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Energy Governance in Denmark

  • Helene DyrhaugeEmail author
Living reference work entry

Abstract

Historically, Danish energy governance has been characterized by not-for-profit principles, energy security, and energy efficiency, which have guided individual policy instruments. Moreover, many energy companies are owned by municipalities or by the consumers, for example, through cooperatives. Indeed, the municipalities have a strong role in Danish energy governance. However, national energy agencies are important in this multilevel governance structure, especially with increased focus on liberalization and where renewable energies are playing a bigger role in energy production. Indeed, the legacy of wind energy and Denmark’s forerunner position in renewable energies are crucial for Danish energy policies and politics today, especially in relation to the challenges Denmark faces in order to achieve a fully decarbonized economy by 2050. Indeed, there is a national climate change consensus across all areas of society from the electorate, businesses, and all political parties, yet there is no consensus on how to reach a low-carbon economy by 2050, which is evident in the lack of sector integration in, for example, transport. This chapter brings together the legacy of Danish wind energy and multilevel governance to discuss the current challenges facing Danish energy governance relating to decarbonization of the economy.

Keywords

Denmark Renewable energy Energy efficiency Energy security Liberalization Not-for-profit Multilevel governance 

Introduction

The Danish wind energy adventure started in the late 1970s and has left a strong legacy on Danish energy policy today as wind energy has become synonymous with the Danish energy transition. Wind energy, energy efficiency, and energy security have been central principles driving Danish energy governance since the 1970s, where energy security is defined as a self-sufficient domestic energy production independent of imports of fossil fuels, i.e., oil. Crucially the domestic energy production not only consists of renewable energies, but oil production is also important, and North Sea oil remains an important source of revenue for the state. Simultaneously, energy efficiency policies have incentivized industries to develop products that reduce energy consumption in all areas of society. Thus, industrial competitiveness has emerged as a side effect of the policy legacy, and it has become embedded in the domestic energy discourse.

The not-for-profit principle has been another important element in energy governance. Traditionally, Danish energy producers have been owned by municipalities, or they have been local not-for-profit energy companies organized in cooperatives and consumer-owned companies – these companies were also the firsts to invest in wind energy. Overall, energy producers have been grounded in the local community, where municipalities play a central role in energy planning, thereby creating a decentralized energy infrastructure with limited connections between different regions. Nevertheless, liberalization phases out not-for-profit principles instead prioritizing consumer choice. Moreover, investment in big offshore wind parks and integration with neighboring countries’ grid are likely to challenge the decentralized energy governance structure.

Simultaneously, climate change has become an important political agenda at all levels from the local to the UN, and energy transition is crucial to this agenda. While Denmark is a forerunner in wind energy and green energy technologies, it also faces several challenges most notably in terms of sector integration and electrification of transport, which are necessary to complete the transition to a low-carbon economy by 2050. Nevertheless, there has been no concerted attempt to facilitate energy transition in the transport sector, and the sector continues to contribute to pollution and climate change (the Climate Council 2018a). Importantly, the politicians and the societal stakeholders all support the energy transition, thereby creating a national climate change consensus, but they disagree on how to manage the transition and the speed of transition, which have created conflicts. The center-left political parties and some stakeholders, including the green energy sector and green NGOs, want an ambitious climate policy program, for example, through the “green growth” agenda (e.g., the Thorning-Schmidt governments 2011). Whereas the center-right political parties, who have been in power for most of the twenty-first century, and some industry associations support the “environment worth the money” strategy (e.g., Fogh Rasmussen I (2003), Løkke Rasmussen II (2015a) and III (2016)). Although Danish climate and energy targets for 2020 and 2030 are high compared to other European countries, the current political commitment is not sufficient to reach domestic targets for 2030 (The Energy Agency 2018a).

This debate about the level of climate commitment has shaped the political discourse for much of the century and is likely to continue in the future. The debate is rooted in the Danish pioneership (Andersen 1997; Börzel 2002), and it has become a nodal point in the climate and energy discourse today, where Danish leadership is used to discuss the speed of energy transition. Although energy transition in Denmark is well underway, there are still many conflicts and challenges for the country to overcome to become a zero-carbon economy by 2050, where the new datacenters and the required decarbonization of transport will increase electricity demand, and that electricity have to come from renewable sources. Thus, more investment in renewable energies is necessary for Denmark to meet its climate obligations. These changes in energy demand challenge Danish leadership, which has already faltered under the Liberal Party coalition governments (2001–2011 and 2015–2019) due to policy instruments often favoring intensive energy consumers and with limited investments in offshore wind. The energy transition by 2050 necessitates radical steps to change energy use (the Climate Council 2018a), thereby making structural changes to energy consumption and production. However, the Danish government and many other governments have been criticized for not taking sufficient steps to meet their mid- to long-term climate and energy targets.

The chapter draws on government documents, legislation, and reports from the Danish Energy Agency and the Climate Council. Additionally, the chapter draws on nine semi-structured interviews with three politicians (former MEP Britta Thomsen (Social Democratic Party), Martin Lidegaard (Social Liberal Party, Minister for Climate, Energy and Buildings (2011–2014)), and Lars Christian Lilleholt (Liberal Party, Minister for Energy, Utilities and Climate 2015–2019)); three environmental NGOs (Concito, NOAH, and the Ecological Council), and three industry organizations (Danish Industry, Danish Chamber of Commerce, and Danish Wind Industry Association). The interviews took place between 2016 and 2017 and bring new insights into Danish climate and energy politics.

The chapter starts by describing the general energy conditions in Denmark and analyzing how the policy legacies of wind energy and North Sea oil influence the energy discourse today. Secondly, the chapter focuses on the drivers of the energy transition and discusses the different policy instruments used to facilitate the shift to renewable energies. Thirdly, the chapter identifies the challenges in Danish energy transition especially in terms of sector integration to enable electrification of all areas of energy consumption. The section also discusses the geopolitical energy conflict caused by Nord Stream 2. Finally, the chapter examines the prospects for energy transition and governance by analyzing the UN and EU climate change agenda in relation to the Danish climate and energy political agenda. Overall, the chapter demonstrates that the long-term climate goal – zero-carbon economy by 2050 – challenges the Danish forerunner position in renewable energies especially as the next phase of the energy transition requires ambitious political commitment to transform energy consumption in all sectors, where the electrification necessitates investment in more renewable energies to facilitate the projected increase in demand.

