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Gone with the wind

By Andrew Wear
How Denmark is bidding farewell to fossil fuels – an extract

In 1973, the world experienced its first oil crisis, when a number of oil-producing Arab countries placed an embargo on oil exports to Israel-aligned countries during the Yom Kippur War. This caused an enormous shock to the global economy, with oil prices rising from US$3 per barrel to US$12 per barrel. Denmark was severely affected, as it had essentially only one source of energy. At that time, 90 per cent of its energy came from oil, almost all from Saudi Arabia.

In response to the crisis, the Danish government introduced a number of taxes aimed at reducing energy consumption, and hence reliance on foreign oil. The already high price of energy in Denmark became even higher. Yet when energy prices began to fall after the oil crisis, a broad consensus formed in Denmark that taxes should be kept high, with a view to reducing energy consumption long-term.

By contrast, US governments, in response to the same crisis, decided to reduce reliance on oil and gas imports by shifting the electricity sector to other fuels. As a result, a slew of new coal-fired power stations were constructed. US president Jimmy Carter called for coal production to increase by 400 per cent each year, and outlined policies “to ensure the greatest possible conversion of utilities and industrial installations to coal and other fuels”.

In countries such as the United States, Australia and the United Kingdom, where political debate focuses on the need to keep energy prices as low as possible, the Danish consensus may seem somewhat unbelievable. However, according to Danish energy-policy expert Finn Mortensen, Danes “have gotten accustomed to a very high level of taxation of all kinds of fossil fuels”. This is partly because the high taxation has been paired with financial incentives. Hefty subsidies have been made to business and industry, primarily to encourage renewables. Homeowners have been granted large tax rebates if they insulate their houses or put in new windows in order to lower energy consumption.

Mortensen heads up State of Green, a not-for-profit collaboration between government and industry. It was established in 2008, in the lead-up to the United Nations Climate Conference in Copenhagen, to secure “maximum impact from a branding point of view” for Denmark’s role as conference host. State of Green assists Danish companies, academic institutions and experts by promoting their knowledge and capabilities in clean energy and sustainability to countries all over the world. This leads to Danish-run projects and business opportunities. For example, Danish company BWSC built a biomass-powered electricity generator in Northern Ireland, and a Danish–Vietnamese partnership is improving water efficiency in Vietnam. Initially home to five or six employees, State of Green has grown to a team of 12, who work from its 400-metre-square showroom in downtown Copenhagen – host to more than 2500 visitors each year, all of whom come to learn about the Danish energy transition.

A man who clearly loves his job, Mortensen is warm, enthusiastic and very familiar with his material. He came to the role after 10 years working for the US embassy in Copenhagen, and then as a business writer and editor for major Danish newspapers. He believes the Danish government’s decisions around energy policy in the 1970s laid the foundation for Denmark’s current success in reducing emissions. It led to the creation of many companies focused on energy efficiency and renewable energy. Denmark is home to firms that are world leaders in areas such as water, thermostats (which maintain a set temperature by turning a device on or off) and wind. A prominent example is wind turbine company Vestas, which “started out as one blacksmith making his own turbine”. It is now the world’s largest wind turbine manufacturer and has installed more than 59,000 turbines across seventy countries.

Following the oil crisis, Denmark introduced a subsidy scheme to promote wind power, and in 1979 the first commercial wind turbine was installed: a Vestas 30-kilowatt turbine, able to power about five homes. This scheme spurred a significant amount of investment, and 200 to 300 turbines were installed each year until it wound up. Forty years later, Denmark continues to support renewable energy, principally through a production subsidy for electricity generated through renewable sources. There are currently more than 6000 turbines installed in Denmark, distributed across the country. “This has been going on for 40 years. We didn’t do it overnight,” Mortensen says. “It’s been a very long process.”

Today, Denmark’s largest turbine – the Vestas V164 – is 220 metres high, approximately as tall as a 50-storey building. Able to generate nine and a half megawatts of power, one turbine is enough to run more than 8000 homes. At peak capacity, about 60 of these turbines would generate as much power as a medium-sized coal-fired power station. Turbines are now so efficient that it is likely the industry will no longer need subsidies to compete with fossil-fuel power generation. In 2017, Danish company Ørsted and German partner EnBW won a contract to supply renewable energy to Germany with their “zero-subsidy” bids for planned offshore wind farms in Germany. This means the companies will receive only the wholesale price for electricity supplied from the turbines. In a few years, “nobody will talk about subsidies to the wind industry”, Mortensen believes.

A key contributor to Denmark’s success with wind power has been community engagement. “You need to ensure the buy-in from the population,” Mortensen says. To address community concern about the impact of wind turbines, Denmark has encouraged local ownership of the turbines, as on Samsø Island. The country’s first wind cooperatives date back to the 1970s. In 2009, the Danish government introduced legislation that imposes an obligation on wind-farm operators to offer at least 20 per cent ownership of turbines to local people through structures such as wind cooperatives.

