If the European emissions trading system is not reformed to work efficiently, a Nordic carbon price floor could be introduced to secure future green investments in the region, according to a new strategic review of energy co-operation by the Nordic Council.

The plan, which has been in preparation for over a year, is penned by Finnish businessman Jorma Ollila, who had formerly chaired Royal Dutch Shell for almost ten years and was the chairman and CEO of Nokia.

Student or retired? Then this plan is for you.

Nordic council secretary general, Dagfinn Hoeybraaten (left) presented the report together with Norway's petroleum and energy minister, Terje Soeviknes and Nokia's former head, Jorma Ollila (right). (Photo: Matts Lindqvist/norden.org)

It comes at a crucial time, just as the final talks on reforming the EU's carbon trading scheme are due to take place in Brussels.

On Tuesday (27 June), representatives of the EU member states, the European Parliament and the European Commission met for one of the final meetings on how the EU’s flagship climate instrument – the EU Emissions Trading System (EU ETS) – should look in the 2021-2030 period.

But before the real talks have even started, hopes of reforming the EU system to work efficiently are fading.

”I think everyone realises that this is not enough. The [EU] proposal will not deliver a carbon price that we need to decarbonise the industry sectors,” said Femke de Jong, EU policy director for Carbon Market Watch.

Her organisation brings together more than 800 NGOs and academics from 70 different countries, working to make the carbon market “an effective climate mitigation tool.”

”I think it is only logical to have a debate on how we can complement the system. A carbon floor price – at least at the regional level – seems a realistic option,” de Jong said.

Nordic energy union

Norway and Sweden are strong on hydropower, Norway produces oil and gas, Denmark has wind, while Finland and Sweden have built nuclear plants and are pushing for more bio-fuels as a future energy resource.

Some 20 years ago, these countries decided to connect their national electricity grids with water reservoirs, allowing hydropower to serve as a kind of Nordic battery to compensate for periods without wind, for example.

”There were significant benefits, welfare benefits, lower electricity prices and easier management of the generation of electricity in tough times or during high peak demand in winter times,” Ollila pointed out.

This Nordic solution, Ollila said, has been "managed historically very well". He added that since the EU is looking into different prospects for the energy union, there is an opportunity to learn from "what has been done in Nordic countries over the past 20 years."

In addition to Nordic carbon trade, Ollila also suggested a Nordic export strategy for green energy solutions, alignment of research and using the whole Nordic area as a testbed.

Nuuk in Greenland has been suggested to become a testbed for the full deployment of electric vehicles, and Reykjavik in Iceland may become a testing ground for infrastructure and systems that can support electrification of visiting cruise and fishing ships.

The Faroe Islands may become the place for the development of battery technology and energy storage.

Green transition and growth

Put together, the Nordic region today is one of the 12 largest economies in the world and it is already living proof that the green transition is not incompatible with economic growth.

However, the Nordics must become even greener to complete their transition into renewable energy, the Nordic Council report said.

"The energy transition is already underway – but if the Nordic countries do not participate to the fullest, the jobs will be created elsewhere," warned Jorma Ollila.

"The renewables will take off faster than what was thought only five years ago. So, the role of the renewables will grow quite significantly," he added.

"The focus should be on securing the most efficient green transition. If the ETS does not provide this, it may be relevant and timely to discuss a joint Nordic approach to support the schemes for renewable energy," Ollila's report concluded.

”Another approach could be to discuss the introduction of a Nordic carbon price, based on the United Kingdom’s carbon price floor, in order to secure stronger incentives for the green transition,” it said.

UK leads the way

The prospect of a regionalised European carbon trading system in the future is not limited to the Nordic area. For instance, the UK already introduced a carbon price floor in 2013.

”So far, the only country in Europe that has a carbon floor price is the UK. There it was very effective. They introduced a carbon floor price in 2013 and it has resulted in UK coal emissions falling by almost 60% last year," Femke de Jong said, adding: "So it is really significant."

She goes on to say that: "It can be a very effective instrument to – at least in the intermediate time – to make sure that the carbon price reflects the damage cost of the pollution to the society.”

Under the UK carbon floor price system, carbon emission prices rise automatically – currently at 18 pounds sterling (€20) from 2016 to 2020.

Currently the carbon price in Europe stands at €5, but it should rise to €40 to meet the objectives of the Paris climate agreement and rise further to €100 in 2030.

Regional carbon trade

”Ideally, this should be solved at the EU level, but if this is not possible in the short-term, it makes sense to go for a regional solution,” de Jong said.

”France has been pushing for it very much in the past and we think that now, with Macron [as president of France], he will also push for that," she added.

"Let's see," she said, "maybe after the German elections, there can also be a regional carbon price in Western Europe – with Germany, maybe Belgium, the Netherlands and France."

Linking the Nordic carbon trade to the British system might be made complicated by the Brexit process, however.

”I think it might be tricky for the Nordic countries to join the UK system,” said de Jong.

”It is still an open question if the UK will withdraw from the ETS or not. Maybe it is also an idea to team up more with other countries that are contemplating this,” she suggested.