General Conditions of Energy Governance in Denmark

Policy Legacies

Denmark relied on imported oil for heating until the 1970s (Sovacool 2013, p. 28), where the oil crises together with pressure from environmental movements created a new energy paradigm emphasizing two guiding principles – energy security and energy efficiency. Firstly, energy security is understood as a reliable infrastructure and a self-sufficient energy production; here windmills and North Sea oil and gas ensure independence from imported fossil fuels. Secondly, energy efficiency aims to reduce energy consumption of households, buildings, and industries. Later in the 1980s, promotion of renewable energies became a third principle of Danish energy governance.

The principle of energy security initially focused on exploiting resources in the North Sea – oil and natural gas – and only later became associated with wind energy. The exploitation of North Sea oil started in 1962, where the A. P. Møller Group created Danish Underground Consortium and the government granted the company permission to extract oil from the North Sea. In 1972, the state created DONG, a state-owned energy provider, which had priority right to buy oil and gas from the North Sea. The overall operating goal for DONG was to ensure Denmark became independent of imported energy. In the 1990s DONG started investing in wind energy, and today, DONG, now known as Ørsted, has become the largest energy provider in Denmark, and it is slowly divesting from oil and gas instead focusing on renewable energies. Nevertheless, North Sea oil continues to contribute to the domestic energy mix today (Fig. 1) and the state budget. In 2014 the Thorning-Schmidt government privatized DONG and controversially sold it to Goldman Sachs. The Socialist People’s Party was part of the government, but did not support the decision and left the coalition government.
Fig. 1

Gross energy consumption. (Source: the Energy Agency 2018b)

The principle of energy efficiency aims to reduce energy consumption, and governments have used different policy instruments to incentivize both households and businesses to use less energy. Indeed, Danish energy consumption has been stable since 1990 (the Energy Agency 2018b). During the same period, Denmark has experienced economic growth, and many see the stable energy consumption as a success (Sovacool 2013; interview with minister Lars Christian Lilleholt 2016), but the figures do not include international shipping, which would show an increase in energy consumption because of the large Danish maritime sector. Indeed, some green NGOs, e.g., NOAH and the Ecological Council (interviews 2016), criticize the governments for not including factors such as changes in industries’ energy use and deindustrialization as an explanation for the stable energy consumption.

The legacy of renewable energies is associated with the 1970s environmental grassroots movements that demonstrated against nuclear energy, especially Barsebeck, the Swedish nuclear power plant close to Copenhagen. Simultaneously, entrepreneurs successfully built windmills as an alternative source of electricity. Together these developments created bottom-up pressure against nuclear power, and the government officially abandoned nuclear power in 1980. Moreover, the first wind map in 1981 identified locations for future wind turbines (Meyer 2007). Indeed, 1980s wind energy policies changed Danish energy perspective from energy security to pioneering environmental awareness (Andersen and Nielsen 2016, p. 84). This pioneership became more important after the 1993 election, where the new coalition government led by the Social Democratic Party with the Social Liberal Party merged the energy ministry and environment ministry into one ministry with Svend Auken (Social Democratic Party) as minister for both environment and energy. Svend Auken was a committed environmentalist and pushed the environmental perspective on energy policy. During his tenure (1993–2001), Denmark became a forerunner, protecting its own higher standards against lower EU and international standards; while Svend Auken defended national environmental standard, he also adopted an activist approach trying to forge alliances with other EU member states and tried to upload domestic policy preference to the EU level (Andersen 1997, pp. 270–283; Börzel 2002). This forerunner position remains important for Danish self-perception and policy discourse today (see next section for detailed discussion).

In 2001, the Liberal Party came back into power in a coalition government with the Conservative Party, and the new Prime Minister Anders Fogh Rasmussen started by dismantling the existing climate and energy policies. However, Fogh Rasmussen later reversed his position on climate change, partly due to the Mohammed cartoon crisis in 2006, which again highlighted the precarious reliance on imported Middle East oil, and partly due to a visit to the USA, where he heard about Danish export of green energy technology (Meilstrup 2010, p. 19; Øyen 2018a). These factors contributed to the 2007 policy reversal leading to financial and regulatory commitments to the energy transition.

At the same time, the Minister for the Environment, Connie Hedegaard (2004–2007; also Minister for Climate and Energy 2007–2010), wanted Denmark to host COP15 (Meilstrup 2010, p. 114). Anders Fogh Rasmussen and Connie Hedegaard invested a lot of political capital in the Danish presidency, yet the presidency struggled with coordination between the Prime Minister’s Office and the Foreign Office (Meilstrup 2010, p. 117). This was not helped by the change in Prime Minister from Anders Fogh Rasmussen, who, in Spring 2009, became head of NATO, to Lars Løkke Rasmussen, who “throughout his career had focused on domestic politics, did not immediately take a strong interest in the negotiations” (Meilstrup 2010, p. 124). Nevertheless, the failure of the COP15 cannot be contributed solely to the Danish presidency; conflicts between the delegations attending the conference were another major factor in the lack of a new post-Kyoto agreement (Meilstrup 2010; Park 2016).

Lars Løkke Rasmussen lost the election in 2011 but regained power in 2015, where he reintroduced the “environment worth the money” strategy (the Government 2015a). During the interim period, between 2011 and 2015, the Social Democratic Party with Helle Thorning-Schmidt as Prime Minister (Thorning-Schmidt I (2011–2014) and Thorning-Schmidt II (2014–2015)) led a coalition government first with the Socialist People’s Party and the Social Liberal Party and between 2014 and 2015 only with the Social Liberal Party. The Thorning-Schmidt I and II governments adopted a “green growth” strategy to kick-start the economy after the crises (the Government 2011), pushing a green agenda both at home with a multiannual energy agreement for 2012–2020 and the 2014 Climate Law, while it, at the EU level, used the 2012 Danish presidency to work toward an ambitious energy efficiency directive, and later the government pushed for ambitious EU 2030 climate and energy targets.

The policy legacies have created Danish expertise in wind energy, energy technologies, and energy efficiency. Two factors have influence the energy governance over the past 30 years; firstly, Svend Auken initiated and pushed the energy transition during the 1990s leaving a legacy of Danish climate leadership, and secondly, the Liberal Party has been in power for most of the twenty-first century, where it predominately has pushed an “environment worth the money” agenda.

