LIP from a Socio-Economic Perspective. Local Investment Programmes (LIP) produce good results. This evaluation is the first to deal with funding of local investment programmes in Sweden from a socio-economic perspective. Just over half of Sweden’s municipalities were awarded state grants totalling SEK 6.2 billion between the years 1998 and 2002. This evaluation covers the programmes on which final reports had been submitted by June 2004 (101 out of 211 programmes). The main objectives of LIP were to bring about environmental improvements and create employment. A further aim was to promote new technologies and new approaches. The evaluation is based on the assumption that the aim of state funding is to produce maximum benefit for the state funding invested in these sectors. The authors demonstrate the effects of LIP using key figures and qualitative analyses. The grant funding has been surprisingly effective in achieving a positive impact on the environment. Among other things, it has been estimated that it has cost SEK 0.12 for each kilogram of reduced carbon dioxide emissions, which may be regarded as a very low cost. Since LIP achieves a number of socio-economically important objectives at the same time, the overall assessment of LIP is a favourable one. The evaluation has been made by the International Institute of Industrial Environmental Economics at Lund University, at the request of the Swedish Environmental Protection Agency.
ISBN: 91-620-5479-1 ISSN: 0280-7298
LIP from a Socio-Economic Perspective – an evaluation of state funding of Local Investment Programmes for ecological sustainability in Sweden
Report 5479
LIP from a Socio-Economic Perspective -an evaluation of state funding of Local Investment Programmes for ecological sustainability in Sweden
SWEDISH ENVIRONMENTAL PROTECTION AGENCY
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[email protected] Postal address: Swedish EPA, SE-106 48 Stockholm Internet: www.naturvardsverket.se ISBN 91-620-5479-1.pdf ISSN 0282-729 Elektronisk publikation © Swedish EPA 2005 Kåberger, Anna Jürgensen, International Environment Institute at Lund University English translation by Maxwell Arding Cover: IdéoLuck AB Printed by CM Digitaltryck AB
SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Foreword This report deals with some socio-economic aspects of state funding of Local Investment Programmes (LIP) in Sweden. The evaluation has been made by the International Institute of Industrial Environmental Economics (IIIEE) at Lund University, at the request of the Swedish Environmental Protection Agency. It is difficult to evaluate the LIP system. This is because the system itself has a number of objectives, such as multi-dimensional environmental objectives, employment and societal learning. In addition, a quantitative analysis is hindered by the fact that LIP funding acts in combination with several other instruments, instruments that are themselves complicated and that have varied over the years that LIPs have operated. The fact that the LIP scheme has a number of objectives is a departure from the Swedish tradition that a given objective should be addressed using a single instrument. However, LIP was introduced when Sweden had recently joined the European Union, where the tradition of using several objectives to justify a given directive or regulation prevails. Our efforts to identify evaluation methods have confirmed that a multitude of objectives makes quantitative evaluation more difficult. In addition, by combining a number of one-dimensional assessments, we have shown that projects yielding several positive effects overall appear to be socio-economically effective. LIP has been scrutinised and debated right from the outset. It has received a great deal of attention because the system has been a major item in the state budget and because LIP represents a new form of funding. A series of evaluations have been made in recent years at the request of the Swedish EPA. This is one of the final evaluations. We have attempted to identify parameters with which to measure the cost-effectiveness of LIP funding. We have endeavoured to determine the effectiveness of the system by calculating key figures and developing an understanding of the processes involved. Our findings surprised us and others. One distinction is crucial to understanding the efficiency of LIP: It is one thing to pay a price for reducing en emission by one kilogram; it is another to make an investment so as to reduce emissions annually by one kilogram over a period of one or two decades. To appreciate the cost-effectiveness of LIP it is essential to understand this distinction. We would like to thank all the officials at municipalities and companies who gave up their time to discuss LIP projects in which they had been involved. We owe a particular debt of gratitude to those who had already taken part in four or five previous evaluations. We also wish to thank Dr Anna Bergek, and Professors Roland Clift, Marian Radetzki and Thomas Sterner, who, as active members of the reference group, contributed valuable criticism, questions and suggestions. We have not accepted all their proposals, but we hope that we have responded to the constructive criticisms we have received. Funding of this kind has been found to be potentially effective. Perhaps we will help to bring about some productive and well-considered ideas. But most of all we hope that our comments on administrative methods favouring a high level of cost-effectiveness and the value of high-quality reports are put to use. This evaluation has been made by Tomas Kåberger and Anna Jürgensen, with contributions from Margarethe Forssman and Vaidotas Kuodys. The authors have sole responsibility
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for the content of this report and it can therefore not be taken as the view of the Swedish Environmental Protection Agency. Lund, November 2004 Tomas Kåberger & Anna Jürgensen
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Contents Foreword Contents Summary Definitions of terms Local Investment Programmes History of LIP Links to other environmental policy Aims of LIP Types of LIP The LIP process The application process Implementation Final report Summary Background and scope of the evaluation Reason for the evaluation Focus and delimitations of the evaluation Discussion of objectives Reference group Summary Summary of findings Investigative method Levels of evaluation Overall study Municipal study Industry-specific study Data gathering and selection Data quality Selection of municipalities and their representativeness Summary Evaluating instruments Types of instrument Evaluation methods Summary Findings Municipal assessments and reporting General quality of reporting Investment assessments Calculating quantitative environmental effects Reporting of effects on employment Emission reduction effects Grant effectiveness
