"Everyone agrees on where we need to be in 2050, but not on how to get there"

July 16, 2012 | 00:00

Interview: Arne Mogren, Programme Director Power of the European Climate Foundation

"Everyone agrees on where we need to be in 2050, but not on how to get there"

A more flexible Emission Trading Scheme (ETS), harmonised support schemes for renewable energy technologies, and much stronger EU coordination of the development of the transmission grids - that's the policy cocktail Europe needs to achieve its decarbonisation goals, says Arne Mogren, Director of the Power Programme of the European Climate Foundation (ECF) in a wide-ranging interview with EER. According to Mogren, a key official in this highly influential NGO, "everyone agrees on where we need to be in 2050", but it's not clear at all what the next steps must be. He sees tremendous opportunities for the power sector. The only problem is that these opportunities are "policy-driven" , so "you need to trust the policies".

Arne Mogren: 'There are a lot of things that will happen that we cannot know but we can still have steps and milestones' (c) maliweb.net

The European Climate Foundation (ECF) is one of the most influential lobby groups in Brussels, even if much of its work is carried out behind the scenes. (See box below.) It functions as a bridge-builder by "re-granting" the money it gets from big funders such as the William and Flora Hewlett Foundation and the Dutch Nationale Postcode Loterij to other NGO's active in climate change issues. It also plays a key role in bringing policymakers, business and academics together. In 2010, it published its landmark 2050 low-carbon roadmap, which was an important foundation for the European Commission's own 2050 Energy Roadmap, published in December last year.

Arne Mogren, who joined ECF in 2011 after a career of 20 years at Swedish energy company Vattenfall, was a member of the Advisory Group for the EU's 2050 Energy Roadmap. As Programme Director Power at ECF he is active at the heart of EU climate policy, in particular with regard to the power sector.

EER asked him how he sees the EU's decarbonisation policy progressing now that the 2050 Energy Roadmap has been launched and what impact climate change policy will have on European power companies. Decarbonisation is an opportunity for electricity companies in particular, Mogren says, but they need clearer policy signals to act on it.

Q: What have EU climate and energy policies achieved so far?

A: I started to work on climate and sustainability for Vattenfall when Sweden was applying for membership of the EU at the end of the 1980s. If I look back and compare it to where we are today there has been tremendous development. The EU was much smaller. Energy or at least power was a national competence. There was no cooperation, except perhaps a little bit for research.

If you look at what has happed during those 20 years, the establishment of the ETS (Emission Trading Scheme) and the climate and energy package, that that has been tremendously big stuff. If I look at the power sector, I would say we have seen an enormous impact on the way that companies reason. Today the CEO of Eon asks for a sharper [ETS] cap - that wouldn't have happened even a few years ago.

Of course if you look on a day-to-day basis you can see that it's still too little. Further progress will be needed.

Q: How has the power sector changed?

A: If I go back to the beginning of the 1990s there was a fundamental change in many different ways but

No one had a clue of the value of power in the old days. Today at least you have a market that produces a price
first of all through unbundling. The old monopoly systems were out of control. Unbundling, opening up the markets and bringing in a market price changed everything: no one had a clue of the value of power in the old days. Today at least you have a market that produces a price. You can question whether it is the right way to do it but at least it's an open system and you have access to information. The transparency in the system is much, much bigger.

In parallel I would also say society has developed. In the old monopoly system the whole idea was to regulate and have direct influence over ownership or price control. Part of deregulation was to develop market-based instruments. The ETS is a prime example. In general it's a much more effective way of exerting influence.

Q: So we've come a long way but there is more still to do. Where do we go from here?

A: Yes we are still at the beginning. There is some sort of agreement on where we need to go in the long-term, but I think there are huge problems on what is the next step. Everyone agrees on the direction and where we would need to be in 2050, but what needs to happen in between, what will the next step be, that's the difficulty. We must also realise that there are a lot of things we don't know that will happen.

Take Fukushima for example. On 10 March last year no one had a clue. The same goes for shale gas ten years ago - everyone knew that the resource was there in the ground but it didn't have any value because we didn't have the technology to use it.

There are a lot of things that will happen that we cannot know but we can still have steps and
There is some sort of agreement on where we need to go in the long-term, but I think there are huge problems on what is the next step
milestones. We need to be realistic but we must also see value in building more demand [for renewables] beyond 20% for example. We estimate we could need 50% renewables in 2030 and that will be very demanding from a power and grid perspective.

