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"Ukraine and the New European (Clean) Energy Debate"

Speech at the Brookings Institution 6 May 2014

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Thank you very much for the kind introduction and for the opportunity to share my thoughts.

My core messages today are:

Ukraine is a reminder of the long lasting fact that energy policy is foreign and security policy. It must be on top of our common agenda.

The crises in Ukraine of course have reminded us of many things: That we cannot take freedom and peace for granted right at our borders. That the European way of life is attractive to many. That a strong and trustworthy transatlantic relation is more important than ever. But most importantly for the next steps to be taken is the fact that energy security is one of the most significant geopolitical challenges of today.

Energy has huge consequences for our security, our economies and the daily lives of our citizens.

Energy plays a determining role for climate change - the single largest threat against us as human beings.

The solution is three fold:

1. We must deliver on resources and energy efficiency;

2. We must diversify our energy supply with much more focus on renewables;

3. And we must increase interconnectivity and liberalize our energy markets to decrease the price of renewables to ensure that no country is unduly vulnerable to disruptions from a single energy supplier.

The good news is that it is doable and it is payable. The Danish Case shows that. Boiled down to one sentence, our economy has nearly doubled over the last 30 years – but our energy consumption has almost remained at the same level. At the same time we have strengthened our markets for gas and electricity and made a remarkable increase of renewables.

This has benefitted our society, our environment and not least our economy.

***

Before I return to that let me begin with the situation in Ukraine.

Once more we are confronted with a scenario many of us had left behind and ascribed to the historical legacy of the 20th century. Once more we are confronted with crude power politics, taking advantage of all the levers available.

The Russian illegal annexation of Crimea and the current dangerous and troublesome developments in Eastern Ukraine has questioned our dream of a ‘Europe whole and Free’.

I believe in the free choice of independent nations. I believe in a democratic and united Europe based on the dream of ever lasting peace and the vision of a single market. And I know from history what the costs are if we do not maintain these perspectives.

Therefore Denmark has been supporting Ukraine in this critical situation. We have contributed to NATO’s reassurance policy. We have supported sanctions and continue to push for more if the situation escalates.

We do not believe in Russia’s path of coercion and intimidation. European partners and the US stand firmly against it.

I visited Ukraine with my Swedish colleague recently. Together we stood at the Maidan a few days after the huge demonstrations that changed Ukraine.

It made a deep impression to feel the energy at the Maidan. And to feel the ambition of the Ukrainian people to move ahead, create a better future politically and economically and a more transparent society.

But I also saw all the grave obstacles Ukraine is facing. In the south-eastern Ukraine we are faced with the spectrum of Russian challenges to the territorial integrity of a European country. Ukraine is in the middle of a difficult political process and major reforms lie ahead. Ukraine must be for all Ukrainians. Both in the West and in the East. Both Ukrainian speaking and Russian speaking.

And we were reminded of Ukraine's economic and financial vulnerability, not least when it comes to energy and the Russian energy supply. This issue might be decisive for the future of Ukraine.  

The long-term answer to the Russian challenge to Ukraine is to see the country develop into a blooming free and inclusive society that chooses its own path. We therefore strongly support the elections coming up on May 25. In the present situation, we need to provide as much assistance as possible for Ukraine to truly prosper as an accountable and democratic country.

However, the Ukraine crisis is not only about foreign and security policy. It is also the story about how energy and foreign policy intersect.  Ukraine needs to make the right long-term choices about securing a free society – and energy independence plays a key role.

The way to change this is to start investments in energy efficiency, in diversifying the energy supply and in the energy infrastructure and grid.
 
The Danish Government is already in close contact with the interim government of Ukraine to identify projects where Danish experience from the energy sector can be of use in Ukraine.

There are many low-hanging fruits – in particular on energy efficiency.

You have already launched an energy support package for Ukraine.

Denmark is working to launch an initiative on Ukraine-Danish energy cooperation which will help Ukraine increase its energy efficiency and diversify its energy supply by using Danish experiences with simulation of energy scenarios and integration of renewable energy sources in grid management.

***

To do it right we have to see the Ukrainian energy system in a wider European perspective.

