As previously mentioned, “clean technologies” can be defined in several ways, but the most common definition according to the International Energy Agency (IEA, 2022) is that clean energy technologies are low-carbon technologies which do not involve the production or transformation of fossil fuels; coal, oil and natural gas. Although “clean technologies” can be developed by businesses without political influence there is a global demand to promote the development of such technologies. Calmfors and Hassler (2019) state that the most efficient way for the Nordic countries to contribute to policies against climate change may be by promoting clean technologies. The focus should be on technologies where the Nordic countries have special expertise and that can get widespread use globally. The International Energy Agency (2022) estimate that the combined market for clean energy technologies will exceed the oil market size by 2030, which suggest that the Nordic countries would benefit from being part of this market.
This chapter gives an overview of the economic instruments chosen by the Nordics countries to enhance the development of clean technologies across the Nordic countries. It gives an overview of the results found in the conducted interviews and the desk research, mainly presented in Part 1 of this report. Overall, our study reveals that almost all the Nordic countries are utilising a mix of both environmental taxes and subsides to promote clean technologies.
It became clear during the interviews that Iceland, Finland, Norway Sweden and Denmark have constructed specific environmental and energy policies to promote clean technologies. Nevertheless, each country has chosen various technological paths depending on national interests and circumstances.
In Iceland, the desk research and interviews indicate that the country is using a mix of both environmental taxes and subsides to promote clean technologies. The Icelandic government has set a goal of reaching carbon neutrality by 2040, and tackle the issues of climate change, as well as a commitment towards achieving the UN Sustainable Development Goals.
During one of the interviews with a national expert from Iceland it was highlighted that subsidies with the incentive to promote e-vehicles in the country has been in place over the time period 2012 – 2017. This incentive has led to the fact that Iceland in 2021 has Europe’s second largest fleet of e-vehicles (including hybrid-plug in cars) per capita, followed by Norway which has the highest (European Alternative Fuels Observatory, 2021).
The Icelandic government has over a long period subsidised installations of residential geothermal energy systems. The expert interviewed on behalf of the Icelandic Climate Council mentioned that, as of today, about 90% of Icelandic households are being heated by geothermal energy. This is also highlighted as one of the success stories in light of the ongoing energy crisis in Europe and the green transition. The author of the book chapter Towards an Icelandic Sustainable Energy in Successful Public Policy in the Nordic Countries, (2022) argues that in the early 1990s, it was decided to promote clean technologies such as district heating based on renewable energy across Iceland. Energy security combined with improved air quality and environmental protection have been the main political arguments put forward as incentives to shift from fossil fuels, such as coal, to sustainable energy sources, such as geothermal heating.
Another Icelandic example highlighted during one of the interviews is related to the fact that a new tax on fluorinated gases was introduced in 2020 (see chapter 4.1.5 in part 1 for more details). Fluorinated gases are powerful greenhouse gas that has a global warming effect of up to 25 000 times greater than carbon dioxide. This new environmental tax was introduced with the aim to promote and accelerate the shift towards more climate-friendly alternativities. The experts argue that this tax has, in its short time, had a major positive impact on the environment.
The desk research and interviews indicate that Finland is using a mix of both environmental taxes and subsides to promote clean technologies. During 1990, Finland was the first country to introduce a carbon-based energy taxation. Since then, the tax level has increased, and with time it is seen as a successful policy instrument (See chapter 3.1.1 for more details). Today, the requirements in the EU ETS system are viewed as an important aspect in the energy and industry sector. During the interviews the experts highlighted that subsidies for electrical charging stations for both domestic households and businesses was introduced in Finland as an incentive with the aim to enhance the development of clean technologies. Which in the long run is believed to reduce negative environmental impact. In addition, households are entitled to receive subsides in order to replace fossil fuel-based heating systems with systems such as heat pumps or district heating, which generally has a lower climate impact and a higher energy efficiency.
During 2021, the Norwegian government launched a green transition campaign that is part of the new climate strategy plan (see part 1, section 5.1). It involved targeted subsidies for replacing all of the country’s fossil fuels operated ferries to electrically operated ferries. This initiative also includes development of high-speed electrical charging stations for these ferries as well as for electrical cars. Other clean technology initiatives include subsidies to promote national development of the battery value chain in Norway, thus attracting green investments and potentially creating new green jobs throughout the country.