The Energy Mix

The Danish energy mix and consumption reflects the above energy principles of energy security, energy efficiency, and renewable energies. Renewable energies have become a dominating energy source as North Sea oil production has peaked, while energy production has remained stable (the Energy Agency 2018b – Fig. 1). The combined picture of Danish energy policy shows a high percentage of renewable energies in electricity production, but the stories behind the figures reveal problems for future energy transition to a low-carbon economy.

The 2018 Energy Outlook shows an increase in renewable electricity production, which accounted for 50% of electricity production in 2017 (Fig. 2), and renewables are expected to top at 86% of electricity production in 2021, yet it will only account for 57.5% in 2030 (the Energy Agency 2018a, pp. 16–17). Renewable electricity will decline after 2021 due to increased demand for electricity as part of the electrification of other sectors and a decline in electricity production because older wind parks need replacing. Moreover, Apple, Google, and Facebook’s new datacenters in Denmark require lots of electricity (the Energy Agency 2018a, pp. 18–21). Thus, reaching 100% renewable electricity target for 2030 requires significant investment in new wind parks. Overall, investment in more wind power, mostly offshore wind parks, is central for Danish energy transition and self-sufficiency principle.
Fig. 2

Electricity production. (Source: the Energy Agency 2018b)

Denmark has been self-sufficient in oil since 1993, and its oil production has exceeded demand for much of the period (the Energy Agency 2017b). Moreover, the North Sea oil is an important revenue for the Danish state. In 2015, the accumulated domestic oil production have contributed 415 billion kroner (60 billion euros) to the state budget, and the Løkke Rasmussen III government estimated that North Sea oil will contribute another three-digit billion kroner over the next 20 years (the Government 2018a, p. 39), the revenue gone into the general state budget. Yet in 2014, the Thorning-Schmidt I government created “Togfonden,” which earmarks revenues from the North Sea oil to finance future rail infrastructure investment, mainly electrification and high-speed trains (Togfonden 2014). However, oil prices have since dropped leaving a deficit in the program. The Liberal Party, which does not support the program, has argued that the program should be terminated due to the financial deficit. Overall, the oil sector remains important for the Danish economy, and there are no plans to halt domestic oil exploration and production.

Coal continues to be an important fossil fuel in many countries, e.g., Poland or Germany, but it does not have an important role in the Danish energy mix (Fig. 1). The Parliament imposed a moratorium on coal in 1990, which was formalized in 1997 (Sovacool 2013, p. 28), and coal has to be completely phased out by 2030. Ørsted’s two coal-powered plants will end operations in 2023, leaving two municipality-owned coal plants, Nordjyllandsværket in Aalborg and Fynsværket in Odense, in operation until 2028 and 2030, respectively (Nielsen 2017). Instead, biomass has replaced coal and has become an important energy source in heating. In 2005, Hvelplund (2005, p. 86) argued that biomass was reaching saturation point, but use of biomass has continued (Fig. 3), and the Energy Agency (2018a, p. 48) expects biomass to peak in 2021, thus much later than anticipated by Hvelplund. Biomass include wood, hay, biodiesel, and waste (the Energy Agency 2017b). Forty-three percent of biomass used in Denmark is imported. However, CO2 emissions from imported biomass are registered in the country of origin; consequently, Denmark does not register its emissions from its imported biomass, and instead Denmark relies on the country of origin to have a coherent climate strategy (the Climate Council 2018c). Clearly, biomass is not necessarily a sustainable energy source; it depends on the measures taken by the country of origin to mitigate climate change and loss of forests. Waste is another important energy source for many decentralized power plants, but increased focus on recycling and circular economy, especially at EU level, has reduced the amount of domestic waste, which leads to more imported biomass. In general, the Danish energy mix is on the path to becoming independent of fossil fuel, and the energy security principle remains part of the future renewable energy mix.
Fig. 3

Production of renewable energy. (Source the Energy Agency 2018b)

Discourse on Energy Issues

Several opinion polls from 2018 show that climate has become more important for the electorate (Holstein and Mølgaard 2018; Holm 2018). One opinion poll from December 2018 shows that climate has jumped from a fifth position in 2017 to first position ahead of health and immigration (Holstein and Mølgaard 2018). A previous poll from August 2018 shows that climate and environment were the third most important issue for the electorate only exceeded by health and immigration. The different opinion polls demonstrate a clear electoral prioritization of climate change, which all political parties have seized in the time leading up to the 2019 European parliamentary and Danish parliamentary elections. Indeed, the opinion polls reflect the climate change consensus in Denmark, where the political parties agree on energy transition and climate change defined as commitment to ecological modernization (Skovgaard 2017, p. 361). However, they disagree on the speed and direction of the transition, especially in terms of investment in new wind parks and banning fossil fuel cars.

The disagreements were evident in the public discourse surrounding Løkke Rasmussen III government’s 2018 Energy Proposal. The proposal was widely criticized by the opposition for being unambitious and ignoring climate dimensions, instead only focusing on the energy sector. As a minority coalition government, the Løkke Rasmussen III government relies on either its support party – the Danish People’s Party – or the opposition in order to adopt legislation. Indeed, broad political agreements are important for domestic policies because they bind the political parties for the existing and subsequent electoral periods, thereby creating stability in the policy field and for the affected sectors. During spring 2018, the opposition successfully pushed the government toward a more ambitious 2020–2030 energy plan, which was adopted just before the summer holiday. The climate and energy debate continued after the summer holiday into the autumn, where the public debate between the political parties and broader stakeholders focused on the level of investment in new offshore wind parks with the aim of ensuring Denmark remains self-sufficient and that the country will meet its climate commitment in 2030 and 2050. In autumn 2018, the government published its climate plan, which it decided not to negotiate as a single package; instead it wanted to negotiate the policy initiatives individually with different parties, thereby giving the government a better strategic advantage in achieving its climate policies yet at the risk of creating a fragmented climate policy.

The energy discourse is framed within a self-perception of leadership and pioneership. The leadership discourse has changed over time, from a defensive forerunner in the 1980s, which was concerned about how EU legislation would negatively impact on Denmark’s domestic standards to a pusher position in the 1990s, where Denmark tried to upload its ideas to the EU level (Andersen 1998; Börzel 2002; Andersen and Nielsen 2016). More recently, the Løkke Rasmussen II and III governments understand environmental energy leadership as domestic market conditions for energy technology companies, business start-ups, and high energy security (the Government 2018a, p. 5), which translate into an export-oriented strategy for green energy solutions.

