11. Energy

11.1. Introduction and summary

As shown previously, 55% of total GHG emissions incl. LULUCF in the Nordic region take place in the energy sector. Omitting the LULUCF sector, the energy sector is responsible for 42% of territorial Nordic emissions.

Following the IPCC Guidelines, the emissions from the energy sector comprise exploration and exploitation of primary energy sources, conversion of primary energy sources into more useable energy forms in refineries and power plants, transmission and distribution of fuels, and use of fuels in stationary and mobile applications (except for emissions related to domestic transport as these are covered in a separate chapter). In other words, all emissions (except transport) stemming from fuel combustion activities and fugitive emissions from fuels are included here, irrespective of the sector in which they take place.

Denmark and especially Norway have a large production of oil and gas, which contributes with fugitive emissions in this sector (and from the energy use in extracting and processing).

From 1990 to 2021, the GHG emissions from the Nordic energy sector have been reduced by 54 million tonnes’ CO₂e, corresponding to a 40% emission reduction in the sector across the Nordic countries. Denmark, Sweden and Finland have contributed in particular to this trend with emission reductions of 59%, 45% and 41%, respectively, from 1990 to 2021. In Iceland, emissions declined by 30%. Emissions from the energy sector have increased by 16% in Norway (and by 60% specifically for oil and gas production).

Figure 16: Net GHG emissions from the energy sector across the Nordic countries, 1990-2021

Source: UNFCCC. GHG data from UNFCCC. https://unfccc.int/topics/mitigation/resources/registry-and-data/ghg-data-from-unfccc

Across the Nordic countries, current development is focused on the expansion of green electricity, particularly with respect to bioenergy, wind and solar. In addition, improved energy efficiency, grid development and various solutions for energy storage will contribute to an energy system aligned with the transition to a climate neutral society. Favourable conditions, such as high potential for geothermal and hydro power in some of the Nordic countries, have also helped the transition towards a low-carbon energy sector. Despite the large reductions achieved since 1990 in the Nordic region, there are still substantial emissions from this sector that needs to be addressed in order to reach climate neutrality. Moreso because of the importance of this sector for the decarbonisation of other sectors, in particular transport and industry, that will require large amounts of green power to realise e.g. the electrification of those sectors.

The energy sector plays a large and important role in the different Nordic pathways to climate neutrality. The Nordic countries plan a large expansion of renewable power in order to decarbonise their power as well as other sectors and to provide renewable energy for mitigation initiatives in hard to abate sectors. Across the Nordic countries, there is also strong focus on testing out and scaling up technologies for negative emissions.

Table 3 and Table 4, below, give a brief overview of emissions and emissions development in the energy sector across the Nordic countries. Table 4 summarises the main country challenges described in the section later in this chapter.

Table 3: The energy sector across Nordic countries – a summary

	Denmark	Finland	Iceland	Norway	Sweden
Emissions, 1990 Mt CO₂e	42.7	41.3	1.2	18.5	32.2
Emissions, 2010 Mt CO₂e	37.1	47.5	1.1	25.6	26.2
Emissions, 2021 Mt CO₂e	17.7	24.4	0.9	21.5	17.7
Development 1990-2021	-58.7%	-41.1%	-29.9%	+16.2%	-45%
Development 2010-2021	-52.4%	-48.8%	-23.5%	-16.1%	-32%

Note: emissions from the energy sector comprise exploration and exploitation of primary energy sources, conversion of primary energy sources into more useable energy forms in refineries and power plants, transmission and distribution of fuels, and use of fuels in stationary and mobile applications (except for emissions related to domestic transport).

Source: UNFCCC. GHG data from UNFCCC. https://unfccc.int/topics/mitigation/resources/registry-and-data/ghg-data-from-unfccc

Table 4: The energy sector across the Nordic countries – summary of main challenges

Country	Summary of main challenge(s)
Denmark	Maintaining energy security while increasing use of renewable energy and scaling down use of biomass and fossil fuels
Finland	Addressing emissions from heating Bottlenecks with infrastructure and investments Addressing subsidies targeted towards fossil fuel use and gaps in energy taxes
Iceland	Addressing expected large increase in demand for electricity Bottlenecks in transmission and distribution of electricity Technological limitations to reducing emissions from fishing vessels
Norway	Addressing emissions from the petroleum sector
Sweden	Creating the conditions for expanding fossil-free energy, mainly wind power (addressing lack of local support, investments in grid and delays from long review/permit processes)

Despite their country differences, similar challenges to decarbonisation in the energy sector can be identified across the Nordic countries. These include, but are not limited to:

accelerating renewable energy production – permit processes and local scepticism to development of renewables
renewable power intermittency in, and balancing of, the energy system.

Being able to identify similar challenges across all or several of the Nordic countries emphasises the need for, and value of, cross-Nordic collaboration. In particular, we see Nordic added-value in collaboration on the following:

knowledge-sharing on increasing acceptability – and reducing potential negative impacts on nature and local populations – for renewable energy installations
cross-Nordic analysis/overview on future energy supply and demand, especially regarding balancing power capacity supplementing increasing renewable power
knowledge-sharing on energy efficiency policies.

11.2. Status of the energy sector across the Nordic countries

In Denmark, emissions from the energy sector have decreased by 59% from 1990 to 2021. Today, biomass and wind energy are the dominant renewables in the Danish energy mix. The historical reduction of emissions in energy production is thus due to a shift from coal to biomass, primarily straw, wood chips and wood pellets, combined with increasing production of wind energy. The last coal-fired power plant is due to shut down in 2028 at the latest.

