Energy for Europe The European Union is facing significant challenges with regard to energy policies. It is, at the same time, a pioneer in fighting

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1 Energy for Europe The European Union is facing significant challenges with regard to energy policies. It is, at the same time, a pioneer in fighting climate change. The aim of this brochure is to provide information about the EU s climate and energy policies, their targets and tools, and to start a dialogue on policy choices, especially before the EU elections in June Fortum is highly commited to these main targets and pursues these goals in various different ways.

2 «EU has agreed to reduce CO 2 emissions and to improve self-sufficiency of energy production, promote regional development and innovations»

3 «The EU s emissions trading scheme sets a cap for total emissions» Solution: Emissions trading scheme expands and improves The EU s emissions trading scheme, launched at the start of 2005, is the main tool for restricting greenhouse gases. In the emissions trading scheme, a cap for total emissions is set. A market price for emissions creates an incentive to reduce emissions where it can be done at the lowest cost. Last year, the EU Member States accepted a new emissions trading directive. With the new directive, emissions trading is expanded after 2012, and instead of national limits, an EU-wide ceiling on emissions is set. Industry sectors within the scheme will be treated similarly regardless of which Member States the companies operate in. Furthermore, starting from 2013, auctioning will be the main method of allocating the emissions allowances. From the start, electricity generation will not receive any free allowances. Solution: More renewable energy Even though it is up to the Member States to decide on the structure of their energy production, the EU has agreed on targets for renewable energy sources. The aim is to reduce CO 2 emissions, improve self-sufficiency of energy production, and to promote regional development and innovations. The EU target is to increase the share of renewable energy sources out of total energy consumption to 20% by It is divided between the Member States, ranging from 10% in Malta to as high as 49% in Sweden. The target for Finland is 38%. Every Member State has to achieve a 10% share of renewables in transportation. The directive allows joint support mechanisms between several Member States. It nevertheless seems clear that Member States will pursue the targets with support mechanisms of their own. This, however, creates the risk of market distortions and will cost more than using joint regional and, ideally EU-level, support schemes. Fortum is a big producer of hydro power and biomass-based energy. It is also investing in developing wind, wave, and solar power production as well as distributed energy systems. Solution: Energy efficiency key to emissions reduction Several international studies agree that the best and cheapest way to reduce CO 2 emissions is to improve energy efficiency. The EU has an extensive programme to promote energy efficiency, starting with buildings, labels and mandatory requirements for energy consumption of different equipments as well as the promotion of energyefficiency services, which energy consumers can use to cut their energy consumption and related costs. All these aim at achieving the 20% efficiency increase in energy consumption by The challenge is that the savings must come from numerous small streams and that the costs and benefits do not benefit the same people or materialise in a very different time span. In order to help customers to realise their energy efficiency potential, Fortum has established a unit that provides customers with energy-efficiency services.

4 Who decides on energy policy? Although the EU Member States are responsible for organising their energy production and using natural resources, the policy sectors where the EU has the strongest competences internal market, competition and environmental policies have a direct effect on energy issues, and this constantly increases the need for coordination. The most important decision-making organ of the EU is the Council of Ministers, which consists of the representatives of the 27 Member States. The European Parliament, which currently consists of 785 representatives selected through direct elections, usually shares legislative power with the Council of Ministers. EU legislation consists of directives and regulations, which are proposed to the Council and Parliament by the Commission that represents the interests of the entire EU. IMAGES: GORILLA / LAURI ROTKO (P. 3). PERNILLE TOFTE (P. 4), JUKKA RAPO (P. 6), JAN DJENNER (P. 10) With the Treaty of Lisbon, energy will have a specific article in the Treaty on European Union, and the Member States will be more strongly committed to the common targets. Ask your candidate! A common European energy policy is emerging. It is considered a necessity in order to reach the objectives related to security of supply, competitiveness and environmental protection, including climate change mitigation. Climate and energy policies have fought their way to the top of the EU s agenda, and there are no signs that their importance will decrease on the contrary. Reaching the targets requires decisions and actions. The next EU parliamentary period will take place at a crucial moment. Ask your MEP candidate how he or she will help resolve these issues. Fortum Corporation POB 1, FORTUM, FINLAND DOMICILE ESPOO, BUSINESS ID

5 «Reaching the targets requires cooperation, R&D, commitment and ability to see the long-term benefits of joint actions»