Furthermore, the pioneer position in energy efficiency and renewable energies is closely associated with specific companies specializing in energy technologies, e.g., insulation of pipes (Løgstør rør), insulation (Rockwool), and thermostats (Grundfos and Danfoss), just as Vestas has become synonymous with Danish wind power. Overall, the green energy industry accounts for 11% of total export (the Energy Agency 2018c) and has become an important part of Danish foreign policy. The export of green energy technologies started at the beginning of the millennium and has continued as global demand for climate and energy solutions has increased. This demand for Danish green energy solutions has influenced governments’ policies, where governments have increasingly focused on exporting green technologies. However, Danish green energy companies want ambitious domestic policy objectives in their home market to facilitate innovation to stay competitive at the global level, thereby creating pressure on the government to adopt strong climate and energy objectives. Overall, leadership is central in the domestic energy policy discourse, but the understanding of leadership has changed from domestic policy objectives to include industrial competitiveness and export opportunities.

Political Institutions and Actors

The Ministry of Energy, Utilities and Climate is responsible for the political direction of Danish energy policy and is in close contact with the different energy agencies to prevent political “shit storms” and to discuss implementation of legislation. Climate policy and energy policy have been together in one ministry since 1993, with the exception of Anders Fogh Rasmussen I and II governments (2001–2007) where the two policy fields were separated into different ministries. Integrating climate and energy into one ministry makes it possible to create synergy in decision-making in relation to climate change and energy transition. However, other ministries are also involved in energy policy-making, for example, the Ministry of Finance has become more important in climate and energy policy-making after the 2008 economic crises (Skovgaard 2017), while the Ministry for Foreign Affairs is responsible for the energy technology export strategy, and the Danish Business Authority, under the Ministry of Industry, Business and Financial Affairs, is responsible for the Danish Emission Trading System (ETS). Yet, the main actor in Danish energy governance is the Ministry of Energy, Utilities and Climate, who sets the political directions for the energy sector.

Moreover, there are two energy agencies, the Energy Agency, which administrates energy and supply plus climate initiatives, and Energinet, the state-owned infrastructure manager responsible for the electricity and gas grids. They operate with an arm’s length from the Ministry and thus are free from political interference; they are responsible for enforcing national energy laws, thereby playing a central role in energy governance by directly regulating energy producers and suppliers, in addition to interacting with private and public energy stakeholders. Moreover, competences have been transferred from Energinet to the Energy Agency, which is the main regulatory body in energy governance and coordinates policy instruments in a multilevel system with many energy actors, including the municipalities, which are responsible for local energy planning. According to the 1979 district heating law, the municipalities must provide heating to all households, and the law has created decentralized energy grids managed by the municipalities, but today municipalities, who remain responsible for local energy planning, outsource maintenance and development of the local energy grids to private actors.

The heating is regulated on a not-for-profit principle, where profit is reinvested back into the energy-producing companies, which are often consumer-owned cooperatives, or for other companies returned to the consumers. Cooperatives and consumer-owned energy companies continue to dominate the heating sector, whereas the electricity liberalization has consolidated the electricity production, especially as the energy transition requires large-scale offshore wind parks. The energy producers are organized in national associations that represent their interests at the central political level, such as Dansk Fjernvarme (Danish District Heating Association); some of its 400 members are also part of the larger energy association, Danish Energy, which represents energy producers, energy distribution, and energy trading. The two associations together with Wind Denmark represent the Danish energy interests in the political discourse, whereas non-energy industry actors are represented by the two largest business associations: Danish Industry and Danish Chamber of Commerce. All the associations are active in the corporatist political system, where stakeholders are consulted by governments as part of decision-making. “Since 1970s oil crises – a relatives systemic energy policy has been developed and implemented in a dialogue with the important actors, such as grass root organizations, energy companies and the general public” (Hvelplund 2005, p. 83). However, Læssøe (2007, p. 236) argues that the 1980s saw a professionalization, which marginalized grassroots movements in favor of industry and academics. More recently, environmental think tanks, i.e., the Ecological Council and Concito, have emerged and are playing a vocal role in the Danish energy debate arguing for a more ambitious climate change agenda. Moreover, Concito works with industry to promote the energy transition, for example, through the “Denmark as a Green Winner Nation” initiative, where Concito collaborates with the Danish Society of Engineers, Vestas, Grundfos, Danfoss, and Rockwool. These green energy companies are important for Danish export and are increasingly vocal in the energy transition discourse.

The Climate Council, an advisory body to the government, is a new actor. It was established by the 2014 Climate Law and consists of academics from different disciplines and universities. While the Climate Council does not have a formal role in Danish policy-making, its reports and analyses have engaged with government policies, and its work have been criticized by the Løkke Rasmussen III government. Indeed, neither the Liberal Party nor the Liberal Alliance was part of the political agreement that adopted the 2014 Climate Law, and they want to reform the Climate Council. This politicization of the Climate Council was evident in the change of chairperson in November 2018 (Abrahamsen et al. 2019) and could make it difficult for the council to fulfil its mandate to give independent advice to the government on climate change and transition to low-carbon economy. Indeed, the Climate Council has to find a balance between analyzing the government’s climate policies while not being too critical.

Coordination, Instruments, and Issues of Energy Transitions Within a Multilevel Context

Drivers of Energy Transition

The bottom-up multilevel perspective on socio-technological changes (Geels and Schot 2007) is useful for understanding the initial developments in the Danish green energy agenda, where the process was driven by entrepreneurs who created new technologies, e.g., windmills and thermostats; just as grassroots movements pushed a antinuclear policy agenda, both groups influenced the socio-technological regime. However, the multilevel perspective downplays the role of governments as driver or brakeman for energy transition.

During the 1980s, government policies supported investment in windmills, and the coalition governments under Prime Minister Poul Schlüter (the Conservative Party) gave financial support to research and development of wind turbines and energy efficiency (Ege 2009, p. 39), thereby supporting early energy transition. The Schlüter governments also incentivized individuals to install wind turbines by reimbursing 30% of the price, yet the policy was phased out by 1989 (Meyer 2007, p. 359; Auken 2002, p. 153). The financial support for wind turbines has changed over time, while wind turbines have become bigger, and offshore wind parks have emerged, which require bigger investments compared to the early single wind turbine investments.

