In this way TAC works on a long term basis with their customers, educate their sta" and follows up on how energy consumption develops. Contracts normally run from five to ten years.

method of taking payment from their customers. Instead of charging for an investment in a new ventilation system, for example, TAC sells a certain degree of energy saving, often 20 percent per year. TAC guarantees that this level of savings is in fact met. If it is not, the customer gets their money back. This has however never happened so far, says Matts. If TAC succeeds in making an even bigger saving than the chosen target, the customer shares the profit with TAC.

Örebro Municipality can be taken as an example. Örebro Municipality has borrowed 160 million crowns to invest in improving energy e!ciency, and the future savings will then pay back the loan. Because investments pay o", this can be done outside the regular budget.

TAC started by doing smaller projects, but the company has

scale operation benefits have been exploited. One factor that has driven this development is the two billion crowns that have been invested into the improvement of energy e!ciency in public build-ings. But despite the fact that this money is soon all spent, Matts expects a positive development.

– There’s an enormous market, we are expecting growth of 15 to 20 percent per year.

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Interviews

By 2020, Matts Lager thinks it will be possible to reach a turn-over of three billion crowns per year given a high emissions price.

The biggest obstacle for growth is the di!culty in getting hold of competent sta", but so far there hasn’t been a problem. Many think that it feels meaningful to work with something that has a direct and positive e"ect on the environment. TAC is primarily looking for talented installation engineers, project leaders and energy analysts.

What would you do if you were the minister for energy?– Invest in energy e!ciency. It’s better to save energy than to

invest in new energy production. It’s important to improve the way in which resources are used. This is why it would be beneficial to encourage public investment in energy e!ciency.

WEG ScandinaviaInterview with Mikael Berlund, head of sales.

WEG Scandinavia is at the forefront of the development and sale of energy e!cient motors of the sort that can significantly reduce energy consumption within industry.

Do you provide any energy saving guarantees?– We provide a data guarantee. In full operation a motor should

use a certain amount of energy in a certain space of time and that’s what we guarantee. If the motor doesn’t hit the target, it’s replaced. Says Mikael Berglund.

Do you make calculations of how much the customer earns? – It’s possible to do that. A lot of new customers ask about pay-o"

time, which we then calculate and illustrate through energy savings and a product’s life expectancy. There’s software to help do this.

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Can you tell me about the business model?– We follow the demand of the market to a high degree. We have

di"erent degrees of e!ciency and we sell that which is in demand. We would like to go out and sell the more e!cient products and that’s what we aim to do in sales. If we were to decide ourselves, we would only sell the more e!cient products. We try to communi-cate a message about financial savings but the issue of the climate transition comes up more and more.

What is the demand like?– The motors are used quite a lot on the Nordic market. Some of

our customers use our products and then resell them. In this case the cheapest alternatives are wanted rather than the most e!-cient, but the closer to end-use you get the higher the demand on e!ciency.

Why are so many motors not changed?– The initial costs is all people look at. Many miss the fact that

the life expectancy is much longer, and many miss the energy savings (70 percent of the total costs is energy consumption). Even if you look at a 15 year period, it can still be di!cult to handle a high initial cost. In the short term one might not be able to a"ord it despite the fact that in the long run it’s better. I think it will be developed more and more in the future. The motivation for more energy e!cient products does exist, especially when there are tax breaks to benefit from.

What would you do if you were the Minister for Energy/Environment?

– I would give tax breaks to those who make sure they reduce energy consumption with the help of these kinds of measures. It’s preferable to benefit those who do the right thing, rather than

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Interviews

Energy efficient motors

Among other energy e!cient products, WEG Scandinavia has a series of three-phase induction motors, where one model classifies as an E"1 and another model lies just beyond the E"1 requirements. WEG will release a new model during 2008-2009 which can reach a higher degree of e!cien-cy than the earlier model and that also has modified mechanics that give it a longer life expectancy. WEG also has Permanent Magnet motors which reach even higher e!ciency levels. This kind of motor is always delivered with a specially designed frequency inverter, with which one can fully ad-just the motor’s performance to the kind of operation that is to be carried out. Controlling a motor with frequency inverters to maintain optimal op-eration is in itself an energy saving measure.

punish those who do the wrong thing. How would you be a!ected by a higher emissions price?– Demand for our products on the market would increase. We

would sell more, which would increase our turnover.

10310The Confederation of Swedish Enterprise works to pro-mote the development of Swedish industry. We work for all indus-tries and analyse the consequences of business politics, primarily for investments and jobs but also for growth in the export market. Energy and environment politics has significance for the develop-ment of our industry. We consider it important that emissions are reduced considerably and we believe that climate politics should be long term and e"ective. Our view is based on the fact that emis-sion reductions should be considered from a global perspective. We therefore prioritise EU climate targets over targets for renewable energy and energy e!ciency. The latter needs to be seen as a means to an end, with the main goal being reduction of emissions.