Consumption of electricity is expected to more than double from 36 TWh in 2022 to 80 TWh in 2030, due to, e.g., direct electrification, more electric vehicles (EVs), heat-pumps, datacenters and especially for green hydrogen (PtX)

Energistyrelsen (2023). Analyseforudsætninger til Energinet. Retrieved from, https://ens.dk/service/fremskrivninger-analyser-modeller/analyseforudsaetninger-til-energinet

. It is thus paramount to secure a speedy expansion of renewable energy from wind and solar to cover the increased demand from other sectors, while maintaining security of supply.

In Finland, emissions from the energy sector have decreased by 41% from 41.3 million tonnes CO₂e in 1990 to 24.4 million tonnes in 2021. Since 2005, the emissions have been decreasing, on average, 3% per year. 2021 was an exception: the emissions grew 4% from the previous year which is explained by increased consumption of coal. The consumption increased because of colder weather conditions than the previous year and the market price of natural gas was high. The energy sector covers about 80% of Finnish emissions in the EU emissions trading sector. The emissions from individual heating of buildings have also been decreasing in recent years but there is fluctuation between different years depending on weather conditions and the associated need for heating. The reduction in emissions in individual heating of buildings is a result of improved energy efficiency in buildings and replacing oil heating. In 2020, the emissions were 2.1 million tonnes’ CO₂e of which 48% came from heating of residential buildings, 36% from buildings which are used by businesses and different services and 18% from agriculture. Compared to the emissions from 2005, the emissions from heating have decreased 55%.

The production of heat and electricity in Iceland is already largely decarbonised, accounting for 4% of total emissions if excluding LULUCF, with the only significant emissions coming from geothermal power plants. The transition in the Icelandic energy industry (heat and electricity) from fossil fuels to renewable energy was completed 4-5 decades ago

Davíðsdóttir, B. (2022). ‘Towards an Icelandic Sustainable Energy System Relying on Domestic Renewable Energy’, in de La Porte, C., et al. (ed.) Successful Public Policy in the Nordic Countries. Oxford University Press. https://doi.org/10.1093/oso/9780192856296.003.0017

, and thus before 1990. In 2021, close to 100% of all electricity in the country was produced with renewable resources (70.38% hydropower, 29.58% geothermal power, 0.03% wind). Despite very low emissions from energy production, the remaining emissions from geothermal power plants are expected to be mitigated. Carbon emissions from two geothermal power plants already are captured and mineralised using the Carbfix process, which relies on proven CCS technology, that is, carbon capture and mineralisation (CCM). Emissions from fishing vessels declined by 24% between 1990 and 2021, but remain the largest percentage share of emissions in the sector.

In Norway, GHG emission from the industry and energy sectors have levelled out since 2010. In the energy sector, GHG emissions from oil and gas production, representing 25% of national Norwegian emissions, increased by 48% from 1990 till 2022, but with some decline after 2015.

Miljøstatus (2023, June 19). Olje- og gassutvinning står for en firedel av klimagassutslippene i Norge. Miljødirektoratet. Retrieved from, https://miljostatus.miljodirektoratet.no/tema/klima/norske-utslipp-av-klimagasser/klimagassutslipp-fra-olje--og-gassutvinning/

GHG emissions from petroleum production have increased by 48% since 1990, mostly before 2000. Thereafter the emissions stabilised, before declining after 2019

Miljøstatus (2023). Norske utslipp og opptak av klimagasser. Norwegian Environment Agency. Retrieved from https://miljostatus.miljodirektoratet.no/tema/klima/norske-utslipp-av-klimagasser/ [Accessed 20.05.2023]

. The primary reason for reduced emissions is that land-based power through cables replaces gas turbines for some of the oil and gas production platforms in the North Sea. Today, 90% of power production is hydro-based, of which ¾ is flexible due to magazines and the remaining are turbines in rivers where the production cannot be regulated. A fast development of land-based wind power over the last decade has led to a 10% share of wind power at national level.

In Sweden, the GHG emissions from the energy sector decreased by 45% from 1990, from 32.2 million tonnes of CO₂e in 1990 to 17.7 million tonnes in 2021.

Emissions from electricity and district heating production have decreased by 40% (to 4 million tonnes) since 1990. The low emissions are basically explained by the fact that hydropower and nuclear power account for a dominant part of the electricity production, while the cogeneration is bioenergy-based and the power capacity that has been added in recent years is mainly from wind power. The majority of the remaining emissions come from incineration of the plastic fraction in waste. These emissions have more than tripled since 1990. Around 80% of all plastic waste is incinerated today and less than 10 is recycled

Naturvårdsverket (2022). Kartläggning av plastflöden i Sverige 2020. Rapport 7038. Retrieved from, https://www.naturvardsverket.se/publikationer/7000/978-91-620-7038-0/

. The capacity for energy extraction is high and the economy is favourable for waste incineration in Swedish facilities. Emissions from combustion in manufacturing industries and construction were 6 million tonnes of CO₂e in 2021, 42% lower than in 1990. Extensive fuel switch has taken place, for example in the pulp and paper industry where electricity and biomass have displaced fuel oil. The refinery sector's emissions, on the other hand, have increased since 1990, which is due to increased production

Swedish Environmental Protection Agency (2023, April 6). National Inventory Report Sweden 2023. Retrieved from, https://unfccc.int/documents/627663

11.3. Pathways towards climate neutrality in the energy sector

Increased production of renewables from solar and wind is paramount to meet the Danish climate targets short and long-term. In recent years a number of political agreements have been made with the ambition to substantially increase electricity production from wind and solar in 2030 and onwards. Scaling up wind and solar will ensure there is enough supply of renewable electricity to meet the rising demand for electricity from electrification of transport, industry, new data centers and power-to-X (e.g. green hydrogen).