The 1990s, when Svend Auken was the Minister for the Environment and Energy, saw a strong top-down approach to environmental protection and energy transition. This top-down approach propelled the Danish energy transition and made Denmark a forerunner (Börzel 2002). Today actors in the energy sectors push for ambitious domestic targets because their home market is important for research and development of new products, especially in an increasing competitive global green energy technology markets (interviews 2016–2017). Thus the energy technology companies need their home market to develop new technologies, which requires government investment in renewable energies and financing of research.

Compared to the other Nordic countries, Denmark lacks a strong heavy industry to lobby for an industrial energy policy (Midttun and Kamfjord 1999, p. 890). Indeed, the climate change consensus extends to the Danish industry, including energy-intensive companies. For example, Maersk, the world’s largest shipping company, has announced a zero emissions fleet by 2050 (Financial Times 2018). Crucially, Maersk’s 36 million tons of CO2 equivalent in greenhouse gases (Financial Times 2018) do not figure in the Danish emissions statistic because most of the pollution is in international waters. Yet the company is important for the Danish economy, and as the biggest maritime company in the world, it is a market leader. The announcement demonstrates the role of industries in facilitating the transition by developing new technologies, just like Vesta’s role in developing small land-based windmills and later large offshore windmills is important for both Denmark and renewable energies in general. Unsurprisingly, the Danish green energy technology sectors support energy transition because it benefits their businesses, thereby often pushing for more political commitments because high domestic climate objectives will pull industry toward more technological innovation.

The idea that technologies deliver the transition to a low-carbon economy is common among politicians and industry actors. The development of new technologies to mitigate climate change requires investment in research and development both in terms of public funding and private funding. The 2018 energy plan allocates 500 million kroner (67 million euros) to the program for development and demonstration of energy technology and 80 million kroner (11 million euros) to the Innovation Fund in 2020; the amount will increase to 1 billion kroner (134 million euros) in 2024 to match Løkke Rasmussen III government’s aim of spending 1% of BNP on research (the Government 2018a, p. 12). It is unclear how much money will be available after 2024; this will depend on future political compromises and agreements. Moreover, governments favor a technological-neutral policy where industry and universities decide which technologies are most effective. Moreover, “it is important to realize that the present transition from stored fossil fuel and uranium technologies to fluctuating renewable energy represent a fundamental technological change, where technique, organization, knowledge, product and profit streams are all altered” (Hvelplund and Djørup 2017, p. 1236). In other words, the energy transition requires a paradigm shift not only in use of energy sources but also in how energy is organized and stored, especially as fluctuations in wind influence the availability of energy and thus energy security. This fluctuation in energy production requires either storages or connectors to neighboring countries to secure supply when there is not sufficient production.

Instruments of Energy Transition and Coordination Mechanisms

The multilevel energy governance system reflects the decentralized energy infrastructure with local energy producers, municipalities, and the central administration, where the Energy Agency plays a central role in coordinating actions and developments. The following sections identify the policy instruments used in regulating electricity and heating sectors and instruments to support energy efficiency and increase uptake in renewable energies.

Regulating the Heating Sector

The regulation on district heating (the consolidated law on heating supply 2018) requires the municipalities to establish a heated water or natural gas grid to supply households and businesses. This has resulted in decentralized heating grids, which the municipalities are responsible for maintaining. The main regulatory tools for heating are the law on heating supply, the planning law, and relevant environmental and building laws (Table 1). Article 3 of the consolidated law on heating supply (2) states that the municipal council, i.e., the mayor and the other local elected politicians, has to cooperate with utility companies; many of these are cooperatives and other stakeholders to develop and carry out a plan for heating supply in the municipality.
Table 1

Key Danish energy transition policy instruments by sector and type. (Created by the author)

 

Regulations

Incentive-based

Taxes and charges/internationalizing external costs

Soft governance

Electricity supply

Electricity supply law (consolidated 2019)

Energy savings (2012–2020)

EU Renewable Energies Directive (1992 onward)

PSO charges, feed-in tariff (phase out by 2022)

EU ETS (2012 onward)

 

Heat supply

Heat supply law (consolidated 2019)

Phase out coal by 2030 (1997)

Energy savings (2012–2020)

EU Renewable Energies Directive

  

Household energy users

EU Buildings Directive

EU Energy Efficiency Directive

Phase out gas boilers and introduce heat pumps

Home improvements (2011 onward)

 

Energy savings and efficiency (2012 onward)

Industrial and commercial energy users

 

PSO charges, feed-in tariff (phase out 2022)

State aid to energy-intensive companies (updated 2017)

EU ETS (2012 onward)

 

Transport

EU Biofuel Directive (2012 onward)

No registration charges for electrical vehicles (2008–2015)

  

According to the Danish District Heating Association, there are around 400 district heating companies, of which 50 companies are owned by municipalities, and they supply 50% of all district heating, whereas 350 cooperatives supply the last 50%, and a further 10 private companies supply less than 1%. Overall, the ownership structures in the form of public ownership by the municipalities and local cooperatives ensure that the district heating companies are grounded in the local community.

Until now, the not-for-profit principle has ensured that the price for heating only reflects production costs, distribution, and administration, where any profits are either reinvested back into the power plant or passed on to the consumers. Only heating originating from renewable sources or surplus heating from industrial companies can incorporate a profit. However, the Løkke Rasmussen III government wanted to liberalize the heating market and remove the not-for-profit principle, whereas the opposition was concerned about how this would affect consumer protection and price for heating. Overall, the ministry can set a maximum price for heating, thereby protecting consumers from rising price, and price regulations have resulted in low energy prices. The aim of the heating supply law is to promote the most socioeconomic, including environmental, use of heating of buildings and within this framework reduce reliance on fossil fuels. Unlike other European countries, there is no energy poverty (Pye et al. 2015; Bouzarovski 2014) despite local differences in price of heating.

Regulating the Electricity Sector

The electricity liberalization has phased out the not-for-profit principle (Kooij et al. 2018, p. 56) and replaced it with profit-seeking principles aiming to create a competitive sector benefitting the consumers. The process started in 1998 and was initially influenced by domestic factors (Jakobsen 2010) and was only later driven by EU energy liberalization. The liberalization started by opening the wholesale electricity market and for consumers with an annual consumption above 100 GwH (Midttun 2001, p. 93). The consumer market was only opened later to give more choice of electricity providers. The universal service obligation for companies to supply electricity and price regulation was removed in April 2016, thereby establishing an open and competitive electricity market. While the wholesale electricity price is one of the lowest in Europe, the charges and taxes are among the highest leading to some of the highest consumer prices in Europe (Dansk Energi 2018).