In 2020, the Norwegian government also decided to provide funding for a Carbon Capture and Storage project named “Northern Lights” that include two different projects: a cement factory and a waste-burning facility (for additional information see chapter 5.1.8 in Part 1 of the report). The national expert interviewed argued that these fundings intended to reduce negative climate impact also could be seen as an economic instrument to promote clean technologies, which in the long run could create possibilities to export this technology and knowledge into the global market.
The desk research reveals that Sweden is using a wide range of economic instruments such as the CO2 tax in combination with targeted subsidies to promote clean technologies. In 1991, the carbon dioxide tax was implemented for the first time in Sweden (see chapter 6.1.1 in part 1 for additional details). Over time the CO2 tax has proven to be an effective tool for supporting the green transition. The tax has generated incentives for energy intensive industries to commit to phasing out fossil fuels in Swedish enterprises and boosted the demand for renewable energy solutions. In the long run contributing to reducing greenhouse gas emissions. Over a 30-year period, Sweden shows significant decoupling between economic activity and the country’s carbon emissions, which can be attributed to the high CO2-tax levels combined with the requirements in the EU ETS and targeted subsidies towards the demand for clean technologies.
The features within the Swedish initiative the Industrial Leap Programme (see chapter 6.1.7 in part 1 for additional details) has been an important aspect in Sweden’s green transition. As of today, this programme in combination with other economic instruments and targeted subsidies for clean technologies can be seen as a success story for promoting the development of clean technologies. Sweden’s carbon tax levels are far higher compared to other developed countries in the world (except for the other Nordic countries). The country has been able to implement a relatively high level of carbon tax targeted towards the whole economy, in combination with sustainable development and developing a competitive industry.
A recent example of researchers arguing for the success of the carbon tax and the important role it has played in Swedish environmental policy was published in the chapter The Swedish Carbon Tax: A resilient success in Successful Public Policy in the Nordic Countries, 2022. One of the main points is that it requires time and broad political agreements to implement large-scale green transitions. Political success of the Swedish carbon tax has been gradually built up over time. Sweden’s economy is characterised by major industries and incentives to spur the international competitiveness of these businesses has been one of the driving forces towards promoting clean technologies across several economic sectors.
Denmark have been providing subsidies for wind energy for a long time, thus the country is a world leader in both onshore and offshore wind energy. However, the Danish expert interviewed indicated that today’s success is a result of the country being able to overcome several failures and challenges along the way. The expert argued that the Danish carbon tax has only had a minor impact towards promoting the development of clean technologies. They argued that the tax level is not high enough to impact the promotion of clean technologies. Since Denmark does not have large manufacturing industries the impact is quite small. Instead, the expert highlighted that the main driver behind the clean technology development in Denmark is related to the financial sectors growing interest over time to be part of the green transition, thus finding new assets and green investments.
Rinie van Est, (2022) states that in order for Denmark to become a world leader in wind energy it has required the country to utilise a combination of policies and their integration within energy, environment and climate policies. This has continuously provided incentives for research, development and related investments.
Furthermore, the Danish expert interviewed mentioned a growing interest from businesses and a shift towards sustainability over the past 10 years. Dialogues between industries, the commercial sector and the government has intensified in regard to finding clean solutions and new green markets. Danish businesses are interested in being part of the solution, finding innovative ways of contributing to the agenda 2030. The Danish Export Credit Fund has been working closely with businesses for a long time in supporting their ambitions and their aspiration towards the international market. In 2014, an innovation fund was set-up to accelerate research, innovation and product development by activity investing in ideas, knowledge and technology, combined with incentives to accelerate a global transition through partnerships.
With the agreement on a new Climate Act in December 2019, it was decided to scale up previous initiatives and establish a special fund that aimed to finance projects which support the Paris Agreement on a global scale. To additionally stimulate the export of Danish clean technology solutions and strengthening research and innovation it was decided in 2020 to launch a Green Future Fund. This initiative can be seen a major change in terms of environmental and climate policy in Demark, as the set-up of this fund is targeted towards investments in renewable energy solutions and clean technologies.