A lot will need to happen to the grid in particular. It is in no way impossible, but the degree of progress and cooperation when it comes to transmission grids is not yet there. And that you could say is the weakness of the original climate and energy package: it really says nothing about the grid.

Q: Do you think there is a real consensus within the energy sector and industry on the long-term low-carbon vision?

A: I think there is. Of course there are different views, but compared to the past the real consensus is there and it’s much bigger today. I would say that the establishment of the ETS had an enormous effect on people’s mindset. We have a lot of discussions with power companies. Seen from a power company’s perspective, you can say that it’s always easy to identify the problems when you see change ahead, but it opens up a lot of possibilities as well.

Put simply, a more sustainable society will require more electricity. In the Commission's roadmap I think electricity is up from 20% to 40% in 2050 - that is due to electrification. It is an enormous possibility. The problem from my view is that this development is to a huge extent policy driven. That means you need to trust the policies, you need a clear signal and that is still an area that needs development. I think today you are in a situation where you see the direction but it’s very, very hard to take the steps: it's too risky.

Q: What do you expect from policymakers then?

A: I am quite convinced that it will be very, very hard to drive this sort of development without some kind
I am quite convinced that it will be very, very hard to drive this sort of development without some kind of system assigning clear, trustworthy prices to emissions
of system assigning clear, trustworthy prices to emissions. That can be done in different ways. Today you could say the ETS has a double role: it’s a system that controls the level of emissions and at the same time it was set up to give a price signal. Today it does the first part so well the price signal is gone.

In the long run if you really want a price signal, you cannot have a system with totally inflexible supply, and demand going up and down. No one really thought there could be this kind of recession. What we see is a combination of the effect of the recession and policy success in other areas.

Q: Yet the energy-intensive industries insist the ETS is working as it should, reducing emissions at lowest cost. Can we really say its role is more than that?

A: When it was established it was as always in Europe a compromise. Some people saw it as a price signal system, others as something else. It's still unclear. But we need to sort it out. Of course you can use other methods - taxation, for example, but our experience of the 90s shows it’s much more difficult to agree on taxation. It's not the same sort of flexible instrument.

Q: Do you see a shift to alternatives like taxation if the ETS price doesn't rise?

A: That's being discussed. In the Netherlands there is something called the Rotterdam Climate Initiative which is trying to establish CCS and there is a discussion over whether they are allowed to establish some kind of coal tax. And look at what has happened in the UK - you get a carbon floor price there. If this isn’t solved at European level, you will see different national initiatives.

Q: What kind of role could the ETS play in a 2030 climate and energy package?

A: The ETS will have to play a central role but you'll need complementary policies. Beyond 2030 things can happen, we can develop new solutions in storage, battery technology, and going from electricity to fuels. If you want to achieve that just by sending a price signal you will have to wait for many years. I don't really see the choice between either just the ETS or other ways of doing it. You need both, but you have to be clear about what you want to achieve.

Q: Do we need a post-2020 renewables target?

A: We need some sort of milestone. Exactly what form it should take is hard to say today. You have also to respect what can be done at European level. What will member states accept? Anything at the European level needs to be demand-driven and it's extremely, extremely hard to find something that most countries support.

Q: How do we go about phasing out special support for renewables as they become more competitive?

A: If renewables are the dominant power source in future, I think it will be hard to have the same sort of subsides and support systems as today for that kind of volume.

But you are going to have to respect the promises that have been made. To start making fundamental changes in promises made will be extremely destructive. You have to stepwise lower the support systems. And I think you need the flexibility to look into different types of renewables and very different levels of development: compare onshore wind and wave power for example. If we could have closer cooperation at European level I think that would also be helpful.

Map of Eneropa: a tongue-in-cheek redrawing of Europe along renewable energy lines (click to enlarge) (c) Office For Metropolitan Architecture / European Climate Foundation
Q: The Commission has said it wants to better coordinate renewables support in future. How far should it go?

A: As far as possible. They had an enormous discussion about harmonisation of support schemes in the 1990s. The conclusion ten years ago was that it is the correct thing to do but not possible for now. They have to start somewhere.

Q: Why would the conclusion be any different today? What's changed?