This is important to emphasise because we feel that the report mixes up carbon emissions and energy with the consumption of energy and electricity. The whole issue is complex but it is impor-tant to be rigorous in an analysis. We feel that it is commendable that the report is based on the McKinsey study, initiated by the Confederation of Swedish Enterprise, that analysed the techno-logical potential for emission reduction and the costs involved. It is clear from the McKinsey report that none of the e!ciency improve-

Chapter 10

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ment in electricity use that is done in Sweden results in emission reduction within Sweden’s borders. The measures have e"ect in our neighbouring countries which have fossil-based electricity production, but since these plants are included in the European emissions trading scheme, EU ETS, the real emission reductions are only manifested when the common ceiling is lowered.

We feel therefore that it is odd that a report that focuses on the Swedish climate targets places such emphasis on energy e!ciency and that the solution seems to be an expansion of wind energy for Sweden.

We feel that the study ought to take a more global approach. The conclusions would be slightly di"erent. The market for elec-tricity e!ciency improvement that reduces emissions is not to be found in Sweden. In Sweden, the argument needs to show it to be economic profitable. This is already the case, just as the report illus-trates, but many investments are not made because of competition for capital, or lack of knowledge or other resources. We believe therefore that the specific Program for Energy E!ciency, PFE, is an example of a much better initiative than higher tax, because it shows that other kinds of incentives are required to get the process started in a company.

The question that the report poses can be formulated as follows: Is an even higher carbon price in Sweden the solution to forcing more investment into low carbon technology? Yes, theoretically it can be, but at the same time there’s a significant risk that companies end up with even less capital for investments that develop the company. And in the long run, we will not have companies that are able to buy new technology and implement the restructuring that is required.

The Confederation of Swedish Enterprise believes that there is

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a precarious balance regarding how far we can go with economic regulatory incentives. We would like to point out that we support the fundamental approach that economic regulatory incentives are generally the most e"ective way of reaching emission reduction targets. Regulatory incentives should also be technology neutral and simple. But we also believe that there is an argument for subsi-dies in some cases and during the transition period, for example, during the introduction of new technology.

We should remember that, even if the Swedish carbon tax has a number of exemptions, it is still the highest tax for industry in the world. It is uninteresting to compare carbon tax for households and for companies. What is important is to compare how high the tax is for companies in Sweden compared to other countries. The Confederation of Swedish Enterprise advocates a reason-able competitive status relative to other countries, so that invest-ment in Sweden is an attractive alternative. Unfortunately, this is something that the report has avoided entirely, which means that it is very theoretical and lacks an important perspective. A higher carbon price in the wider international context would however create a significantly bigger market for low carbon technologies and there would be more winners, and they would be larger. This is why the Confederation of Swedish Enterprise believes that an interna-tional climate agreement is of key importance. The Confederation of Swedish Enterprise is also positive towards the work being done for a new energy tax Directive, which could result in structure for energy and carbon taxation in the EU that is more in line with the Swedish structure.

The Confederation of Swedish Enterprise believes that a more level playing field in terms of competition was created when the

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EU’s trading system was implemented, because all companies face the same marginal costs. However, one needs to balance this with regard to other regions and the costs faced by industry exposed to international competition. This is why one cannot lower the ceiling too fast in Europe, or have 100 percent auctioning. It is important for the environment that the ceiling does exist.

There is of course a section of industry that will face higher costs when the carbon price is increased or when the carbon taxes go up. It is primarily steel, cement and refinement industries that will face dramatically higher costs. This is well known, which is why there have been a large number of exceptions in the implementa-tion of energy and carbon taxes and there has been free allocation of allowances within the EU ETS. But the report wrongly identifies the energy sector with district heating and electricity production as the biggest losers, because they will have to pay for emission rights in the future. These energy plants already pay for emission rights in Sweden, but because they are functioning in the domestic market they are able to charge the extra cost. This is also a key factor when analysing the winners and losers; is the price of my product set according to the global or domestic market? This is another aspect that is ignored in the report.

A principle that the Confederation of Swedish Enterprise works for is the need for international coordination. The risk for so called carbon leakage has to be taken into account and it is not possible to consider eliminating tax reductions so long as there is a risk of leakage or the competitive environment motivates tax reduc-tions. This kind of signal is important so that carbon leakage does not happen as a result of uncertainty about the stability of the tax reduction.

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Sweden’s carbon tax is, as mentioned, already the highest in the world. A higher carbon tax in Sweden has begun to be an expen-sive and relatively ine"ective method for reducing green house gas emissions. Every tax rise means a worsened competitive position for Swedish industry on the international market. Today we also have some carbon taxation of ETS companies, which is an incorrect use of double regulatory incentives which should be abolished as soon as possible.