Production of offshore wind is expected to deliver the majority of green power in Denmark in the long term. The DEA expects offshore wind to grow from approximately 2 GW in 2021 to around 10GW in 2030

Energistyrelsen (2023, Januarary 5). Analyseforudsætninger til Energinet 2022. Retrieved from, https://ens.dk/sites/ens.dk/files/Hoeringer/af22_-_sammenfatningsnotat.pdf

. In 2023, the Parliament agreed on the foundation for how to tender the already agreed expansion in offshore wind until 2030

Klima-, Energi-, og Forsyningsministeriet (2023, May 30). Danmarkshistoriens største havvindsudbud er på plads. Retrieved from, https://kefm.dk/aktuelt/nyheder/2023/maj/danmarkshistoriens-stoerste-havvindsudbud-er-paa-plads

. With this agreement, the state will take a 20% ownership of the majority of the projects and ensure a concession from developers to ensure a revenue for the Danish state. Moreover, developers gain the opportunity to explore up to 14GW from the areas for offshore wind in 2030.

In the long term, the DEA expects offshore wind to grow to more than 35GW in 2050. The majority of the power will be exported in the long term and some will be used for PtX, such as hydrogen, which may also be exported to e.g. Germany.

Onshore wind is also expected to increase from about 5 GW in 2021 to 7 GW in 2030, before declining to 6 GW in 2050 as older onshore wind stops operating. Solar energy capacity is expected to increase from around 2 GW in 2021 to around 17GW in 2030, and steadily increase towards 35GW in 2050. Most of the solar capacity is expected to come from installation on land with a minor amount coming from rooftop installation.

Denmark sees CCS as an important pathway for climate change mitigation and has an ambition to make Denmark a hub for European CO₂ storage.

The Danish subsoil is well suited for storage both offshore and onshore. The Geological Survey of Denmark and Greenland (GEUS) estimate the total subsoil storage potential to be between 12-22Gt. In 2023, the DEA awarded the first three exploration licenses for CO₂ storage in the northern part of the North Sea to TotalEnergies and a consortium consisting of INEOS E&P and Wintershall DEA

Danish Energy Agency (2023, Febuary 6). The Ministry of Climate, Energy and Utilities grants Denmark’s first full-scale CO2 storage permits in the Danish North Sea. Ministry of Climate, Energy and Utilities. Retrieved from, https://ens.dk/en/press/ministry-climate-energy-and-utilities-grants-denmarks-first-full-scale-co2-storage-permits [Accessed 20.05.2023]

. Several sites onshore and offshore could be developed before 2030, with new tenders for both off- and onshore exploration licenses under preparation as of the autumn of 2023.

Carbon capture and storage is expected to play a significant role in achieving the Danish 70% reduction target in 2030. Current expectations are that CCS will deliver 3.2 million tonnes of reductions in 2030

Energistyrelsen (2023, April). Klimastatus og -fremskrivning 2023. Retrieved from, https://ens.dk/sites/ens.dk/files/Basisfremskrivning/kf23_hovedrapport.pdf#page=16

. The effect comes from a combination of the EU ETS price, a green tax reform and two additional national funding schemes

Sørensen, T.J. & Capion, K. (2023, March). The potential for Carbon Capture and Storage in Denmark. CONCITO. Retrieved from, https://concito.dk/files/media/document/The%20potential%20for%20Carbon%20Capture%20and%20Storage%20in%20Denmark.pdf#page=7

The first tender for one of the funding schemes was won by energy company Orsted in the Spring of 2023. Orsted has committed to capture and permanently store 0.43 million tonnes biogenic CO₂ in 2026 and 20 years onwards as part of the contract with the state. Orsted’s CCS project comprises capture of biogenic CO₂ from two of its biomass fired CHP, one using straw and the other one wood chips. The captured CO2₂ will be transported to Norway by ship and stored in the Northern Lights storage reservoirs in the North Sea

Ørsted (2023, May 15). Ørsted awarded contract – will capture and store 430,000 tonnes of biogenic CO2. Retrieved from, https://orsted.com/en/media/newsroom/news/2023/05/20230515676011

. The CO₂ will be counted as negative emissions as it comes from biomass, which is defined as CO₂-neutral energy according to UN accounting.

The DEA assesses the Danish technical potential for CCS in 2040 to be between 5.4 and 10.8 million tonnes

Energistyrelsen (2023, February 7). Punktkilder til CO2 – potentialer for CCS og CCU

from industry, biomass CHP, waste incineration and biogas upgrading plants. The bulk of this technical potential (3.5-6 million tonnes) is biogenic CO₂.

The Finnish pathway to climate neutrality is detailed in the Low-carbon roadmap by Finnish Energy

Energiateollisuus [Finnish Energy]. (2022). Energia-alan vähähiilisyystiekartta [Low-carbon roadmap for the energy sector]. [PowerPoint prensentation]. Retrieved from, https://energia.fi/files/6691/Energia-alan_vahahiilisyystiekartta_paivitetty_1_2022.pdf

(updated in 2021) which anticipates the demand for electricity, heating and gas. The roadmap identifies a few policies that are needed to achieve carbon neutrality: the emission trading system should be developed and broadened further, and an energy tax roadmap should be developed to remove taxes that make it harder to cut emissions. Finnish Energy also calls for investment in RDI supporting carbon neutrality.

Producing energy with coal has been banned by law starting in 2029. In 2020 the government published an investment aid program of 90 million euros to support energy projects to replace the use of coal. In 2020 and 2021, seven projects received a total of 30 million euros from the program. The 60 million that was unused will be transferred to other energy projects, e.g. solar power, energy efficiency and biogas production. In addition, energy aid provides support for piloting and deploying other clean energy projects. In 2021, aid was granted for 900 projects, 157 million euros in total.