A: You have established renewables. You have real market development in terms of volume of wind and solar for example. Ten years ago the power companies didn't have a special renewables division. Today I think all of them do. Twenty-three years ago Vattenfall had one guy working on wind power. Today I would guess it’s at least 500 people. It's a very different situation.

The volumes produced mean member states will be more dependent on each other. The whole decarbonisation process will make member states more and more dependent on each other. To use the resources in the system you have to cooperate. In a study we ran last year with Imperial College [in London] we ran a policy scenario with 50% renewables in 2030. If you add the necessary transmission capacity you have thermal capacity at the margin 90% of the time, in principal gas. That is a flexible complement to your renewables that enables you to use them. In a power system the value of what you produce is the alternative value of not using it.

I'm not saying gas plants will run all the time but in the system you will have gas all the time. In the old system you controlled your market by controlling the grid and that is no longer the case. For a generator today, it's not all interesting to hinder access the grid. It is vital that you have a system that can store or transport power.

Q: Would you say biggest challenge for energy policymakers moving forward is the grid?

A: I would say that right now the grid is a huge challenge. For long it has been underestimated. It was just about generation. And cooperation on the grid side in Europe has developed much more slowly than the market opening. From the beginning more grid capacity and stronger grid cooperation were part of the deregulation discussion. But this is the area where we see least progress.

Q: I've heard that grids will be the big expense for the energy sector in future - is that true?

A: If you want to decarbonise the power system, transmission is less than 10% of the total cost. If you add distribution then it is around one-third. So two-thirds is generation investments. Then of course you have to look into efficiency - that is what consumers will have to do but that is outside the power system.

Q: Do renewables introduce a lot of new costs? Energy-intensive industries often argue that they will make electricity prices go up.

A: Of course that depends on the alternative. If you compare a future alternative with history of course then everything will be more expensive. In its low-carbon roadmap, the Commission made the point that if you don't decarbonise, fuel prices will be higher so if you continue to use lots of fossil fuels costs will be higher. If you take that into account you get a very different picture. But if you say that future fuel prices will not be much higher, then everything [else] will be more expensive.

You have another component: the cost for climate effects. That is a more global issue but still, the reason we want to decarbonise is because of a threat to society and the total costs of that are hard to estimate. A point to make is that the cost difference between different scenarios is very, very small, much less than 1% and much smaller than the uncertainties.

Q: Back to the grid - how far do current policy initiatives such as the European infrastructure package go to solving the problems they still face?

A: I think the important thing is the money - the proposed Connecting Europe Facility. Will resources be available? You need a stronger European dimension because grid operators are usually national and their role is very unclear. They are responsible for the grid but they are regulated so what sort of investments they can make is up to the regulator. But who is really responsible for the development of the system? That is what is unclear.

Most of the money will have to come through regulated tariffs. On the other hand you can say that the cost of transmission is quite low. If you look at consumer prices today a very big part of that is purely tax.

The infrastructure package is a good start. An important part of that is also that they try to start a process for a [cross-border] cost-benefit approach. That will be needed. In the old days the way to finance an interconnector was a trade contract between two monopolies. Today that sort of construction is impossible and that makes things much more complicated.

Q: How much "grid" do we need? Does micro-generation alleviate some of the need?

A: You will need a lot of grids. If you want the same sort of quality in your supply with solar or wind capacity you still need to have some sort of backup. It's not a choice between a grid or not, it's where you invest in the grid. In general I would say a decarbonised system will be much more visible. Look at Germany, you see wind farms everywhere. And you will see cables too. Power has for a long time been a very abstract thing - something somewhere far away - but that's going to change.

Q: How important is energy efficiency to minimise investments in the grid and renewables?

A: Efficiency is very important from a customer perspective because it is the only way they can lower their energy bill. I think the problem is that very few consumers use the information on their bill. All our
All our experience in Sweden suggests that people think their energy bill is the most complicated sort of information they get. They even have a better understanding of what they get from the tax authorities
experience in Sweden suggests that people think their energy bill is the most complicated sort of information they get. They even have a better understanding of what they get from the tax authorities!
The difficulty of doing something at European level is that we have started with many different solutions in different countries. And there is a lot of conservatism.

Q: How important do you see the traditional sources of power - gas, coal and nuclear - going forward?