Energinet, the state-owned not-for-profit company in charge of the electricity and gas grids, is responsible for investing in renewable energy to enable the energy transition and protect energy security. Moreover, Energinet is responsible for the market conditions in the Danish electricity market, including facilitating electricity sale on the Nord Pool electricity exchange. Nord Pool has been important for “facilitating trade and providing transparent prices for the Nordic system,” and the Nord Pool collaboration has led to a “far-reaching integrated liberal market system” (Midttun 2001, pp. 91–92). The electricity exchange has expanded from the original Nordic countries (Norway, Finland, Sweden, and Denmark) to include the Baltic countries, the Benelux countries, Germany, the UK, and Austria. The expansion of Nord Pool is important for the EU Energy Union, which aims to create more connectivity between the member states’ energy grids, thereby ensuring security of energy supply throughout the EU. For example, the increased share of wind energy leaves Denmark vulnerable in terms of energy security because surplus supply on windy days and lack of supply on wind still days can interrupt electricity supply if there are no alternative energies; thus, connectivity to neighboring countries has become an important strategy for the transmission of electricity (Hvelplund and Djørup 2017, p. 1227). Indeed, Denmark has recently won a case at the ECJ against Germany for blocking export of wind energy, which enables Denmark to sell more of its surplus wind energy.

The liberalization of the electricity sector and the investment in wind energy have increased the number of actors, especially in terms of companies that supply electricity through the open market to consumers. Moreover, big companies, like Vattenfall and Ørsted, have won public tenders to build the political decided offshore wind parks (Hvelplund and Djørup 2017, p. 1224). Importantly, no power plants have been built since 2000, instead the big power companies build offshore wind parks (Kooij et al. 2018, p. 56). Despite these changes electricity production remains in the hands of 25 cooperatives and consumer-owned companies that produce 70% of Danish electricity, while 10 municipality companies represent 5% of electricity production, and Ørsted is responsible for 25% of electricity production (Dansk Energi 2018, p. 3). Thus, the cooperative movement continues to be an important form of ownership in electricity production, where some local cooperatives have grown into national and European actors. SEAS-NVE, e.g., produces and distributes electricity mainly on Zealand, but it also runs charging stations for electrical vehicles throughout the Nordic countries.

Support for Renewable Energies

Renewable energies have been a key priority in Danish electricity policy since the 1980s, where governments have used “planning policies, feed-in-tariffs, purchasing obligations and support for technological developments” to promote investment in renewable energies (Andersen and Nielsen 2016, p. 88). The policy approach to wind parks started with an open-door policy, both on land and offshore. In 2004, the approach to offshore wind parks changed to single-site tenders. Support for investment in offshore wind parks has been centralized through a one-stop-shop governing the Danish Energy Agency that is responsible for the tender process (Fitch-Roy 2016, p. 595). The project owner is responsible for connecting the offshore wind park to the electricity grid (Fitch-Roy 2016, p. 589), which is managed by Energinet, and the owner of the offshore wind park liaises with Energinet regarding connectivity to the grid and sells the energy either on the wholesale market or directly to the consumers. The 2012 and 2018 political energy agreements identified specific offshore wind park locations and set dates for their completion. However, a change in government and majority in Parliament can delay or cancel planned offshore wind projects, as happened in 2001 when Fogh Rasmussen I government cancelled all planned wind parks and later Løkke Rasmussen II government delayed investments. Thus, the top-down centralized support for expansion of renewable energies depends on political commitment and financing. The centralization of the expansion of renewable energies do not extend to onshore wind parks or private windmills, where a bottom-up approach allows private individuals/companies or municipality-owned energy companies to apply to the Energy Agency to build onshore windmills.

All types of renewable energies receive some form of financial support to facilitate the expansion of renewable energies. The public service obligation (PSO) was an important policy instrument placed on the price of energy for both private and industrial consumers. The PSO was a feed-in-tariff and was introduced in 1998 to support new renewable energy technologies that were not able to compete in an open market. The PSO charge is determined by the market, where a high market price leads to a low PSO charge and vice versa (Energinet.dk n.d.). The price for renewable electricity has declined due to expansion of renewable energies, thereby increasing availability of renewable energies in the overall energy mix, yet the price guarantee for the renewable energy producers has resulted in a higher PSO charge for both private consumers and industries. In 2015, Apple was considering where to build its new datacenter, and it informed the government about its concern about the PSO charge, which was reduced shortly before Apple decided to build its datacenter in Denmark (Svaneborg 2015). Yet, the PSO was already contested by many actors, and there had been discussions to reduce the PSO charge; thus Apple’s concern was shared by others, who had already lobbied the government. In November 2016, the Løkke Rasmussen II government decided to remove it from the electricity bill. The phaseout of the PSO charge will be complete in 2022, and the money to renewable energy expansion will be moved to the annual budget.

Energy Efficiency

Energy efficiency has been an important policy objective; it not only aims to reduce consumption of fossil fuels, it also aims to reduce pollution from industries, buildings, and private households because the expansion of renewable energies alleviates the problem with pollution. Emission trading is a central market-based instrument that internalizes externalities through a quota system that aims to change companies’ energy consumption behavior (Table 1). Denmark was an early supporter of the emission trading system (ETS). It started to implement a domestic system shortly after Kyoto, even before the European Commission had published its green paper on an EU ETS, and later the Commission explicitly mentioned the Danish ETS as a national model (Skjærseth and Wettestad 2008, p. 90). The ETS has been problematic from the start because the high number of permits has flooded the market leading to low prices. In 2013, the Thorning-Schmidt I government supported the Commission’s proposal to back-load permits on the condition that the Commission would introduce a plan for a structural reform of the ETS (Skovgaard 2017, p. 359). The domestic intragovernmental discussion included the Ministry of Finance and Ministry of Climate and Energy, where “both ministries agreed that back loading in itself would have little impact on climate change, as the allowance would later be reintroduced into the market” (Skovgaard 2017, p. 359). Furthermore, the discussion focused on the impact on the allowance price, and the Ministry of Finance wanted to maintain the integrity of the market and emphasized a structural reform instead of one-off back loading as a solution to preserving the ETS (Skovgaard 2017, p. 359). This position on the ETS reform follows previous governments’ view of ETS as a good instrument for changing industries’ energy consumption. Løkke Rasmussen III government’s Climate and Air Plan, published in November 2018, wants to annul 8 million quotas until 2030, which will be deducted from Denmark’s 2030 EU climate commitment, and it expects the reduction in quotas will increase the price (The government 2018b, p. 39). Compared to other countries with heavy industry, the Danish service-oriented industry has not had major objections toward the ETS (Skovgaard 2017), which has made it easier for the government to propose the annulment and reform.

