Finland has cost-efficient path to halve greenhouse emissions by 2030

22 January 2019 Consultancy.eu

The future of Finland is greener – in more ways than one. A new study shows that plans to reduce greenhouse gas emissions by more than half could also save the country money.

Sitra, the Finnish Innovation Fund, commissioned the study, “Cost-efficient emission reduction pathway to 2030 for Finland,” from McKinsey & Company, a global management consulting firm. Sitra is an independent public foundation supervised by Finnish Parliament. 

Since 1990, the study states, Finland has reduced its emissions by 21%, “driven mainly by increased biomass use in power and heat production, decreased use of oil in heating and decreased landfill disposal of waste.” During that time, the ability of the country’s land and forests to absorb carbon dioxide from the atmosphere, known as a carbon sink, has nearly doubled.

CO2 emissions of Finland

But if Finland hopes to meet its commitments to the UN’s Paris Agreement of decreasing total emissions by 60% by 2030 – as well achieving the Finnish government’s vision of becoming carbon neutral by 2045 – the country must continue to make environmentally friendly moves. 

Of the total 60% decrease in emissions, a 50% decrease could be achieved by moving forward with the switch to electric vehicles and wind-generated power. Other key measures include greening the operation of heavy industry, and shifting from oil-powered heating in residential, commercial, and public buildings to heat pumps and electricity. This shift could potentially be accomplished in a cost-saving manner, and is a comparatively simple task to the process of bringing that percentage up to 60%.

To do so, Finland must transform its power system to support emission-free electricity amid growing demand and adhere to a national carbonation plan. “A national plan laying out the path to decarbonisation in every sector is important for creating clarity around climate targets and providing longer-term predictability beyond electoral terms. It should create a broad commitment to the 60% reduction target by 2030 as a milestone towards decarbonisation and build a shared understanding of the necessary abatement actions and their timings,” the report states.  

The government and regulatory bodies must also create policies and regulations in line with these efforts. The good news, however, is that “analysis suggests that implementation of the 60% target is not only technically feasible but also economically viable,” said Mari Pantsar, a director at Sitra. 

Electricity generation Finland

Paris Agreement

The Paris Agreement aims to limit the global temperature increase to below 2C above pre-industrial levels, with an ultimate goal of limiting that increase to 1.5C. This can only be achieved through “rapid and far-reaching” efforts to limit or avoid the most damaging aspects of climate change, according to the United Nations’ Intergovernmental Panel on Climate Change. 

In response to international attention on environmental matters, the global energy and resources consulting industry grew nearly 6% last year, and is now valued at approximately $15.5 billion – the fastest expansion of the market in four years. Energy and resource consulting make up approximately 12% of the overall market. 

Related: European countries top WEF and McKinsey Energy Transition Index

Europe's energy efficiency services market to reach €50 billion by 2025

02 April 2019 Consultancy.eu

The growing climate change awareness as well as improvement to technology have lifted the market for energy efficiency in Europe to almost €25 billion. Growth will accelerate in the coming years, with the market set to double to €50 billion by 2025. The landscape remains fragmented however, according to a new report.

Climate change mitigation remains a key priority for much of the world – failure is noted as one of the world’s biggest risks going forward. Efforts to meet the Paris Agreement target of no more than 2.0°C warming by 2100, with a strong preference for 1.5°C, mean that transformations of various industries remains a priority. While reductions in the use of fossil fuels is a key part of wider moves to reduce global emissions, improvements to the efficiency of energy produced is a second avenue of improved energy outcomes.

Analysis regarding the improvement to energy efficiency for Europe show that considerable gains will need to be made over the coming decades to meet the region’s commitments. While governments have been keen to push for improvements in the space, companies too have sought to improve their energy efficiency, both to reduce long-terms costs as well as meeting their own goals related to reducing their carbon footprints.

EES is set to become a key European market

In a new report by Roland Berger, the authors analysed the market for energy efficiency services and products (EES), aimed at improving the energy efficiency of buildings, physical assets and business processes. In Europe, the most in demand service is engineering, focused on mobility technology, building technology and process technology, with the total market value estimated to be around €9.5 billion. Contracting, focused largely on energy supply, generates market volumes of €6.6 billion, followed by consulting at €5.2 billion.

As Europe ramps up attempts to reduce the energy waste in many of its systems, demand for services is set to rise significantly in the coming five to six years – at a CAGR of 8% across the various market segments. The market volume is projected to jump from €26 billion to almost €50 billion in the period up to 2025, in the process becoming a "key market in the European industrial landscape.” Software is forecast to enjoy the highest increase in demand, at a CAGR of 14% for the period, followed by engineering at a CAGR of 9%.

Businesses ownership remains split

While the consulting firm has projected strong growth for the market in the coming decade, various challenges for growth are also noted. This reflects the market’s diffuseness and fragmentation, and its relatively competitive nature, as well as the technical difficulty and sophistication of the space. While there are a range of companies focused primarily on developing propositions in the EES space, many established companies are also creating solutions for the space as a diversification strategy of their core propositions.

Fragmentation is the highest in the software industry, where around 60% of total EES activity stems from non-EES focused companies. The consulting segment is the most mixed, with 70% of companies operating in the space having a business focus within and without the industry. Contractors tend to have the strategic focus on the energy efficiency services market, at 70%, followed by operations-focused companies at 60% and engineering focused companies at 50%.

M&A intensity

The fragmented picture in part reflects the effect of acquisitions that are not well aligned with wider business processes and outcomes. Over the past five years around 100 deals were made in the space. Energy services specialists are the keenest to invest, according to Roland Berger, at 38% of the total, followed by utilities at 16% and investment funds at 11%. However, the researchers note that in many instances the deals were not well matched to the buyer’s wider business model, or were experiments in the segment, which sometimes created risks on their current business model.

For players to succeed in the market, the authors have three pieces of advice. “Players can succeed by following a few relatively straightforward principles. They must build a compelling business case for their customers, using levers such as digitalisation and cost of delivery. They must pursue smart growth through mergers and acquisitions, taking great care not to kill off the entrepreneurial spirit of their newly acquired firms. And they must ensure that they themselves have the right internal setup, with the required flexibility to accommodate strong growth businesses.”