However, community ownership has become more challenging as the size of individual turbines has grown. Hermansen has experienced this on Samsø. “The new turbines are four, five times more expensive than when we started,” he says. ‘And then it’s much more complicated to get a local group of people to be the investors and owners, because you need to expand the ownership group. And all of a sudden you get outside the boundaries of the local community. And then you lose this local feeling of commitment, where you can sit down in a meeting and look each other in the eyes and say, ‘Should we do this?’”

Nevertheless, Hermansen says it is not so much the size of the ownership share that is important, but the process of engagement. “The interesting thing is how it’s organised,” he says. “The feeling of being involved. If you’re left out it can produce so much resistance, and people can find all kinds of reasons for not liking the project.”

Denmark has also focused on improving energy efficiency, which has the triple benefit of reducing carbon emissions, improving productivity and saving energy users money. In 2006 the country introduced a unique program in which energy companies are required to contribute to nationwide energy savings. The Danish Energy Efficiency Obligation Scheme assigns a share of a national savings target to each energy sector (oil, electricity, natural gas and district heating), and the sector’s trade associations allot a percentage of that share to individual companies. Companies are able to claim credit for energy savings to which they have contributed, either with technical advice or financial support. Savings certificates can be bought, sold or shared when a company exceeds its annual target.

Energy companies have embraced this scheme enthusiastically, and the national target has been achieved every year since it began. The scheme is effectively cost-neutral for the companies, since the costs of energy efficiency investments are passed on to consumers in the form of network tariffs. It is also extremely flexible, with no specifications on how savings can be achieved. This has driven companies to find the most cost-effective means to achieve savings.

Also fundamental to Denmark’s success has been a series of long-term energy agreements with cross-parliamentary support. Every government since the 1980s has made sure to include the opposition in the negotiation of the agreements. This provides for remarkable political certainty, giving the market the confidence for investment.

“If we have a change of government and the opposition comes in, these major agreements still stand,” says Mortensen. “From an investor point of view, you want to be sure what will happen, or will not happen, in five, six years’ time. You can rest assured that the agreements will stand, which is very important. I think this singles out Denmark from most other countries. This has also made it possible for us to have such a high degree of renewables in our system.”

In 2018, Denmark’s centre-right government (political cousins to Australia’s Liberal–National coalition, or to the Republican Party in the United States) secured the support of all sitting parties in the parliament for an ambitious new energy agreement. It outlines measures that will see 100 per cent of Denmark’s electricity generated from renewable sources by 2030. This means that renewables will contribute 55 per cent of total energy consumption. Key measures in the agreement include three large new offshore wind farms and a complete phasing out of coal in the electricity sector by 2030. There will be fewer onshore wind turbines, as older turbines are upgraded to become more efficient and powerful, and greater emphasis is placed on offshore generation.

It’s worth underscoring the significance of this. In a decade, with a credible plan to get there, Denmark’s electricity will be generated entirely from renewable sources. By contrast, the European Union has a target of 32 per cent renewables by 2030, the Australian state of Victoria is planning for 50 per cent by 2030, and the US state of California has a target of 60 per cent renewables by 2030.

Mortensen argues that what enables this long-term, bipartisan approach is trust. Trust in others is higher in Denmark than in any other country. Danes’ confidence in national government is substantially above the OECD average too. “If the government comes up with a well-argued idea to do something, there will be some initial scepticism,” Mortensen says. “But not the scepticism you would see in other countries, where you do not have the same degree of trust in your political system.”

This trust may be aided by the role of public broadcasting. All television stations in Denmark are government-owned, and citizens on both sides of the political divide obtain most of their national news from the same two channels: the Danish Broadcasting Corporation and TV 2 News. The absence of a fragmented and polarised media is likely more conducive to political consensus. Without media-induced political polarisation, there is scope for constructive debate that can lead to agreement over key national interests. This is a real strength over those countries that have recently seen political fragmentation, such as Australia, the United States and France. In these countries, bipartisan cooperation on policy has proved extremely challenging, and the overall result has tended towards political paralysis.

Denmark’s constructive policymaking appears to be working so far. The country is managing the transition to a low-carbon future better than any country in the world. Since 1990, Denmark’s economy has grown by about 55 per cent in real terms (around the same as the European average), while over the same period gross energy consumption has decreased and total greenhouse gas emissions have shrunk by 38 per cent. “We have been able to decouple economic growth from the use of energy,” Mortensen says.

 

This is an edited extract from Andrew Wear’s SOLVED! How other countries have cracked the world’s biggest problems and we can too. Out now from Black Inc. Books.

Andrew Wear

Andrew Wear is a policymaker with degrees in politics, law, economics and public policy. He is a graduate of the Senior Executive Fellows program at Harvard Kennedy School and a director of Ardoch, a children’s education charity.

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