While the ETS focuses on industry and businesses, there are other policy instruments, which aim to reduce private energy consumption, such as the 1980s information campaign about lightbulbs and campaigns to get people to switch off the light. Measures to reduce buildings’ energy consumption have been important since the 1970s oil crises, and several Danish companies specialize in energy performance of buildings, e.g., thermostats and insulations. Moreover, private households can get tax-deductible renovation of their homes. The initiative has existed in different forms since the 1980s. The tax deduction is an incentive-based policy instrument where private persons can deduct the workers’ wages from the overall renovation bill. The aim of the current version is twofold: it aims to create work for the construction sector while updating buildings to become more energy efficient and it was part of the Thorning-Schmidt I and II governments’ green growth strategy, yet the scheme has been continued by the Løkke Rasmussen II and III governments.

Denmark has actively supported the EU Energy Efficiency Directive by trying to upload the Danish approach to the EU level (2017 Interview with Martin Lidegaard, Social Liberal Party, and Minister for Climate, Energy and Buildings (2011–2014)). Martin Lidegaard said he pushed for an ambitious directive during the 2012 Danish EU presidency and gained support from some Eastern European countries that have to renovate their building stock and needed new standards. The Danish MEP Britta Thomsen (Social Democratic Party) was rapporteur for the proposal, and she received support from the government (interview with Britta Thomsen 2017). Thus, there was a Danish footprint on the final directive. Simultaneously, the Thorning-Schmidt I government had agreed to reduce the final energy consumption by 7% between 2010 and 2020.

Outcomes, Challenges, and Prospect of Energy Governance

Monitoring of Climate Goals and Sector Integration

The Danish Energy Agency as the regulatory agency not only monitors implementation of energy legislation, it also carries out energy analyses, including the annual energy and climate outlook (based on a frozen policy scenario and existing measures). The outlooks generate both ex ante and ex post data, assessing the impact of adopted policy instruments as well as their future impact. The annual outlooks focus on the overall climate and energy policy objectives, i.e., the multiannual energy agreements, individual energy legislation, Danish commitment to EU targets, and other international climate commitments. The 2018 Energy Outlook shows that Denmark will exceed its renewable energy target for 2020, which is 30%, but the country will reach 40% (the Energy Agency 2017a, 2018a, pp. 16–17). Despite the high ambitions, Denmark faces several challenges after 2021 once the existing policy instruments expire (the Energy Agency 2018a). According to the Climate Council (2018b), the 2018 Energy Agreement and the Climate Plan have a positive impact on Denmark’s climate commitment, but are not sufficient to meet the 2030 goal – 50% renewable energy, 43% emission reduction in ETS sectors based on 2005 figures, and 39% emissions reduction in non-ETS sectors based on 2005 figures. Like other EU member states, the transition curve from 2030 to 2050 is very steep, and many countries put their faith in new technologies to facilitate the energy transition. The policy objectives require the EU and its member states to reduce their fossil fuel use from 50% to 95% over 20 years, this is a shorter period compared to the period until 2030, and this begs the question if the current level of ambition, at national, EU, and global level, will deliver the full transition to a zero-carbon society. This debate is not exclusive to Denmark; instead it is part of a wider debate based on the IPCCC reports and other monitoring data.

A central element in the energy transition debate, especially after 2020, is sector integration, and Denmark has agreed to reduce CO2 emissions from non-ETS sectors by 39% in 2030 compared to 2005 levels (Ministry for Energy, Utilities and Climate 2016, pp. 8–9). Nevertheless, reports (Climate Council 2018b, p. 4; the Energy Agency 2018a) show that the forerunner position in renewable energies does not include non-ETS sectors, i.e., transport, housing, and agriculture. There has been little commitment from governments to integrating transport in the energy transition (Dyrhauge 2017, pp. 97–8). Denmark will have 8.7% renewable energy in the transport sector by 2020 compared to the 10% EU commitment (Climate Council 2018a, p. 13).

The Løkke Rasmussen III government was hesitant to support the switch from fossil fuel vehicles to low emissions vehicles, i.e., hybrid, electrical, and biofuel vehicles. In autumn 2015, the Løkke Rasmussen government II together with the Danish People’s Party, the Social Democratic Party, and the Social Liberal Party agreed to phase-in registration charges for low emissions cars, e.g., electrical and hydrogen vehicles (the Government 2015b). The agreement led to a “panic buying” in the last quarter of 2015 and sharp reduction in registration of new electrical vehicles in 2016 and 2017 (Climate Council 2018a, p. 7). The government recognized the impact had been too severe and in spring 2017 with support from the Social Democratic Party and Social Liberal Party made adjustments to the phase-in period in the hope that it would facilitate more sales of electrical vehicles (the Government 2017a). Yet later in 2017, the government and the Danish People’s Party agreed to reduce the registration charges for fossil fuel cars (the Government 2017b), thereby making fossil fuel vehicles attractive compared to electric cars. The continued tinkering with the registration charges has, according to the Electrical Vehicles Alliance, created uncertainty and kept people from buying electrical vehicles (interview 2016). Nevertheless, private companies have invested in charging facilities, and there are now more charging facilities than needed for the current electrical vehicle fleet (Altman 2018). In other words, the infrastructure is ready for more electrical vehicles, but the constant changing registration charges for electrical vehicles are creating uncertainties for consumers. Indeed, the current policy instruments make it difficult to reach the government’s aim of 1 million low emissions or zero emissions vehicles on the road by 2030, which is the proposed date to stop sale of fossil fuel vehicles (Climate Council 2018a). Overall, the government has prioritized private transport over public transport which is likely to increase the number of cars on the road, and thus pollution, unless there is a switch to electrical vehicles.