6 Common European energy policy an important step forward The European Union s energy policy has three main targets: sustainable development, improving competitiveness and ensuring security of supply. The targets are being approached by, for example, increasing energy efficiency, developing the internal energy market, promoting the deployment of new technology and utilising renewable energy sources more efficiently. Reaching the targets requires cooperation, research and development as well as the Member States commitment and ability to see the long-term common benefits of joint actions. The three targets are closely interlinked: A competitive energy market contributes directly to a better security of supply while at the same time establishes the necessary basis for the use of cost-efficient, market-based steering mechanisms for environmental protection. On the other hand, energy efficiency and renewable energy production contribute to security of supply while directly reducing emissions. Fortum supports these goals on several fronts by promoting low-emission production methods, wider adoption of renewable energy sources and nuclear energy, as well as sustainable development projects such as widespread use of electric cars. Main targets of the EU energy policy Improved competitiveness The essence of the EU is to enable the free movement of goods and services, including energy. By creating an efficient internal energy market at the EU level, we can increase security of supply and competition, which enables competitive energy pricing. Affordable energy should be a basic right for each European citizen and business. Rewarding efficiency and promoting competition and hence the efficient use of natural resources throughout the EU, an internal energy market also helps to achieve climate and other environmental targets. Security of supply The European dependency on external oil and gas reserves is constantly growing, and ensuring the efficiency of the internal market poses challenges to decision-makers. The EU aims to safeguard the supply of energy in all circumstances. While the decisions with regard to energy production are made in the Member States, the EU has competence in ensuring the vitality of the EU internal energy markets and, for example, in agreeing on targets for renewable energy. Being successful requires investing in alternative energy forms and new electricity generation capacity as well as having a supportive and well-defined energy policy. Sustainable development Energy policy choices have a very important role when aiming for sustainable development. Climate change is currently the biggest environmental threat. Its effects are seen in the form of serious economic crises as well as extreme natural phenomena. In addition to mitigating climate change, the EU has set various other environmental goals that are related, for example, to environmental protection, waste disposal as well as water and landscape conservation.

7 «To meet the climate targets, all available options will need to be used»

8 From objectives to action In the areas mentioned competitiveness, security of supply and climate change mitigation the EU Member States have agreed on several targets and measures. The role of the EU as a forum to agree on the targets and measures as well as to ensure their implementation is increasing. The EU has chosen emissions trading as a cornerstone for its climate policies. Ideally, all the countries in the world will decide on future targets for emissions reduction in Copenhagen in The EU emissions trading scheme will in the future be a truly EU-wide tool exploiting the cheapest emissions reduction potentials available throughout all the 27 EU Member States. To meet the climate targets, all available options will need to be used. These include all nonor low-emitting power production methods, including renewables, nuclear and carbon capture and storage. The most efficient way to reduce emissions is, nevertheless, through energy efficiency, which is to be promoted, e.g. via energyefficiency services. Genuine competition benefits consumers Beyond the industrial activities, including power production, emissions must be reduced also in other areas. Transportation is an area where emissions continue to grow. The EU is considering a long-term target to eliminate fossil fuels in road transportation by 2050 with the help of electric vehicles and biofuels. A functioning internal market, also for energy, is the very essence of the European Union and a target towards which the Member States have aimed since the 1990s. A legal package paving the way towards the EU internal electricity market is in its final phase of adoption. The EU Member States have been striving for an internal energy market since the 1990s. By making the electricity market more effective, it is possible to offer consumers better service levels and competitively priced electricity. The strategy is to create regional markets consisting of several countries, which then, in turn, would be merged into a single EU electricity market. The Nordic countries have been pioneers in building a regional electricity market. The Nordic power exchange Nord Pool creates a common electricity market for Finland, Sweden, Norway and Denmark, so that the price of electricity is determined daily by demand and supply. Currently, a joint power market around the Baltic Sea region is emerging, which would increase competition further, bring stability into prices and eventually benefit everyone. The European Commission's third internal energy market package proposed in 2007 is paving the way towards an EU-wide electricity market in the future, emphasising in particular the availability of networks for electricity and improving cooperation between the Member States. The legal package is expected still to be approved during the spring of 2009, i.e. before the next EU elections, after which it is essential to safeguard its rapid implementation throughout all the EU Member States. It is essential for competition to build a sufficient amount of electricity networks and operate them in an efficient, transparent and non-discriminating way. Thus, the Commission supports the building of cross-border transmission lines in its economic recovery plan, in particular in the Baltic Sea region. An efficient regional market promotes the efficient use of natural resources and also forms a basis for the use of market-based instruments that can help in the achievement of environmental targets at the lowest costs for the society.

