Policy instruments and industrial responses – experiences from Sweden

Bengt Johansson, Gunnar Modig, and Lars J Nilsson, Environmental and Energy Systems Studies, Lund University, Sweden

Keywords

emission trading, regulation, voluntary agreements, energy efficiency, industry

Abstract

Industry meets different policy instruments which directly or indirectly affect energy costs and the prospects for energy efficiency improvements. There has been a general trend towards economic instruments. Specifically, emissions trading and carbon taxes has had a significant effect leading to higher electricity prices for industry. Regulation through the Swedish Environmental Code requires that energy efficiency is considered both when giving permits for industrial plants and during auditing of the compliance of activities with the general intentions of the code. The potential role of the Environmental Code as an instrument for accelerating energy efficiency has not been fully tested yet. Since 2005, the Programme for Energy Efficiency opens up for voluntary agreements between industry and government to support energy efficiency. Industry can be exempt from the minimum electricity tax in return for implementing, among other things, an energy management system. Identified energy efficiency measures with a shorter pay back time than three years should also be carried out.

In this paper we summarise the current experiences in Sweden on how industry reacts and adapts to the mix of instruments. The overall objective is to take stock of the current situation and discuss implications for future policy. The fact that energy prices have increased considerably in the 2000-2005 period is the main reason for the increasing interest in energy efficiency and associated measures. In the absence of a level playing field (e.g., global emissions trading or border adjustment taxes to compensate), we propose that regulatory and supportive policy instruments should be used much more extensively and actively than today.