In Europe we have to replace 80 percent of power production capacity the next 20 years - no matter what – because the energy sector is old. So we are facing a defining moment in the European energy history

The current crisis in Ukraine has been a wake-up call on energy security and dependence. Europe – for all its diversity - share a common challenge: We are over-dependent on fossil fuels.

For the last three years fossil energy has accounted for 25 percent of the total EU import. 25 percent!

Fossil energy import is thereby contributing heavily to EU´s massive trade balance deficit amounting to three-digit billions of Euros. 

This challenge leaves our consumers and businesses vulnerable to harmful price shocks; threatens our economic security; and contributes to climate change. Continuing our current pattern of resource use is simply not an option.

We in Europe need to be ambitious. This is not easy in a time of economic crisis and troubles – where people suffer from high unemployment and difficult circumstances. But based on the Danish case, I would argue that our current circumstances are exactly why we need to invest more in the green transition. It benefits our economies and our competitiveness if we look just a few years ahead.

The European Union is working on stepping up to our responsibility as world leader in this area. We are currently negotiating new EU targets on climate and energy for 2030. There are considerable overlap between the suggested policy instruments and those needed to increase EU energy security.

The two agendas are mutually reinforcing, rather than contrary priorities.

A strong EU energy policy is promoted by reducing energy demand, increasing the use of clean and renewable energy, and by improving the internal market and infrastructure.

An ambitious climate and energy policy for 2030 can both ensure the EU's relative competitiveness and reduce the growing dependence on energy imports by providing certainty and incentives for our businesses to invest in green technology.

Recent events in Ukraine also highlights the urgency of helping all member states and vulnerable neighboring countries to integrate their energy markets, enable them to diversify their energy sources, and help bring an end to the energy isolation. An ambitious policy framework will drive forward the integration and interconnection of Europe’s internal energy market.
 
***
The primary responsibility for alleviating the urgent energy security challenges in Europe – East and West - lies with the EU. But the US is already making a very important contribution through the regional and global dynamics that US energy and climate policies create.

Denmark, the EU and the US share common challenges and potentials when it comes to green transition. And we need to show common leadership on a number of issues.

First, there is climate change. When Secretary of State, John Kerry, recently compared climate change to a fearsome weapon of mass destruction, I very much agreed. As documented recently by the UN’s intergovernmental panel on climate change, climate change is a threat not only to the environment but also to global economic prosperity, development and, more broadly, human security. Global competition for natural resources will only intensify in the years to come and put pressure on the world’s ability to adapt and mitigate. 

Climate change is security policy and needs to be confronted like any other global threat. In our further work we should aim to:

1) Show leadership and take on ambitious mitigation commitments;
2) Ensure binding commitments from all Parties, including the emerging economies;
3) Increase mobilization of public and private investments in climate-relevant activities.
A second common challenge is energy supply. Year after year, Europeans face the risk of new crisis and supply shortages. This is testing European solidarity but also creates opportunities to build new partnerships between people, countries, regions and operators in order to increase integration of national networks, diversify energy sources and increase focus on energy efficiency.

I would like to see Denmark and the US working together on energy supply. We are already cooperating on expanding off-shore wind production where Danish expertise in renewable energy comes to use in the state of Maryland. But we should do more on energy efficiency, reducing the use of coal in our power systems, and expanding renewable energy production domestically.

Thirdly, we need to create a closer transatlantic energy market. The effects of the US shale revolution are felt on the global energy markets. And a clear, medium and long term perspective for a transatlantic energy market sends a strong political signal to policymakers as well as private investors. We need to have clear internal energy strategies on both sides of the Atlantic and intensify our discussions on common interests based on this.

In this respect, a timely agreement on an ambitious Transatlantic Trade and Investment Partnership is highly important to sustain the strong relationship, unlock the economic potential of opening the energy markets, set global standards and win the geopolitical benefits that will come from that.

***

When I read this year’s edition of World Energy Outlook I was struck by what has NOT changed.

CO2-emissions continue to rise. Oil prices will continue to rise despite new oil discoveries. Electricity prices will remain high in the European Union. And today's share of fossil fuels in the world energy mix is the same as it was 25 years ago. 82 percent!