The e"ectiveness of economic regulatory incentives depend on access to alternatives and the costs involved in changing to a envi-ronmentally friendly alternative. If there are no alternatives, in the short and midterm, the tax levy has no motivational e"ect to lower emissions, instead it has a fiscal impact that has a negative e"ect on competitiveness.

An example from the latest tax adjustment on diesel clearly illustrates this. The tax adjustment results in higher costs for heavy vehicles of more than 700 million SEK up until 2015, but only reduces emissions by 0.08 million tonnes. This can be compared to a the fact that a rule enforcing a 5% reduction in speed gives an emissions reduction of approximately 0.7 million tonnes for the whole transport sector. This illustrates that economic regulatory incentives are not always the most e"ective, because there are no realistic alternatives for the transportation of goods. This cost increase is significant in the long term for the whole industry and will naturally influence certain companies’ ability to develop.

The report has attempted to show that the carbon price for

report has used energy consumption as a starting point. We would like to point out that even if some sectors have a high energy

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consumption they do not necessarily have high fossil fuel emis-sions. Our clearest example is the entire pulp and paper industry, which has circa 80 percent renewable energy in its energy mix. In total, it is shown that the industry uses 60 percent renewable energy, which is in fact a greater proportion than for the district heating sector.

The Confederation of Swedish Enterprise represents more than

companies. We work with both large and small companies, just as our industry sector association. We do not agree that the carbon tax model is the way it is, due to a conflict of interests between big and small companies. The starting point for measures such as excep-tions and reductions has in fact been the risk for carbon leakage. This risk remains and it is rather the case that the global competi-tion and thereby the risk for leakage will spread to new sectors. The Confederation of Swedish Enterprise has always worked from positions that are common for all our members and that have been adopted by various working groups and the board. However, it is important to understand that Swedish industry consists of a relatively large number of energy intensive companies that are big customers for transporters and subcontractors of services and products. It is an important chain because it is of key importance that the entire industrial structure is nurtured and developed.

www.miljonytta.se illustrates what is happening in our industry for both new and old, large and small companies. Here are the winners from all sectors.

Birgitta Resvik, Energy and Climate Department.Torbjörn Spector, Excise Department

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WWF welcomes FORES’ report because it has included the perspective of carbon emissions in the analysis the winners and losers of the future. The companies which grow through the reduc-tion of emissions and resource waste will be among the large com-panies of the future, both in Sweden and internationally. We are entering an era of green growth with many opportunities. These opportunities need to be exploited by companies in order to avoid a very serious threat to human development and its influence on our ecosystem.

Climate tax is a very good complementary regulatory incentive to use as the basis for change, but a phasing out of fossil subsi-dies needs to be undertaken at the same time. This combination means that we can approach a sound situation where the polluters pay for their emissions. Sweden is a pioneer in this area and, to its credit, also drove the question of taxation during its presidency of the EU. However, Sweden did not manage to push through a decision for a time plan for the phasing out of EU fossil subsidies. The opportunity existed, due to the historical agreement between G20-members in Pittsburgh of September 2009 where all coun-tries were tasked with producing such plans.

The carbon tax exceptions risk ruining its e"ectiveness against those emission sources where the tax would otherwise have a strong e"ect - in industry that uses most energy and emits the most. In these industries, carbon tax has a noticeable impact on the bottom line. In households’ day to day rush, the bill is seldom noticed and tax is paid with a muttering of “Oh how expensive electricity is nowadays” and thereby the emissions continue, unseen and of no use to anyone. Sweden has one of EU’s thirst-iest vehicle fleets, despite that high petrol prices, and so we can

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reasonably conclude that the same goes for this area. Now that the stricter EU standards for cars’ emissions have arrived we will see a change.

The World Business Council for Sustainable Development stated in their report “Energy e!ciency in buildings - trans-forming the market” that the models show that 40 dollars per tonne of CO2 results in only 3% better e!ciency. Taxation in this sector is clearly “Too little/ Too late”. A tighter grip needs to be taken here, and other policy measures need to be employed.

For households in Sweden, this low e"ect is extra interesting because it is from here the tax revenues are the highest. These revenues should be returned to the tax payer in the form of quickly tightened standards and programs with favorable financial support mechanisms for the handling of the capital costs required for upgrading energy e!ciency and systems in households. All new-build housing should be built according to passive house standards as soon as possible.

This report makes an attempt at predicting who will be the biggest winners, which is of course not entirely easy to do by going through each emissions source as has been done here. What is more, we must focus on the potential for reducing the interna-tional emissions to see where the biggest winner will be, instead of focusing on Sweden as in this report.