To fulfil energy efficiency objectives, Finland uses voluntary contracts to steer different sectors and communities to improve their efficiency. Over 600 businesses and their 7,000 places of business and almost 120 municipalities have participated in the efficiency contracts. It is estimated that the annual emission reduction from these contracts has been 7.7 million tonnes of CO₂. If the contract period (2017-2025) continues as intended, the annual emission reduction will be 9.5 million tonnes of CO₂ by 2030

Ympäristöministeriö Helsinki [Ministry of the Environment] (2022). Ilmastovuosikertomus 2022 [Annual Climate Report 2022]. Retrieved from, https://julkaisut.valtioneuvosto.fi/bitstream/handle/10024/164392/YM_2022_24.pdf?sequence=1&isAllowed=y

Oil heating is responsible for the majority of heating emissions in the individual heating of buildings. To further reduce the emissions, the use of fossil oil in heating will gradually end by 2030 according to the programme of the previous government. There is a separate programme for actions to encourage the transition to alternative heating sources. The government has also made an energy efficiency agreement (2017–2025) for distribution of heating fuels with the oil industry to improve energy efficiency of buildings heated by oil and to increase the use of renewable heating oil.

It is estimated that the emissions from heating will further decrease as a result of the regeneration of building stock, repair construction and changes in heating systems. Also, the blending obligation of biofuels and replacing fossil oil with other heating options (most notably heat pumps) will result in major reductions in emissions.

The development of energy industry emissions is influenced by the decreasing use of fossil fuels, the demand for electricity by industry and the energy use for heating which depends heavily on winter temperatures. The decrease of emissions from the emission trading sector happens primarily through the price signal created by the emissions trading system.

The overall strategy emerging in the Icelandic climate action plan is for the heat and electricity industry to become climate neutral by relying on the Carbfix process (CCM) in the case of geothermal power plants or applying carbon capture and use where applicable

Ministry for the Environment and Natural resources (2020, October). Iceland’s 2020 Climate Action Plan. Government of Iceland. Retrieved from, https://www.government.is/library/01-Ministries/Ministry-for-The-Environment/201004%20Umhverfisraduneytid%20Adgerdaaaetlun%20EN%20V2.pdf

. The action plan includes initiatives set by the industry itself, as the two largest energy companies have pledged to become climate neutral by 2030

National Energy Company (Landsvirkjun) by 2025; Reykjavik Energy (Orkuveita Reykjavíkur) by 2030.

at the latest. The government has, through legal development, enabled mineralised storage using the Carbfix process. Furthermore, Reykjavik Energy and international research funds, e.g. the EU innovation fund

Carbfix (2022, July 12). Carbfix’s Coda Terminal awarded large EU grant. Retrieved from, https://www.carbfix.com/awarded-large-eu-grant [Accessed 10.05.2023]

, have enabled launching the Carbfix process to industrial scale operations at the Coda terminal

Carbfix (n.d.). Coda terminal. Retrieved from, https://www.carbfix.com/codaterminal [Accessed 10.05.2023]

The overall strategy in mitigation from the fishing industry is to facilitate an energy transition in the industry to renewable energy and continue improving fuel efficiency through collaborative efforts between the industry and the authorities. Neither the climate action plan nor the analysis by the Environmental Agency

Helgadóttir, Á.K., Einarsdóttir, S.R., Keller, N., Helgason, R., Ásgeirsson, B.U., Helgadóttir, I.R., Barr, B.C., Hilmarsson, K.M., Thianthong, J.C., Snorrason, A., Tinganelli, L. & Þórsson, J. (2023, March 15). Report on Policies, Measures, and Projections. Projections of Greenhouse Gas Emissions in Iceland until 2050. Environment Agency of Iceland. Retrieved from, https://ust.is/library/Skrar/loft/NIR/0_PaMsProjections_Report_2023_WITH%20BOOKMARKS.pdf

contain details as to the specific actions to be taken in the industry.

The electricity industry is instrumental in enabling climate neutrality in the transport and fishing industry, the two remaining sectors in Iceland that rely on fossil fuels. The sector is expected to generate the electricity required for electrification of the vehicle fleet and the production of e-fuels or synthetic fuels such as methanol. It will also provide electricity and heat/hot water to harbours for vessels while docked. As the exact shape of the energy transition in transport and fisheries is uncertain, not the least due to emerging technological development and thereby the amount of electricity required, the government launched an effort to evaluate the amount of electricity required for a full transition, given current technologies and including international shipping and aviation

Ministry of the Environment, Energy and Climate (2022, March). Staða og áskoranir í orkumálum [Status and challenges in energy issues]. Government of Iceland. Retrieved from, https://www.stjornarradid.is/library/02-Rit--skyrslur-og-skrar/Stöðuskýrsla%20áskoranir%20%C3%AD%20orkumálum%2008032022.pdf

In Norway, total energy consumption (2022) is at 284 TWh, of which 52% is renewable energy.

Til Null, Norsk Klimastiftelse (2023), Hvor mye av energibruken er fornybar? https://www.tilnull.no/energibruk.

Renewables provide close to 100% of the total electricity use, where 90% is hydropower and 10% is wind power. The largest energy users are industry (76 TWh), petroleum (63 TWh), transportation (56 TWh) and households (45 TWh). Due to expected increases in future electricity demand, further expansion of renewables plays a big role in the Norwegian pathway to climate neutrality.

The remaining large waterways in Norway are protected, so further hydropower development is only possible from small hydropower plants, but the scale of this production means little at national level. Existing hydropower plants, however, can be modernised and upgraded to increase Norway’s average annual power production at about 150 TWh by 5 – 15%. Wind energy currently generates around 10% of Norway’s power production. During the last three years, after the release of a national framework for wind power in Norway, there has been a moratorium on land-based wind power due to strong criticism from many municipalities since they experienced significant negative impacts, whereas most of the benefits were transferred to power companies and investors at national level or abroad. Over the last two years, the challenges of land-based wind power development have led to politicians and business giving increased attention to ocean-based wind power. The government now has ambitious plans to develop large wind power projects in the southern and western parts of the North Sea. Due to ocean depth this is predominately floating wind turbines, which is less mature technology. This implies a high cost and likely need for significant government subsidies, such that the power won’t be available until after 2030.

