Abatement options in Norway and the EU towards 2050 given cost-effective implementation of the global 2 degree objective

This report presents emission paths for Norway and the EU, given the objective of not exceeding the mean global warming beyond two degrees Celsius compared to pre-industrial times. We discuss how differences in industry structure and technological solutions between Norway and the EU affect the changes in emissions towards 2050, given a cost efficient implementation of the 2 °C objective. The benchmark is a trajectory reflecting current climate policies of the world’s nations, including pledges and guarantees already put forward by the governments.

The analysis has two main parts. The first part (Chapter 4) compares the case where Norway unilaterally implements policies to reduce emissions with a case where Norwegian action forms part of a global 2 °C implementation. The second part (Chapter 5) concentrates on the global implementation case and compares the results for Norway with those for the EU. The unilateral policy is analysed with the computable general equilibrium (CGE) model for Norway, MSG-TECH, while effects of global implementation are based on Nordic Energy Technology Perspectives 2013 (IEA, 2013) for Norway and on Energy Technology Perspectives 2012 (IEA, 2012a) for the EU.

Comparing Norway and the EU is interesting because of differences in industry structures and energy technologies. Firstly, Norway extracts and exports large amounts of oil and gas. Secondly, Norwegian electricity generation relies almost exclusively on hydropower, while the share of fossil fuels is significant in the EU. Thirdly, due to the rich hydropower resources, electricity has a higher share of total energy consumption in Norway than in the EU.

The results of the comparison indicate that by 2050 the EU will reduce emissions slightly more than Norway, 49 and 44 per cent respectively, compared to benchmark. The difference is larger around 2020-2030 (15 per cent reduction from the benchmark in Norway vs. 27 per cent reduction in the EU in 2030). The main reason for this is the large emission reductions from the European power industry in this period: the power industry counts for 40 per cent of all emission reductions in 2030. Buildings are also important for reducing emissions in the EU, since fossil fuels are used directly for heating and household appliances. On longer term (after 2035), transportation will constitute a major contributor for emission reduction in both Norway and the EU at approximately matching costs. Emissions from manufacturing will develop more or less similarly in the two regions, since similar technologies are assumed to be available.

It is also worth noting that emission reductions, relative to the benchmark, are lower both in Norway and the EU than in the rest of the world. Today’s policies, including pledges from politicians, provide for emission reductions already in the benchmark, contrary to the rest of the world.

The comparison of cost-effective reductions in the two cases underlines two main differences. Firstly, unilateral climate policies deteriorate the competitiveness of Norwegian firms and cause a significant share of the abatement to stem from reduced output, primarily in the manufacturing industries. Secondly, unilateral action cannot ensure the development and dispersion of climate technologies to the same extent as a globally coordinated implementation. All in all, far less abatement is undertaken within Norwegian borders when Norway acts alone. This indicates that the technology deviations between the two cases constitute the most significant difference.

However, not only the policy assumptions, but also the model settings differ between the two analyses. The IEA (2013) computations rely on a more technology-rich model than MSG-TECH; however, the IEA’s model disregards much of the downscaling and reallocation that is reasonable to expect as a result of climate policies. Ideally, the two policy cases should have been studied within more comparable model frameworks. However, we do not regard the most critical factor to be the model framing per se, but rather what to expect in terms of technological change during the next decades. The projections in IEA (2013) lie in the more optimistic range of existing estimates.