Johnny Åkerholm: Further cooperation between the Nordic countries needed to make green growth projects attractive for financiers

Summary of introductory remarks* 

Green growth is more than just energy projects. It’s a question about overall economic growth, and how to maintain that growth based on environmentally sustainable principles. This requires the development of new green industries and technologies, as well as the transformation of the existing sectors in a more sustainable direction. 

For a number of reasons, this development process is a slow one. One of the core reasons is that the externalities of projects in this field are not included in the pricing of the projects. This lack makes green projects more expensive. The main problem consists of the fact that the economic considerations at the macro level are not included on a micro level, where the actual financing decisions are taken. So, when looking at, for example, the energy sector, it is generally more profitable to invest in “brown” production than in green. 

Wind energy provides a good example. These investments require subsidies or prices support in order to be profitable. From the financier’s point of view, it is not attractive to provide long-term financing for something that is relying on subsidies which can turn out to be short term. This is unfortunately also true for many other kinds of projects with environmentally beneficial aspects, but where the economic calculations are such that, at least, long-term financing is not doable. 

It is only the economic policy that has the instruments to influence relative prices and hence bridge the gap between the micro and macro levels. The externalities should be priced correctly in order to be taken into account when conducting micro calculations. This is the core of the financing challenge and the decision rests with the political decision makers. The more credible this is over the longer-term outlook, the less public financing is needed. If the credibility is lacking, however, investments can only be realised by public sector financing. 

The question is how to strengthen credibility. NIB believes the Nordic countries could achieve this by coordinating their activities in these fields; commitments at the Nordic level would reduce the risks of changes at the national level which would be induced by short-term domestic considerations. 

The following activities would seem to lend themselves to coordination

• Standardisation policies should be coordinated from a long-term perspective, including a joint vision and timetable. These should be ambitious enough but also realistic enough in order to be credible. This would help to create a large enough market for necessary development work, it would maintain competition between actors and avoid the taking of a position on technical solutions. A good example of successful Nordic cooperation in terms of standardization is the common decision on NMT (Nordic Mobile Telephone) standardisation in the 1980’s, which provided the platform for Nordic companies when they later entered the global market.

• The pricing of emissions and other externalities should be developed and coordinated on a pan-Nordic level. The Nordic countries could also jointly influence the EU and other international forums concerning accounting regulations when striving to decrease the gap between macro and microeconomic calculations.

• The requirements for support to research and development should be coordinated and made at least partly available on a pan-Nordic level. In practice, the Nordic Top-level Research Initiative should be further developed and enlarged.

* The introductory remarks were delivered at the Nordic Prime Minister’s Globalisation Forum in Copenhagen on 31 October 2011. The topic of the Forum was “Green growth”.