Adjustment and competitiveness in energy-intensive industries: An analysis of policy instruments

1. Adjustment and competitiveness in energy-intensive industries: An analysis of policy instruments Lars J. Nilsson and Patrik Söderholm Lund University and Luleå University of Technology

2. Overall objective, focus and contributions of the project Objective: Generate new knowledge about the prospects for the Swedish energy-intensive industries to adapt to climate and energy policy instruments. Two PhD students: Eva Henriksson (LTU) and Christian Stenqvist (LU) Scope: (a) pulp- and paper industry; (b) policy-induced structural changes; (c) energy efficiency; and (c) multi-disciplinary synthesis. Contributions: knowledge for: (a) assessing the effectiveness of policy measures (e.g., PFE) on industry; (b) selecting policy instruments and improving methods to evaulate these; and (c) assessing the role of policy in inducing structural change.

3. Growth and the environment in Swedish manufacturing industry, 1913-1999 Source: Brännlund (2008). Umeå Economic Studies No. 728.

4. Publications: Electricity Demand Behvaiour and PFE • Henriksson, E., and P. Söderholm (2008). “The Cost-effectiveness of Voluntary Energy Efficiency Programs,” Proceedings of the 31st IAEE International Energy Conference, Istanbul 18-20 June, 2008. • Henriksson, E., and L. Wårell (2008). ”Electricity Demand Impacts of Knowledge-generating Investments: Experiences from the Swedish Pulp and Paper Industry,” Proceedings of the 31st IAEE International Energy Conference, Istanbul 18-20 June, 2008. • Nilsson, L. J., C. Lopes, P. Fonseca and M. Araujo (2008). Evaluation and Monitoring for the EU Directive on Energy End-Use Efficiency and Energy Services: Assessment of Existing Evaluation Practice and Experience, EMEEES Report, Wuppertal Institute, Germany. • Stenqvist, C., and L. J. Nilsson (2009). ” Process and impact evaluation of PFE: A Swedish Tax Rebate Program for Industrial Energy Efficiency,” Paper to be presented at the ECEEE Conference, June 2009. • Henriksson, E., and L. Wårell (2009). ”Electricity Demand and Factor Substitution in the Swedish Mining Industry: An Econometric Approach,” Paper to be presented at Securing the Future and 8th ICARD, June 23-26, Skellefteå, Sweden.

5. PFE: a selection of results/lessons • Strengths: addresses the problem of asymmetric information, clear monitoring guidelines, focus on organization and working practices. Reasonably cost-effective. • Weaknesses: Business-as-usual scenario not clearly defined, implying also that policy target is not clear. Distinction between short- and long-run not addressed. • We assess methods to distinguish between short- and long-run price responses, and we.. • …analyse free-riders and spillover effects.

6. Forthcoming conference paper (IAEE conference, Vienna, 2009).

7. Publications: Structural changes and policy impacts on the base industries • Söderholm, P., and R. Lundmark (2009). ”The Development of Forest-based Biorefineries: Implications for Market Behavior and Policy,” Forest Products Journal, Vol. 59, Nos. 1-2, pp. 6-16. • Blomberg, J., and P. Söderholm (2009). ”Factor Demand Flexibility in the Primary Aluminium Industry: Evidence from Stagnating and Expanding Regions,” re-submitted to International Journal of Production Economics. • Ericsson, K., C. Stenqvist, L. J. Nilsson, and M. Nilsson (2009). ”Stuck in the Greenhouse: Opportunity or Threat for the Pulp and Paper Industry?”, forthcoming report. • Johansson, B., G. Modig, and L. J. Nilsson (2007). “Policy Instruments and Industrial Responses: Experiences from Sweden,” Proceedings of the ECEE Summer Study on Energy Efficiency, The European Council for an Energy Efficient Economy, La Colle sur Loup, France, 4-9 June. • Söderholm, P., and L. Lundberg (2009). “Structural Breaks in Swedish Industrial Demand for Electricity: An Econometric Analysis,” Paper to be revised and submitted to an international journal.

8. A selection of results/lessons • Market and policy implications of the development of forest-based biorefineries: (a) future competition for the raw material; and (b) the role of public policy is to target environmental externalities and R&D spillovers. • Evidence of structural changes in Swedish industrial electricity demand since the early 1990s. Methods assessed to analyze structural shifts (e.g., endogenous vs. exogenous). • The direct (short-run) impact of stringent climate policies on the industry are significant (e.g., primary aluminium production). Long-term targets and engineering flexbility should be encouraged.

9. A forest-based biorefinery

10. Ongoing work 2009-2010 • Climate and energy policy and structural breaks (methods and empirical analysis). • Structural change in the pulp and paper industry (cooperation with Smurfit and Billerud within the realms of Solander Science Park). • The overall impact of energy and climate policy on the paper and pulp industry (including organizational changes) • Continued work on PFE, and lessons for future programs (t.ex. spillovers, rebound, double-counting etc.). • Methods/approaches for evaluating energy efficiency in the base industries.