The co-evolution of the manufacturing industries and policies on energy: The cases of Finland and Sweden

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1 The co-evolution of the manufacturing industries and policies on energy: The cases of Finland and Sweden Esa Ruuskanen Senior Research Scientist University of Jyväskylä, Finland

2 Main research questions How and when forest industry s by-products (e.g. sawdust, bark, black liquor) and wood harvesting residues (forest chips, tree stumps etc.) became strategic resources for the Finnish and Swedish energy systems? Co-evolution between manufacturing industries (especially forest industry) and policies on energy. How the Nordic forest industry affected the policies on energy since the WW2?

3 The term co-evolution Describe cases where two (or more) species reciprocally affect each other s evolution. Firms and industries are related to the society where they emerge and develop, and furthermore, the society as well is dependent on the evolution of the industries and other branches of the economy. Energy policy, thus, offers an exceptionally good case to study from the co-evolutionary perspective as regulation, de-regulation and re-regulation has been a major determinant for energy sector businesses throughout the 20 th century in practically all countries.

4 Why the focus is on forest industry? Most of all biomass used in Finland and Sweden originates from forests, which makes forest owners and the forest industry key actors on the biofuel market. The forest industry has been accounting for about 60% of the industrial energy demand in both Finland and Sweden in the 2000s. Roughly 59% and 64%, respectively, of the forest industry s energy demand is met by the use of internal wood-derived by-products and the rest is mainly electricity.

5 Institutional environment of the Nordic energy systems: National energy resources Extremely strong dependency on imported oil fuels for heat and power generation since the late-1940s. Energy dependency rate is still high: 53.8 in Finland and 36.1 in Sweden in 2007 (-644,9 in Norway and in Denmark). Available domestic energy resources in the 1970s: - hydropower (limited due to conflicts of interests between landowners, environmentalists, politicians, and power companies) - peat (peat bogs are widespread) - forest industry s by-products and wood harvesting residues

6 Institutional environment of the Nordic energy systems: Technological lock-in Combustion technology in combined heat and power generation since the 1950s (grate combustion and pulverized combustion in the 1950s and 1960s; FBC since the early-1970s). Dependency on fuels (solid and liquid, imported and domestic). How to boil water (as for nuclear power, it is also a way to boil water )? Wind power was not considered as efficient as combustion technology in power generation in the 1970s and 1980s. Limited resources for the RD&D for the alternative energy sources (wind, solar, geothermal). In Finland: Two grids, owned by the state owned electricity company IVO Oy and by PVO Oy, which is a power company owned by the biggest Finnish forest industry companies. In Sweden, the grid has been wholly state owned.

7 Institutional environment of the Nordic energy systems: Values and theories Finland and Sweden has been (and still are) dependent on the export based forest industries. Dependency on forest resources (employment, economic growth, regional equality) since the 18th century (wood tar trade, sawn timber for ship building industries...) In the 1950s and 1960s, it was widely considered in the Nordic countries that economic growth result from industrialization and rationalization. Energy was needed for growth. Energy as an industrial input or natural resource. Environmental issues widely disregarded before the 1970s. Public support for the forest industry is for benefit of society.

8 Institutional environment of the Nordic energy systems: External crises External crises have shaped Nordic energy systems since the late-19th century (the use of peat and wood fuels increased as a result of WW1 and WW2 when the importation of coal and oil dried up ) The First Oil Crisis as a cornerstone for oil-dependent economies. Beginning of the integrated energy policy, led by the governments and planned by parliamentary Committees. Affects of Three Miles Island (1979) and Tshernobyl (1985) far reaching. Swedish referendum on nuclear power in 1980 (phase out until 2010 ). In Finland, delays in nuclear power schemes in the late-1980s and 1990s.

9 Institutional environment of the Nordic energy systems: Regulation After the WW2, electricity taxes were adopted in Sweden (50 s) and Finland (70 s). Included deductions for the industries. Fuel taxes since the 1950s. Taxation of fuels changed as a result of the First Oil Crises. After the 1970s, taxation on fossil fuels has been increasing as taxation of domestic fuels (peat, wood fuels) has been low or negligible. Carbon dioxide based taxes (in the early-1990s) as a beginning of novel energy taxation system.

10 Institutional environment of the Nordic energy systems: Lobbying of the industries Due to growing energy prices and energy intensive production processes manufacturing industries have became more and more dependent on energy policy making since the early-1970s. Complete capture by a single company or interest group has been quite unlikely in Nordic countries, because so many interest groups pressured regulators. Eventually, policies on energy have been shaped by parliamentary processes. The role played by manufacturing industries has been so crucial for the success of Nordic economies that it has created for granted thinking among decision makers and public authority.

11 When and how forest industry s by-products became strategic resources for Nordic energy systems Technological and logistical (wood supply chain) abilities occured since the early-20th century. In addition, the use of kraft liquors developed after the WW2. As a consequence of the oil crises of the 1970s. Governmental plans to cut down the use of oil fuels in power and heat generation. It was easy to integrate forest industry s energy systems into the national energy system. Forest industry s power and heat generation also for the benefit of nearby municipalities. Public support for the district heating systems. Forest industry s wood supply chain for the benefit of increasing use of wood fuels.

12 Forest industry s attempts to influence on policies on energy It attempted to influence on policies on energy, even though moreover regarding to the implementation of nuclear power, the use of available hydropower resources, levels of fuel and electricity taxes or the importation of electricity than the energy use of its byproducts or wood harvesting residues. However, the formation of bioenergy policy was remarkably shaped by the interests of forest industry and forest industry based theories on economic growth in the 1970s and the 1980s. Forestry based regulation of the forest resources until the early- 1990s.

13 Change of the policies and attitudes Finnish and Swedish forest industry companies were initially reluctant to engage in the development of a solid wood fuel market since they feared competition for the raw material. In Finland, the use of peat as an energy source was one way to restrict the use of forest resources in the 1970s. The forest industries in both countries adopted more open attitude towards biofuels since the 1990s and they now account for a large part of the wood fuel market through subsidiary companies.

14 Path dependencies of the developments of the 70 s, 80 s and 90 s Security of bioenergy supply became extremely dependent on the evolution of forest industries. Since forest industries had an effect on the regulatory trajectories in the 1970s and the 1980s, market openness in developing wood fuel markets was (and is still) debatable. Strong ties between issues related to national competitiveness and energy policies are occuring. We suggest further discussion about the desirability of the contemporary status quo of the national policies on energy and competitiveness in global markets with regard to climate change.

15 Figure 1. Consumption of fuels in Finland , PJ Natural gas Coal Oil fuels and petroleum Peat fuel Small-scale wood burning Industrial wood fuels By-products of the kraft process (e.g. black liquor)

16 Figure 2. Consumption of fuels in Sweden , PJ Natural gas Coal Oil Spent pulpliquor Total firewood*