9 «By 2020, greenhouse gas emissions should be reduced by 20%, the share of renewable energy sources increased to 20% of overall consumption and energy consumption decreased by 20%»

10 Security of supply safeguards basic operations One of the main challenges of the EU energy policy is guaranteeing the supply of energy throughout Europe. In general, the energy demand in the EU keeps on growing, environmental consider ations limit the use of certain options, domestic energy production has been decreasing and dependency on imported energy has increased. Without changes, Europe's dependence especially on external gas and oil will continue to grow strongly. Consumption of electricity is growing the fastest of all energy carriers due to its efficiency. Automation and new applications like heat pumps and other heating methods in low-energy buildings as well as the increased use of electricity in transportation are examples of this development. Furthermore, the European power production capacity is ageing, and considerable investments are needed just to maintain the current production capacity. In responding to the challenge, energy efficiency, nuclear power, renewable energy forms and related research and development play a particularly important role. A functioning internal market is a prerequisite and a starting point for guaranteeing security of supply of electricity. Additionally, increasing energy efficiency promoted by various energy efficiency services is regarded as important. In the EU's external energy policies, the significance of decentralisation and sustainable partnerships is emphasised. It is perhaps just security of supply that has spurred the Member States into noticing that all Member States depend on each other when it comes to energy in general and electricity in particular. This, in turn, requires the EU to take a stronger grip on energy policy and sometimes even short-term sacrifices from the Member States to promote the long-term common good. Towards a low-carbon future The EU energy and climate package is best known for the numbers " by 2020". They describe the targets the EU Member States have agreed to set up for themselves: By 2020, greenhouse gas emissions should be reduced by 20%, the share of renewable energy sources increased to 20% of overall consumption and energy consumption decreased by 20%. In the package approved in December 2008, key actions include revising the emissions trading scheme, the directive on carbon capture and storage, and binding targets for each EU Member State to increase the share of renewable energy sources. Also nuclear power has an important role in reaching the emissions targets. The revision of the emissions trading directive commits all Member States more strongly to emissions reductions, clarifies the allocation of emissions rights and increases the efficiency of the scheme. The scheme is fully harmonised within the EU: A key lesson from the past was that in order to avoid competition distortions, the allocation of emissions allowances has to be harmonised so that companies are treated in a similar manner regardless of the country in which they are located. Furthermore, the free allocation of allow ances is decreasing and stops altogether in the case of electricity production. The directive on carbon capture and storage aims to ensure that the technology is implemented in an environmentally safe way especially when it comes to the storage of CO 2. In addition, technological development is supported by establishing 12 large-scale demonstration plants in Europe by The so-called RES directive on renewable energy sources contains country-specific targets for each Member State for the share of renewable energy consumption. The countries themselves can decide on the means to reach the targets. The directive allows the use of joint support schemes between several Member States. Although this would bring considerable cost savings, it seems that, at least at the beginning, the Member States will aim to achieve their targets with national support mechanisms.

11 «There must be a way of transmitting electricity as efficiently as possible within the EU»

12 Solution: Electric cars for cleaner traffic In a few years, it will be normal for us to recharge our cars as well as our mobile phones. Car manufacturers have promised to have rechargeable electric cars, hybrids with combustion and electric engines, and fully electric cars in the market in a few years. Driving an electric car does not cause any carbon dioxide emissions. Even if the emissions from power production were taken into account and the electricity would have been produced with the most polluting technology, emissions from electric vehicles would be lower than those of driving cars with traditional engines. Additionally, emissions from manufacturing traditional fuels should be counted. Driving an electric car also significantly increases energy efficiency and reduces dependence on oil. Fortum is testing electric vehicles in four cities in Sweden and Finland. The focus is on charging, metering and billing infrastructures but also testing electric vehicles in cold climates, which is what one testing site is doing in northern Finland. Solution: Electricity networks to support competition In order for affordable energy to become a reality and true competition to take place, there must be a way of transmitting electricity as efficiently as possible within the EU. This means that a sufficient amount of transmission capacity exists and that it is operated in an efficient, transparent and non-discriminating manner. A larger market area increases the number of actors, provides increased competition and more options for consumers with regard to efficiency gains, better service levels etc. Furthermore, such larger markets directly contribute to better security of supply. In the past, electricity transmission networks have primarily been developed and operated from national perspectives. International aspects have largely been omitted. Therefore the EU Member States have agreed to set legally binding obligations for the national transmission operators to co-operate at the EU level, together with the regulators, to accelerate development of the internal electricity market. Solution: Developments in carbon capture and storage Coal is currently the most commonly used fuel in the world. Because the availability of coal is good and the price is affordable, it is likely that coal will remain the most important energy source also in the decades to come. This is why the development of emissions-free coal power would mean a significant decrease in carbon dioxide emissions. Carbon Capture and Storage (CCS) is a technology in which the carbon dioxide generated by burning fossil fuels is captured and stored, for example, in underground geological formations from which it cannot escape back into the atmosphere. The EU actively promotes the technological development related to carbon capture and storage. The European Commission has taken the initiative to start 12 new, large-scale CCS demonstration projects by In these projects, CCS technologies are tested in actual power plants to obtain sufficient and long-term operating experiences before the year Fortum and Teollisuuden Voima are preparing CCS demonstration projects in Finland at the Meri- Pori power plant with a view of participating in the EU CCS demonstration project.