A: Gas I think will be very important. It will be more and more important in the power system up to 2030 because the more renewables you have in the system the more flexible thermal generation capacity has to be. The problem today is that the carbon price is low and gas price high in relation to coal so gas-fired plants are hard to run. I think today it's very hard to establish new coal-fired plants - you have health issue and other things - but it depends on the carbon price, fuel price and market structure.

The problem with gas has been that it has a very rigid market structure. We have seen spot trading start to develop but the short-term effect of Fukushima has been to push gas prices up. I think - also with shale gas - prices can go down and the market structure can evolve.

Q: What about carbon capture and storage (CCS)?

A: I think it's clear that on a global scale it will be very hard to do without CCS. Because if you look at China and India, you have an enormous amount of coal. In Europe I think it will not make a huge difference before 2030. In the end it also has to do with where you can find public acceptance.

For nuclear too you have an always present acceptance risk. I think from an investor's perspective it seems quite risky.

Q: How important is the international context in determining where Europe goes from here on climate and energy policy?

A: If you look into what's happening in different parts of the world there is a lot of progress. A global [climate] agreement will play a role, but there is a lot of progress already in Europe, China, even in the US. If you can't coordinate that, it will delay things and you will have problems with [the competitiveness of] global energy intensive industries. A global agreement would get you there faster but it's not either-or.

It's also important to realise that you need to really drive this, you need broad public support. It's about building a more sustainable future. People really want to have a more sustainable future. The trick is to find ways to take this collective demand and work it down into some sort of signals, because you cannot build a sustainable future on your own. The further we go along this road, the more important global cooperation will be.

 

What is the European Climate Foundation?

The European Climate Foundation was founded in 2007 by George Polk, an American technology entrepreneur (former CEO of The Cloud, a broadband wireless network operator in Europe) turned climate activist, in partnership with a group of philanthropists: John McMcall MacBain of the McCall MacBain Foundation, Kristian Parker of the Oak Foundation, Chris Cooper Hohn of the Childrens Investment Fund Foundation, Hal Harvey who was at the time at the Hewlett Foundation. 

Polk, a fellow of the Royal Geographical Society and Royal Institute of International Affairs, is also founder of Project Catalyst, which tries to get large donors involved in climate change activities, and former Senior Advisor on Climate Change for McKinsey and the ClimateWorks Foundation. According to the website SourceWatch, he receives substantial financial support from famous investor George Soros, who however is not a donor of ECF. 

ECF, which started with $3.6 million from its five founders - MMF, CIFF, Hewlett, Oak, Arcadia, Ecofin Foundation - was designed to play a pivotal role in green lobbying efforts in the run-up to the global climate talks in Copenhagen in 2009. In Europe, it was the first philanthropic organisation devoted completely to cutting greenhouse gas emissions.

ECF has subsequently increased its funding base through additional core and earmarked funding and now has an annual operating budget of $23 million. Today it still works primarily as facilitator for climate change projects: it "re-grants" the majority of its funds to NGO's that are engaged in trying to bring about "meaningful policy change".

At this moment, its advisory board is headed by John Schellnhuber, Director of the Potsdam Institute for Climate Impact Research and Advisor to European Commission president José Manuel Barroso. It includes other well-known businessmen, scientists and policymakers including Jeremy Oppenheim, Director of McKinsey's Sustainability and Resource Productivity Initiative, former chief of staff to Tony Blair Jonathan Powell, and founder of investment firm Climate Change Capital Mark Woodall. It has sister organisations in the US, the Energy Foundation and in China, the China Sustainable Energy Programme.


Who is Arne Mogren?

Arne Mogren is a Swedish national who holds a M. Sc. Degree in Mechanical engineering and a B.A. in Philosophy, Mathematics and Economics. During the 1980s he researched energy futures at the Swedish Defence Research Institute. In 1989, he started as a policy analyst with Vattenfall in their strategic planning department. He established Vattenfall's Brussels office in 1992 and headed their Brussels activities until 1995. He then worked until 2000 handling energy policy issues such as deregulation, nuclear phase-out and energy taxation in Sweden. From 2001-2006 Mogren was responsible for Public Affairs, and led work on climate change policy, including publication of Vattenfall's books such as the influential Curbing Climate Change (January 2006), the Global Greenhouse Gas Abatement Cost Curve (January 2007), and A One Tonne Future: A Guide to the Low-Carbon Century (June 2009). He joined the European Climate Foundation in 2011 as their Programme Director Power.

 

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