We are entering an era of structural changes where it is becoming more and more important to see the possibilities beyond the traditional sector boundaries like industry, renewable energy, housing, food and transport in order to be able to o"er people and our society access to sustainable energy services in the most cost e"ective way. Who is able to use the energy losses

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in industry in the most e"ective way to turn it into energy/elec-tricity production for households? Who will be the best at using the sun’s rays to clean drinking water cheaply for the population of the world? Which companies will develop services that mean that we can sell electricity from our electric cars when they are standing still, and store and deliver electricity to cities? There is every reason to see not only the opportunities sector for sector, but for politicians, civil servants and venture capitalists to dare to invest in the developed ideas that are di"erent to sector-thinking. Innovations with considerable potential for improvement of energy transfer and storage are particularly interesting. We have a large number of interesting Swedish examples in this area, by the name of Climatewell and Picoterm, which both have a staggering potential both for the environment and also economically, if they are well developed.

It is also clear that an increase in the use of electricity is one of the structural changes that are required to handle the dwindling oil reserves and its emissions, and to replace oil with sustainable, renewable energy production and necessary energy storage. A big investment in Smart Grids, like that which is being made in South Korea at the moment, and in industrial actors is highly likely to generate strong, growing companies with many jobs.

If we look at “di!cult” emissions where little has been done and the market is open, Sweden has the opportunity to lead in areas such as CCS for iron and steel, and for bio energy. This should however be implemented in such a way that other neces-sary e!ciency improvement measures are not delayed.

WWF suggest a steep increase in investment into commerciali-sation and development of climate innovations that are at an early

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stage, and that this should be at around 4 billion SEK per year.Generally speaking, it is very important that politicians start

listening directly to the winners and realising that trade associa-tions represent both the winners and the losers, and that their mandate is to represent the common voice - which is the most conservative. Finally, environmental taxes have the advantage of giving revenues to the Treasury. In Sweden, the various environ-mental taxes (such as energy and carbon tax) produce revenues of approximately 84 billion SEK per year, or approximately 3 percent of the GDP. With the need for investment and development that exists today, these revenues should be used to stimulate emission reduction and green growth that really promotes the winners for a

Stefan HenningsonProgram head, climate. WWF Sweden.

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Table 1. Who pays the environmental taxes in Sweden? (percent of total tax intake) _______________________________________________________________________ 12

Table 2. The Projection for the price of carbon emissions with the EU ETS in 2020. _______________________________________________________________________ 23

Table 3. The 20 companies who emit most carbon dioxide in Sweden in 2008. _______________________________________________________________________ 32

Table 4. The 10 individual industrial plants that emit most carbon dioxide in Sweden in 2008. ___________________________________________________________ 33

Table 5. _____________________________________________________________________ 34

Table 6. The sectors with the greatest reduction potential until 2020, in mil-lions of tonnes of CO2. _____________________________________________________ 54

Table 7. Reduction and profit potential in different sectors in 2020. ______ 54

Table 8. Profit potential for low-carbon technologies in the energy sector in 2020. _______________________________________________________________________ 56

Table 9. Profit potential for low carbon technology in the residential and commercial property sector in 2020. _______________________________________ 58

Table 10. Profit potential for low-carbon technologies in the industrial sector in 2020. ______________________________________________________________________61

Table 11. Profit potential for low-carbon technologies in the transport sector in 2020. _____________________________________________________________________ 66

List of tables

115

List of figuresFigure 1. A graphical overview of the taxes on energy, excluding the sectors that are entirely exempt ______________________________________ 14

Figure 2. GHG Emissions in 2020 according to kontrollstationsuppdraget’s projection - divided up into different sec-tors. ___________________________________________________________________29

Figure 3. Relative Energy consumption of nine chosen sectors. ____ 36

Figure 4. Companies categorised by size ___________________________ 36

Figure 5. The correlation between the proportion of small companies and energy use in 2005 ______________________________________________ 37

Figure 6. Correlation between proportion of small companies and energy use in 2005, excluding agriculture. __________________________ 38

Figure 7. The correlation between the proportion of large companies and energy use year 2005, excluding agriculture. ___________________ 39

Figure 8. The correlation between the proportion of large companies and energy use per employee in 2008 for sectors in the manufacturing industry. ______________________________________________________________ 41

Figure 9. The correlation between the price of emissions and emis-sion levels. ____________________________________________________________47

Figure 10. Profit potential is illustrated by the striped area in this figure. _________________________________________________________________52

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Which sectors and companies stand to gain from a rise in the price of carbon emissions? How can we promote the emergence of these companies and sectors that will be the drivers of Swedish growth? And who are the losers? This study tries to address these questions.

Many companies that could be viewed as the losers in the event of a rise in carbon emissions prices have over fifty employees. The winning sectors, on the other hand, are domi-nated by small and startup companies that lack much of the influence of the large companies. These companies are found in the fields of anything from energy e!ciency to systems-changing technology, which have quickly demonstrated how to make money out of a necessary transition to a sustainable economy.

The study also presents seven recommendations for how more companies can gain from this.