Due to the higher and more variable power price after the investments in high-capacity power interconnectors to Germany and the UK, there is more focus on upgrading the hydropower system to produce more and with a higher power capacity, as this will be more in demand. Upgrading of the power grid will also be prioritised.

Finally, there is more attention to testing out and scaling up technologies for negative emissions. The most interesting option for BECCS in Norway is the waste-to-energy plants, where about 50% of the waste can be expected to be biogenic. Given a sufficiently effective collection and incineration of biogenic waste coupled to CCS, CO₂ removal can be generated. The challenge is the large investment and operation costs compared to the value of reduced CO₂ emissions. One example is the Hafslund Oslo Celsio plant, where a public-private agreement with substantial government cost coverage has been established. This project is part of the ‘Langskip’ CCS project. The future of the project is uncertain due to a strong cost increase, however, and the project has been put on hold for a year in an effort to try to reduce the cost.

In Sweden, increased production of electricity will play a central role going forward, both as an enabler and as a potential obstacle

Naturvårdsverket (2023). Underlag till regeringens kommande klimathandlingsplan och klimatredovisning. NV-08102-22. Retrieved from, https://www.naturvardsverket.se/499a4f/contentassets/4c414b0778e9409fb2836fc4d3dc6259/underlag-till-regeringens-kommande-klimathandlingsplan-och-klimatredovisning-2023-04-13.pdf

. Access to fossil-free electricity at affordable prices enables the electrification of industry and the transport sector, while at the same time providing a competitive advantage for companies. The demand for electricity has been projected to reach up to 280 TWh (double today’s demand) by 2035 and projections for 2045 span from 210-370 TWh

Energimyndigheten (2023). Myndighetsgemensam uppföljning av samhällets elektrifiering – Rapportering 2022. ER 2023:2. https://energimyndigheten.a-w2m.se/ResourceComment.mvc?resourceId=212470

Emissions from the Energy sector are largely included in the EU ETS (for example, more than 95% of emissions from production of electricity and district heating) and are thus affected by the higher prices of emissions allowances that have now arisen in the system. The agreed further tightening of the ETS will further strengthen the incentives to mitigate emissions.

The use of fossil fuels in industry in the non-trading sector is subject to carbon dioxide and energy taxes. Emissions have decreased faster in this part of industry over the past decade compared to industry in the trading sector. The reduction coincides with the phasing out of exemptions to the carbon dioxide tax during 2011–2018 for these operations. Since 2015, investment grants for conversion and energy efficiency have also been available within the framework of the Climate Leap initiative (Klimatklivet).

As noted above, emissions from refineries have increased from 1990 levels. Looking at the refinery sector from a systems perspective, however, it is primarily the change of raw material from fossil to biogenic that can contribute to reducing the climate impact along its entire value chain, since the largest emissions are caused when the products (e.g. petrol and diesel) are used and not from the refinery itself

Johnsson, F., Zetterberg, L., Möllersten, K. (2023). Mot nettonollutsläpp – hur kan BECCS och CCS bidra? Studieförbundet näringsliv och samhälle.

A national waste incineration tax was introduced on waste incineration facilities on 1 April 2020, but this tax has been removed from 1 January 2023. Interest in using various measures to reduce the incineration of fossil waste and increase the sorting of plastics has increased in recent years.

With respect to new electricity production based on renewables, the relatively rapid expansion of wind power in recent years is largely due to sharply falling costs for wind power. The electricity certificate system, which initially drove the introduction, is now being gradually phased out.

The district heating sector has a significant potential for bioenergy with CCS (BECCS). The Swedish Energy Agency has been assigned to develop the support scheme for BECCS and is currently developing the design of a programme based on reverse auctions. 36 billion SEK have been allocated to the programme for the years 2026-2046. It has been communicated that 1 to 3 reverse auctions are to be held between 2023 and 2026. Supported projects will receive results-based payments per verified tonne of biogenic CO₂ captured and stored for up to 15 years

Energimyndigheten (2023, September 1). Statligt stöd för bio-CCS. Retireved from, https://www.energimyndigheten.se/klimat--miljo/ccs/statligt-stod-for-bio-ccs/

. Also, large point sources of biogenic CO₂ from pulp and paper production will be eligible for support from the scheme.

According to the latest projection scenario for 2045 from the Swedish Environmental Protection Agency (2023), emissions from electricity and district heating production, for example, are reduced to a slightly lower level in 2045 compared to 2020. Remaining emissions in 2045 are from waste to energy. There is potential to address those emissions with CCS provided that transportation and storage infrastructure are developed. The Swedish government established a national center for CCS, to enhance Swedish readiness for the introduction of CCS. This includes the possibility of combining CCS with waste incineration. Also, emissions from combustion in industry in the trading sector, as well as emissions from industry in the non-trading sector, continue decreasing until 2045.

However, there is further potential for emission reductions that can be tapped in the latter category.

At the time of drafting this report, the Swedish government was preparing a climate action plan to be delivered in the autumn of 2023. The plan will present the government’s pathway to reaching the Swedish climate goals.

11.4. Challenges in the energy sector on the way towards climate neutrality and opportunities for Nordic collaboration

Despite the impressive number of current and planned efforts across the Nordic countries, there are still challenges that need to be addressed. Some of these are unique to the different countries, but most of them are the same across the Nordic region. Thus, there are ample opportunities for cross-Nordic collaboration and sharing of experiences.