The message is clear: We will not be saved by market developments alone. We have to save ourselves. And we have to start now, work where we can and do it smart.

Denmark has shown that we can limit CO2 emissions and secure solid economic development.

Since 1980, the Danish economy has grown by almost 80 percent, while our energy consumption has remained more or less constant. And CO2-emissions have been reduced.

We have also laid our course for the future: We will move towards a fossil fuel free society with 100 percent renewable energy by 2050.

• We aim for 100 percent renewable energy in electricity and heat supply in 2035.

• Coal is set to be phased out from Danish power plants by 2030.

• And already by 2020 50% of our power will emerge from wind and we have set a target to cut our emissions of CO2 by 40 percent.

At the same time Danish market prices for power have remained among the lowest in the EU! Because the introduction of renewables was done at the same time as we were liberalizing our market.

This could and should be an inspiration all over the world where the course is yet unclear, and important decisions have to be made the coming years:

• In the emerging economies, demand for electricity means that new power plants have to be constructed.

• In Japan, the Fukushima catastrophe has had the consequence that the Japanese are searching for a viable alternative to nuclear power.

• In the US and Europe our present plants are aging and many plants are facing replacement.

Investments in energy are needed everywhere. But when we construct new power plants we must keep in mind that these plants will last 40 – 50 years. So it is crucial that we make the right decisions now. We will get no second chance.

Denmark has chosen a strict focus on renewable energy and energy efficiency. In Denmark more than 40 percent of our electricity is produced from renewable energy sources. 30 percent of our electricity in 2012 came from wind. And we continuously expand our capacity. Thermal capacity based for example on sustainable biomass will supplement wind power and we will strengthen interconnection with neighboring countries.

I often hear that renewables are too expensive. That it cannot compete with coal at the current price level. To this I have 3 clear messages:

Firstly, this argument does not have the necessary nuances. Land based wind power has come a long way during the last ten years and is now almost able to compete on market terms with conventional fuels.

Secondly, take a look at the World Energy Outlook. Oil prices will rise despite new oil discoveries. Gas prices will remain higher in Europe than in the US. And coal – well, many coal plants are old, inefficient and are facing replacement.

Thirdly, the price of renewables very much depends on the market where it is introduced and the framework created. In short: the more the market is liberalized the less support you need.

Add to that the enormous costs burning coal incurs on the climate and on the general health from air pollution.

In my view, World Energy Outlook confirms that we have chosen a wise energy policy pathway by emphasizing viable long term solutions. By remaining world leaders on green transition, we can also enhance the competitiveness of our green tech companies. This has been the case in Denmark and it has benefitted our economy.

One of the primary things that this year's World Energy Outlook emphasizes is the importance of energy efficiency. This is good news. Denmark has focused on energy efficiency for decades.

And what I was really stunned by was the still unrealized global potential: Two thirds of the global cost effective potential has not yet been realized. Two thirds of the cost-effective potential!

In other words, investments here are profitable within a relatively brief time-span. Few other types of investments are that profitable. It's good business.

***

The cheapest energy is the energy you do not use.

And as the Ukraine situations reminds us. The return of our investments will pay back in more than just cash. With the investment in energy independence comes more stability, freedom and security.

There are some tough decisions to be made. And it is important that the decisions we make these years are the right decisions. We get no second chance.

I encourage anyone facing these decisions to take note of the mix of issues: climate change, security and the resource crises – and the possibility to find combined solutions.

Let me end by highlighting some fascinating facts and figures:

The world is growing. As you’ll know, in 2050 we will reach nine billion people on this planet and it will be 11 billion in 2100.

11 billion people: Using resources, emitting CO2 and increasing global warming.

And the global economy will double over the next 20 years.

This development will pose huge challenges. But it will also give us, our societies and economies huge possibilities. We have to deal with both issues at the same time: energy security and climate change.

And I encourage anyone to look beyond short term damage control and find a balance so that we can lay the foundation for the most viable solutions for ourselves and for the generations that follow.

Let´s help each other to move forward together.