How can societies decarbonize, and find ways to fund it, including private investment? Denmark offers useful lessons.
I recently had the privilege of joining a US delegation to Denmark, where I had the opportunity to interact with individuals and organizations across the energy spectrum, from industry and government leaders to trade associations and groups like State of Green, a public-private partnership that promotes Danish leadership in the sector.
What I saw was remarkable. Denmark has positioned itself as an economic thought leader in the new energy economy. While the demographic, political, and social context may not match the whole of the US, I believe Denmark can teach us many lessons – particularly in Massachusetts, which is similar in population and climate.
Denmark first made a commitment to reduce its dependency on fossil fuels during the 1970s oil crisis. It has stuck with that commitment since then, even after the discovery of oil reserves in the North Sea. As a result, through thoughtful deployment of energy and tax policy and other levers, the Danish government has created the market conditions for sustained growth and expansion of the new energy economy. A core component of their success is rooted in a fundamental and shared understanding of this priority by stakeholders, and a holistic approach to creating these market conditions.
Broad alignment on vision
Major political parties and industrial leaders share Denmark’s vision for decarbonizing its economy and society. The two sides work as partners, negotiating energy generation and carbon emission targets for different sectors of the economy. Russia’s invasion of Ukraine has only served to reinforce that commitment.
As recently as last month, the government announced a negotiated agreement with the agriculture sector, for example. Farmers agreed to a 55 percent reduction in greenhouse gas emissions by 2030.
Constructive regulatory and tax policies
Denmark has recognized the importance of a public policy framework that encourages the private investment that is necessary to enable the energy transition and meet its climate goals. With regulatory and tax policies that incentivize decarbonization, they’ve created a market pull for the transition to sustainable energy generation and use and private investment has followed.
The aforementioned recent agreement with the agriculture industry, for example, reflects the collaborative stakeholder buy-in, and delivers benefits to farmers while helping to lower the overall cost burden of the transition on other types of customers. At the same time, the government is making substantial investments – just over DKK 30 billion (~$4.2 billion) – toward environmental conservation and afforestation efforts that will improve soil health and productivity.
And customers are seeing the benefits of reduced carbon emissions and energy usage. During my visit, I met manufacturers who produce industrial heat pumps and other heavy equipment, agriculture goods, and other consumer items. When I asked them about their motivation for leaning in and investing to reduce emissions, they responded quizzically, “Why wouldn’t you?”
The green transition in Denmark is seen as common sense, the right thing to do for the environment, and the right thing to do for Danish communities and companies that want to position themselves at the vanguard of the new energy economy.
Practical on-the-ground approaches
Denmark’s on-the-ground deployment of energy policy has been aggressive, sustained, and practical. One manufacturer’s slogan (Danfoss) captures it best: (i) Reduce (ii) Re-use and (iii) Re-source. Decades into this transition, Denmark continues to emphasize energy efficiency – or reduction – and there is a huge push to capture and re-use waste heat from industrial operations.
Denmark’s famed district energy system taps into industrial waste heat as a source of energy: paying users to capture heat that would have otherwise been distributed in the atmosphere. The “system boundaries” they draw are more holistic, too. In the US, at best, we draw those boundaries at a facility’s property lines.
Sustained investment in infrastructure and workforce development
The “re-source” part of the Danes’ decarbonization strategy often means electrification, especially in the industrial context. This shift requires investment in generation and the electric grid. To be fair, I met manufacturers whose electrification plans were constrained by a lack of grid capacity.
However, the country does have more structured siting and permitting processes that support investments in infrastructure. The federal government also has prioritized working with local communities to retrain the workforce for the new energy economy. Success stories abound.
The other part of their re-source strategy is to meet heating needs using their district heating systems. These systems have multiple sources of energy: industrial waste heat, geothermal, biogas, and, yes, even fossil fuels to stabilize the system. Investments in the district energy system are driven at a municipal level, with each municipality or community choosing to expand the system and bringing residents on to it.
Massachusetts approach in context
As much as I was impressed by what I saw in Denmark, I also remain proud and grateful of the enormous achievements of Massachusetts in energy use reduction, and more recently in heat pump adoption. In the last 10 years, the Mass Save® Sponsors achieved roughly 15 TWH in energy reduction – that’s roughly the energy output of a 2GW power plant. In 2023, for example, they supported the installation of heat pumps in over 28,000 households. More recently, Massachusetts has been pursuing a number of avenues to create the necessary conditions to achieve its audacious goals:
— Gov. Maura Healey’s announcement to invest $1 billion to create a “climate corridor” in the state, focused on the development of technologies that enable the transition from fossil fuels to renewable energy.
–An aggressive effort by the Climate Office and the Executive Office of Energy and Environmental Affairs to obtain federal funding to help offset the overall costs of this transition
— The Department of Public Utilities concerted effort to balance paving the way for innovation and the clean energy transition while fulfilling their mission to protect consumers and ensure that utilities are providing the most reliable service at the lowest possible cost.
— The Massachusetts Legislature’s ongoing efforts focused to improve and streamline siting and permitting to advance clean energy development.
— MassCEC’s continued focus on workforce development, introducing the next generation to clean energy careers, and providing essential training to develop clean energy and climate critical fields.
An integral element of all this is how to finance the transition – which we know to be very expensive. We need to evolve to a system of sticks and carrots that promotes positive industry change, which should in turn encourage more private investment to advance the development of new technologies and initiatives. Our current approach of financing these efforts primarily through utility rates is not viable; the public balance sheet can be another source but, there are other societal demands on it. Which leaves us with private capital – we can and must design mechanisms to tap into that pool.
Massachusetts has already demonstrated strong commitment to advance our climate goals. We have the social, political, and regulatory push to get there. We have a culture of innovation to identify solutions. We have the foundation in place to take our own holistic approach to a new energy economy. With the resourcefulness and access to intellectual and community horsepower that we have, along with a history of collaboration with a broad spectrum of engaged stakeholders, I am optimistic that we will continue to rise to the challenge.
Tilak Subrahmanian is vice president of energy efficiency and electric mobility at Eversource.
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