First, this section provides a brief overview on some of the main challenges in the Nordic countries, before going more in-depth with selected cross-Nordic challenges with high potential for Nordic collaboration and knowledge-sharing.

In Denmark, biomass has played an important role on phasing out fossil fuels in the energy sector, but today relies heavily on woody biomass and imported wood chips and wood pellets. Sustainable biomass is a limited resource and high consumption can have negative impacts on the climate among other things. This is why the Climate Council recommends a national strategy to decrease the Danish consumption of biomass to a sustainable level

Møllgaard, P., Jacobsen, J.B., Kristensen, N.B., Elmeskov, J., Halkier, B., Heiselberg, P., Knudsen, M.T., Morthorst, P.E. & Richardson, K. (2023, February). Statusrapport 2023. Klimarådet. Retrieved from, https://klimaraadet.dk/sites/default/files/node/field_file/Klimaraadet_statusrapport23_digi_01.pdf#page=190

. One of the main challenges when scaling up renewables and phasing down use of biomass and fossil fuels is maintaining energy security of electricity supply and heating for the major district heating networks in the largest cities. The Danish Climate Council has analyzed future scenarios with an energy system dominated by wind and solar.

Klimarådet (2023, May). Sikker elforsyning med sol og vind. Retrieved from, https://klimaraadet.dk/sites/default/files/node/field_files/Analyse%20-%20sikker%20elforsyning%20med%20sol%20og%20vind.pdf

The Council concludes that it is possible to maintain a high security of supply when the electricity system is dominated by solar and wind. However, Denmark will become increasingly dependent on imported electricity from neighbouring countries and will need to secure back-up from e.g. gas or hydrogen.

For heavy industry, most likely cement production, CCS will be needed to reach climate-neutrality if Denmark is to produce cement in the future.

The parliament has agreed on an implementation strategy for CCS that aims to secure 3.2 million tonnes in 2029 at the latest

Klima-, Energi-, og Forsyningsministeriet (2023, September 20). Klimahandling: Mindst 34 millioner tons CO2 skal ned i undergrunden. Retrieved from, https://kefm.dk/aktuelt/nyheder/2023/sep/klimahandling-mindst-34-millioner-tons-co2-skal-ned-i-undergrunden- [Accessed 20.05.2023].

. Longer term, due to expected residual emissions particularly in agriculture, forestry and land-use, CDR is important for reaching the Danish climate neutrality target.

According to the Finnish Climate Change Panel

The Finnish Climate Change Panel (2023). Suuntaviivoja Suomen ilmastotoimien tehostamiseen [Guidelines for enhancing climate action in Finland]. Retrieved from, https://www.ilmastopaneeli.fi/wp-content/uploads/2023/02/ilmastopaneelin-julkaisuja-1-2023-suuntaviivoja-ilmastotoimien-tehostamiseen.pdf

, one of the main challenges of the energy sector in Finland is the emissions from heating. Finland needs almost double the amount of low-emission energy for heating by the year 2050 (compared to 2021). The solutions to this challenge are heating technologies that are not based on burning fuels, such as industrial heat pumps, waste heat recovery, geothermal heat, medium deep thermal wells, heat as a by-product from hydrogen production and, possibly, small modular nuclear reactors. Concerning energy production, the production of fossil-free electricity is expected to increase in market terms. However, there will probably be bottlenecks with infrastructure and investment which will need to be resolved quickly as the demand for clean electricity grows. There are also challenges with environmentally harmful subsidies targeted towards fossil fuel use and gaps in energy taxes. For example, the Finnish Climate Change Panel strongly advises that the tax deduction of peat in energy production should be removed. The Panel also recommends speeding up licensing of wind and solar power in accordance with EU's directives and exploring possibilities to increase wind power production in eastern Finland without compromising national security (i.e. military radars).

In Iceland, the main challenges in the energy sector relate to: i) technical challenges in transitioning fishing vessels away from the use of fossil fuels and ii) bottlenecks in transmission and distribution and how to meet the expected increase in demand for electricity, partially due to its contribution to mitigation in other sectors that rely on fossil fuels. Various scenarios have been developed to realize required increases in electricity production, ranging from no expected increase to an increase of 125%

. The difference between these scenarios is largely rooted in the expected increase in energy efficiency, the development of the economy towards less energy intensive sectors and the extent by which all demand of e-fuels is fulfilled by domestic production. What they all have in common though is that they have not been assessed in the context of system-level impacts such as the impact on the grid of increased use of wind power, cost, tradeoffs with other industries including tourism or the impact on nature. As a result, more robust analyses are needed. Increasing electricity production in Iceland by 125% by 2040 will create significant challenges for the national economy as well as added pressures on Icelandic nature and energy resources.

A particular Norwegian challenge is the petroleum sector. The petroleum sector is of high economic importance to Norway, generating a large income for society and many jobs, especially along the western coast. Even if oil and gas extraction could be sufficiently reduced to meet the global climate policy goal, this would be very challenging given the current global dependency on fossil fuels. If Norway reduces its production unilaterally - without an agreement among the big producers - international oil and gas markets will incentivize replacement of Norwegian production. A sufficiently high carbon tax on consumption covering most countries would be more efficient. Natural gas will be needed in Europe and elsewhere for decades since the world is still dependent on fossil fuels and since this is the most climate-friendly fossil fuel type. These circumstances have led the government to support many petroleum installations being supplied with land-based power. However, this leads to a problematic side-effect in Europe since the shortage of stable fossil-free power implies that more coal or gas is needed to satisfy an increasing demand, which contributes to CO₂e emissions from the power sector in the EU and the UK. Emissions from the power and industry sectors are, however, capped by EU ETS.