From a broader perspective, electrification creates vulnerability because more sectors will depend on the digitalized electricity grid, which makes the electricity system vulnerable to cybersecurity attacks that will affect the rest of society. As such, the Ministry for Energy, Utilities and Climate (2019) has published a strategy to protect the energy grids from cyberattacks. The strategy is part of a wider priority to coordinate efforts in all the critical infrastructures, e.g., energy, transport, finance, health, and maritime. This strategy involves partners from public authorities, including the defense and security services, and industry.

Energy Conflicts

The climate change consensus in Danish energy politics has prevented large-scale conflicts. However, the use of Danish territory for international infrastructure projects, i.e., Nord Stream 1 and 2 pipelines in the Baltic Sea, has been controversial because Gazprom, the Russian state energy company, owns the pipelines. The Nord Stream pipelines run through the Baltic Sea from Russia to Germany and “have since the mid-2000s provoked a deep conflict between Russia with Germany on the one hand, and Sweden, Denmark, Poland and the Baltic states, on the other” (Schmidt-Felzmann and Engelbrekt 2018, p. 10). Nord Stream 1 was finished in 2011, but Nord Steam 2 is still in the planning phase. The EU and its member states’ energy relations with Russia are problematic due to security of supply, member states’ dependence on imported Russian gas, and concerns over Russia’s aggressive behavior in the gas markets and military (Schmidt-Felzmann 2011; Schmidt-Felzmann and Engelbrekt 2018). Nevertheless, Sweden has given permission for the Nord Stream 2 to run through its territory (Gotev 2018), which leaves Denmark, as the last country, to make a final decision about whether the pipeline can run south of Bornholm, a Danish island in the Baltic Sea, which the Soviet Union occupied between 1945 and 1946.

The Danish Parliament has moved the final decision from the Energy Agency to the Ministry for Foreign Affairs. The change in decision-maker clearly indicates the controversial nature of the pipeline and the Danish concerns over an aggressive Russia in the Baltic region. Indeed, Polish civil servants participated in a public hearing about the pipeline on Bornholm in 2017 and gave multiple environmental and fisheries objections to the pipeline (Arnfred 2017). Instead, Poland prefers the Baltic Pipe between Norway and Poland with Denmark as transit country. This will, according to the Polish ambassador to Denmark Henryka Mościcka-Dendys (2018), create a greener Europe and improve energy security especially in Central and Eastern Europe. Poland’s relationship with Russia has historically been difficult, and the complexities of geopolitics of energy security have not helped the relationship (Bouzarovski and Konieczny 2011, p. 8). Denmark and Poland share concerns about Russia’s behavior in the Baltic region, and Denmark has approved the Baltic Pipe (Øyen 2018a). Normally, the two member states oppose each other at EU level on issues concerning climate and energy, but their apprehensions over Russia’s presence in the Baltic Sea brings them together, especially, as Nord Stream 2 will increase the EU’s dependency on Russian imported gas and increase Russia’s geo-economic powers in the gas markets.

Domestically, most political parties oppose Nord Stream 2 except for the Danish People’s Party. The left-wing parties are concerned about the environmental impact of the pipelines and believe building fossil fuel infrastructure is misplaced given the energy transition’s focus on renewable energies. Yet, the Løkke Rasmussen III government has not published a public decision regarding its position. Due to the stalled Danish decision-making, Nord Stream 2 has decided on an alternative route north of Bornholm, which moves the pipeline out of Danish territory and prevents the government from using national security as an argument and only leaves it with environmental or fisheries objections (Redder 2018).

Multilevel Governance

Danish energy governance does not exist in a vacuum; it is part of a broader global political agenda on climate change and energy. Most of the interactions occur between Denmark and the EU, where Denmark, as mentioned earlier, tries to influence EU policy-making by uploading its policy preferences and governance practices (Andersen 1997: Dyrhauge 2017). Simultaneously, the forerunner position has enabled Denmark to implement EU energy and climate change legislation without administrative problems, which are often difficult in a multilevel governance system (Schoenefeld et al. 2018). This creates a multilevel governance framework with interactions between local municipality, companies, and national central agencies, who communicate with EU actors, in addition to cooperation between countries such as the Nordic electricity markets, not to mention UN cooperation, such as the COP.

The chapter has shown that energy security and energy efficiency have been crucial for Danish energy policy agenda, where the early shift from fossil fuels to renewable energies gave Denmark a forerunner position and enabled the country to pick the low-hanging fruits, but successful energy transition to a zero CO2 emission society requires sector integration. The transition to complete the energy transition by 2050 necessitates major paradigm shift in energy due to electrification of society (Szulecki 2016, p. 54). This paradigm shift requires climate policy integration (Adelle and Russel 2013) and increased policy coordination at all levels. Both Bürgin (2015) and Skovgaard (2) demonstrate how the differences within the European Commission make climate and energy policy coordination difficult due to conflicting values and interests. While Denmark pushed for ambitious EU 2030 climate and energy targets (European Commission 2014, p. 207), other member states, e.g., Poland, pushed for less ambitious targets without mandatory national targets. In the end the climate leaders lost, and the 2030 EU climate and energy targets do not include national mandatory targets.

The merger of climate and energy into one ministry aims to facilitate climate policy integration. This worked during Svend Auken’s tenure in the 1990s because of his ideological focus on the environment above energy. However, later governments, most notably Fogh Rasmussen I and Løkke Rasmussen II and III, have prioritized energy above climate; this is evident in Løkke Rasmussen III’s decision to divide the 2018 energy plan and the 2018 climate plan into two different plans. Nevertheless, increased policy coordination and sector integration are important for successful energy transition especially in the Danish multilevel governance framework with many private and public actors. Indeed, coordination between policies increases policy coherence and enables Denmark to achieve full decarbonization in all areas of society and the economy, yet the energy transition depends on political commitment and legislation. Thus interaction between all actors in the multilevel energy governance system and the government is important for achieving the zero carbon emission target set out in the 2014 Climate Law.

Cross-References

Notes

Acknowledgments

I would like to thank Barbara Hofmann for the help with the figures and Jörg Kemmerzell for thorough comments on earlier draft.

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Copyright information

© Springer Nature Switzerland AG 2020

Authors and Affiliations

  1. 1.Department for Social Sciences and BusinessRoskilde UniversityRoskildeDenmark

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