For Sweden, continued electrification of transportation and the transformation of the industrial sector require rapid development of the electricity system. Electricity demand by 2035 is likely to double from today's levels. In order to meet such an increased electricity demand, the expansion rate of fossil-free electricity production needs to average 6 TWh/year until 2030 and between 2030 and 2035, increase further to over 12 TWh/year.

Swedish Environmental Protection Agency (2023, April 6). National Inventory Report Sweden 2023. Retrieved from, https://unfccc.int/documents/627663

One of the main challenges in the sector is that investments that are expected to be implemented are complex and thus risk being delayed by lengthy review processes, especially in cases where the application needs extensive completion or where the permit is appealed. There is a need for increased local acceptance and legitimacy for investments in e.g. wind power and electricity grids and other necessary infrastructure. Commercialisation of CCS will require significant efforts. The technology may play a role to reduce remaining emissions from waste incineration. Deployment of CCS to reduce emissions from waste incineration, however, risks locking-in to non-circular systems

Johnsson, F., Zetterberg, L., Möllersten, K. (2023). Mot nettonollutsläpp – hur kan BECCS och CCS bidra? Studieförbundet näringsliv och samhälle.

Across the Nordic countries, two challenges in particular must be addressed on the road towards climate neutrality:

accelerating renewable energy production – review and permit processes and local scepticism to development of renewables
renewable power intermittency in, and balancing of, the energy system.

These are described in further detail in the following sections.

11.4.1. Accelerating renewable energy production – permit processes and local scepticism to development of renewables

The challenge

As outlined earlier, the Nordic countries plan a large expansion of renewable energy in order to decarbonise their power, as well as other sectors, and to provide renewable energy for mitigation initiatives in hard to abate-sectors, e.g. green hydrogen for industry and other PtX-products for international transport. For example, Iceland expects an increase in electricity demand of up to 125% by 2040 in some scenarios, and Denmark plans to expand offshore wind and solar power production by more than 30 GW for both by 2050.

There are multiple challenges with an expansion of this size, but two in particular will be touched upon in this report:

slow review and permit-granting processes
local opposition to and scepticism towards renewable energy expansion.

In Sweden, these two issues are closely connected. Some of the investments that are expected to be implemented in the electricity and heating sector are complex and thus risk being delayed by lengthy review processes, especially in cases where the application needs extensive completion or where the permit is appealed

Energimyndigheten (2021, January 27). Förslag om ändring av bestämmelsen om kommunal tillstyrkan. Retrieved from, https://www.energimyndigheten.se/globalassets/fornybart/strategi-for-hallbar-vindkraftsutbyggnad/forslag-om-andring-av-bestammelsen-om-kommunal-tillstyrkan.pdf

. Trials that affect many stakeholders involve a greater risk of appeal. In individual cases, these review processes can lead to the investment not being implemented.

Between 2014 and 2020, almost half of all wind power applications did not result in a permit and the municipal veto was the reason in over half of these cases. The functionality of the trials will therefore need to be developed. Here, the importance of local anchoring through well-conducted consultations and coordinated party authorities can be particularly important. But it could also be about the municipal veto for wind power, where, for example, the Swedish Energy Agency and the Swedish Environmental Protection Agency jointly proposed a changed municipal authorisation in the national wind power strategy. A public inquiry, “incitamentsutredningen” (Eng. Investigation of Incentives), commissioned by the government, found that local acceptance would be increased if the municipalities in question would receive a share of the revenues from the wind power plants. This type of reward has been successfully applied in Finland and Denmark. But the Swedish public inquiry could not propose this type of compensation in their report since tax proposals were beyond the mandate of the inquiry

Government Offices of Sweden (2023, April 27). Värdet av Vinden. SOU 2023:18. Retrieved from, https://www.regeringen.se/rattsliga-dokument/statens-offentliga-utredningar/2023/04/sou-202318/

In Iceland, as in Sweden, the two issues are connected. The permit process for new power plants begins with the national Master plan for nature protection and energy utilization

Rammaáætlun (n.d.). The Master Planfor Nature Protection and Energy Utilization. Retrieved from, https://www.ramma.is/english [Accessed 10.05.2023]

. The Master plan specifies, based on multi-criteria analysis including environmental, economic and social impacts, whether energy development options larger than 10MW are allowed to move forward towards obtaining development and operational licenses. The Master plan list of development options is approved by Parliament. Following such approval and additional analysis, a development license (is: virkjanaleyfi) is awarded by the Energy Authority, followed by the approval of operational licenses (is: framkvæmdaleyfi) by municipalities. The Master plan process and its results have been subject to public and political debates and increased public and municipal opposition to plans for expanding energy production is emerging. Recent opposition in particular is directed to plans for wind power development which historically has not been part of the Icelandic energy mix. In addition, municipalities are demanding a fairer share of revenues, and related delays are already materialising in the development of wind power plants

Pálsdóttir, I.Þ. (2023, June 8). Búrfellslundur blásinn af [Burfellslund blown off]. Mbl.is. Retrieved from, https://www.mbl.is/frettir/innlent/2023/06/08/burfellslundur_blasinn_af/ [Accessed 10.05.2023]

Opportunities

We see the following opportunities for cross-Nordic collaboration addressing the challenge outlined above:

Knowledge-sharing on increasing acceptability - and reducing potential negative impacts on nature and local populations - for renewable energy installations.

In Denmark, a recent report commissioned by the Danish Energy Agency

Rambøll (2022, December). Baselineundersøgelse til evaluering af vedvarende energiordninger. Energistyrelsen. Retrieved from, https://ens.dk/sites/ens.dk/files/Vindenergi/baselineundersoegelse_2022_til_evaluering_af_ve-ordninger.pdf

indicates that the previous compensation schemes for renewable energy have had no effect on local opposition/support.

Despite the extensive academic research done on addressing local opposition and promoting local support (often referred to academically as “the social acceptance of renewable energy technologies and associated infrastructures”), very few initiatives have actually been shown to help in overcoming the challenges.

Considering the similarity in social acceptance issues regarding renewable energy installations – be it solar, hydro or wind power – across the Nordic countries, there seems to be high co-Nordic value in sharing experiences and developing solutions across the Nordic region.

Knowledge-sharing could be done bilaterally between the Nordic countries or in a dedicated network/forum hosted by the Nordic Council of Ministers. Relevant stakeholders would be energy agencies, municipalities and/or other local government level representatives and renewable energy developers.

11.4.2. Renewable power intermittency in, and balancing of, the energy system

The challenge

One of the main challenges when scaling up renewables and phasing down use of fossil fuels is maintaining energy security of electricity supply.

With the exception of Iceland, the Nordic countries’ electricity grids and markets are strongly interconnected. Physically, interconnectors join countries across land and sea, and economically, a common Nordic spot market ensures trade with energy across Nordic borders. Thus, balancing the electricity grid in future with an energy system dominated by renewable (and intermittent) energy is truly a cross-Nordic challenge.

In Denmark, the Danish Climate Council has analyzed future scenarios with an energy system dominated by wind and solar

. The Council concludes that it is possible to maintain a high security of supply when the electricity system is dominated by solar and wind. However, Denmark will become increasingly dependent on importing electricity from neighbouring countries and at certain periods. Moreover, it is important to ensure more adjustable electricity capacity, e.g. gas turbines, which could run on bio-natural gas, and potentially hydrogen. Flexible demand will also play an important role but is not enough. The price for maintaining security of supply and the necessary back-up is estimated at the modest price of 0.4€ billion or 13€/person in Denmark per year. Storage of electricity may also play an important role but the price is calculated on the price of gas-turbines as backup as prices and the technology is known.

In a 2021-report, the Finnish Innovation Fund Sitra analysed scenarios for how to enable cost-efficient electrification in Finland

Roques, F., Le Thieis, Y., Aue, G., Spodniak, P., Pugliese, G., Cail, S., Peffen, A., Honkapuro, S.& Sihvonen, V. (2021, September). Enabling cost-efficient electrification in Finland. SITRA. Retrieved from, https://www.sitra.fi/en/publications/enabling-cost-efficient-electrification-in-finland/

. The report concluded that to meet increasing demand resulting from electrification in various sectors, Finnish generation capacities will more than triple by 2050. Despite this growth in production, Finland (in the scenario) would become a net importer from 2040 onwards, highlighting the importance of flexibility from the Nordic hydro (Norway and Sweden) and nuclear generation (Sweden) available to the Finnish System via interconnection capacities.

Due to its flexible hydro power capacity, Norway plays an important role in balancing the Nordic electricity systems. A recent report from the Norwegian Water Resources and Energy Directorate

Buvik, M., Cabrol, J., Spilde, D., Skaansar, E., Roos, A., Tveten, Å.G., Doorman, G.& Døskeland I. (2022, May). Norsk og nordisk effektbalanse fram mot 2030. Norges vassdrags- og energidirektorat. Retrieved from, https://publikasjoner.nve.no/rapport/2022/rapport2022_20.pdf

concludes that even with the assumption of a highly flexible electricity demand across the Nordic markets, there will be situations in the future where the Nordics will depend on imported electricity to cover demand that is not sufficiently flexible. The Norwegian “battery” in terms of flexible hydropower, is not enough to balance the entire Nordic region. Furthermore, the report highlights the importance of viewing this issue in combination with the national, Nordic and Northern European contexts – which calls for strong collaboration and sufficient grid capacity between countries.

Anticipating the challenges, the Nordic transmission system operators (TSOs) have started developing a new Nordic Balancing Model (Ny Nordisk Balanseringsmodell, NBM

Nordic Balancing Model(n.d.). Nordic Balancing Model. Retrieved from, https://nordicbalancingmodel.net/ [Accessed 10.08.2023]

). Moreover, collaboration has been established between NordREG, CEER and ACER, and in general through EU regulation.

Opportunities

Despite the already close collaboration between Nordic TSOs, there is room for further Nordic collaboration in this area. We recommend pursuing the following opportunities for co-Nordic value:

Cross-Nordic analysis/overview on future energy supply and demand in the Nordic countries, especially regarding balancing power capacity supplementing increasing renewable power.

As noted in the aforementioned NVE-report, there is a need for further cross-Nordic analysis on the future of Nordic energy supply and demand. Knowledge is particularly needed with respect to the future options for flexible energy demand. This is valuable information for policy makers in the Nordic countries and for the assumptions underlying national projections and analysis on ensuring a stable and secure energy supply towards climate neutrality.

The Nordic Council of Ministers could procure analysis either directly or through Nordic Energy Research and thus contribute to a better cross-Nordic understanding of the future of the energy system in the Nordic region.

Knowledge-sharing on energy efficiency policies

In the International Energy Agency’s (IEA) scenario for reaching net-zero in 2050 (Net-Zero by 2050

International Energy Agency (2021). Net Zero by 2050 A Roadmap for the Global Energy Sector. Retrieved from, https://www.iea.org/reports/net-zero-by-2050

), energy efficiency is the single largest measure to avoid energy demand, and in the EU, “energy efficiency first” is outlined as one of the key pillars for reaching the EU’s climate objectives. Despite this, none of the five Nordic countries have a dedicated strategy for energy efficiency.

The Nordic Council of Ministers could promote this agenda by commissioning studies on energy efficiency policies and their impacts across the Nordic countries. Moreover, studies could also be funded to outline a Nordic strategy for energy efficiency, inspiring and guiding the Nordic countries to further action in this area.