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Carbon dioxide (CO2) 33 Calculation methods and their significance 35 The pulp and paper industry 37 Sulphur dioxide (SO2) 37 Nitrogen oxides (NOX) 38 Measures involving reduction in emissions of CO2, NOx and SO2 39 Effects on employment 39 Allocation of funding 40 Grant effectiveness 42 Potential indirect effects on employment 43 Summary 45 Analysis of grant effectiveness 46 Progressive selection 46 Constructive evolution 47 Summary 49 Other observations 50 Other environmental effects 50 Other relevant instruments 50 Spread of ideas, repeat implementation, further development 51 Competitiveness 52 Summary 53 LIP as an instrument 54 Choice of instruments 54 Significance of green taxation 55 Lessons for the future 58 Comments on programme design 59 Single or multiple objectives? 59 Summary 60 Conclusions 61 References 62 Written sources 62 Interviews 65 Municipal interviews 65 Reference group meetings 66 Abbreviations and definitions 67 Appendix 1 68 List of all evaluations 68 Appendix 2 69 List of measures 69 Appendix 3 72 Adjustments in the database 72 Appendix 4 73 Adjustment of effects of reduction in electricity use on carbon dioxide emissions73 Appendix 5 74 Adjustment of effects of reduction in oil use on carbon dioxide emissions 74
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Appendix 6 Scatter diagrams, unemployment Appendix 7 Other instruments
75 75 78 78
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Summary This report is the result of an evaluation of Swedish Local Investment Programmes from a socio-economic perspective. The evaluation was conducted by researchers at the International Institute of Industrial Environmental Economics (IIIEE) and commissioned by the Swedish Environmental Protection Agency. Investment programme funding was available between 1998 and 2002. A total of SEK 6.2 billion was granted to 211 programmes in 161 municipalities (representing 55 per cent of all Swedish municipalities). Each programme involved a number of measures, often investments. The measures were carried out by the municipalities themselves or by private enterprise. An average of 25 per cent of the investment costs were funded. Out of a large number of measures of various kinds, this evaluation focuses on those resulting in reductions of CO2, NOX or SO2. We have calculated indicators of the costeffectiveness of the funding, in relation to these environmental effects as well as effects on employment. The evaluation includes a qualitative discussion of the impact of the funding on the introduction of new technologies and new methods. The results were surprisingly positive, as criticisms and concerns have previously been voiced about the funding scheme. Measures reducing emissions of CO2 have had an average state investment cost of SEK 0.12 (€0.013), assuming an annuity factor of 0.1 on the investment cost. This estimate assumes all other desirable effects to have a value of zero, even when significant results are reported. A sizeable portion of the investments were made in sectors achieving a carbon tax reduction. From an environmental economics perspective, the scheme has been of benefit to society in these cases, since the tax reductions (society’s loss) are larger than the funding (society’s cost). We identified two mechanisms we believe have contributed to the strong performance of the completed programmes in this evaluation compared to previous reports on projects in receipt of state funding. The first mechanism – "progressive selection" - describes how less cost-effective projects have been abandoned during the LIP process from discussion of ideas at municipal level, through application and on to granting of subsidies. Even after funding has been granted, many projects have not been carried out because municipalities or private actors have decided they were not cost-effective enough. The second mechanism is "constructive evolution" and represents the flexibility inherent in the system. The project owners were allowed to change the scope and design of their projects as long as their relative cost-effectiveness remained at least the same (if not better). Funding was never increased. This procedure was carried out in a written dialogue between the municipality and the Swedish EPA so that each step and statement is a public document available for anybody to scrutinise. This funding scheme has led to testing of new technology and new forms of cooperation. Unlike traditional subsidies targeted at technology developers, the LIP investments were channelled via existing customers, thus creating a demand-fuelled stimulus for new technology. Examples were found of successful investments that were later repeated and spread, without additional funding.
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The evaluation has been based on quantitative information from the EPA’s project database and interviews with representatives from 10 municipalities. The evaluation also includes the results of an in-depth study of four LIP projects in the pulp and paper industry.
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Definitions of terms A number of terms and abbreviations requiring clarification are used in this report. The proper name for LIP funding is "state funding for Local Investment Programmes", abbreviated to LIP in this report. "LIP" is also used here as an abbreviation of "Local Investment Programmes". LIP consists of programmes, each coordinated by a municipality. In a few exceptional cases programmes have been coordinated jointly by several municipalities and associations of local authorities. Each programme involves one or more measures. "Measures" are specific environmental measures in various main groups such as waste and traffic, in which measures are also divided into more specific categories, known as sub-groups, such as energy saving in housing, public education projects and sewage treatment plants. The principal responsible for these measures may be the municipality, companies of various kinds, organisations etc. The term "principal" is used in this report to refer to those responsible for implementation and reporting of a measure, not for entire programmes. In many cases measure are implemented in the form of a project within organisations. A project may also involve several measures. As a rule, municipalities have had an LIP coordinator, who has coordinated the measures and been ultimately responsible for reporting. All measures for which a final report has been submitted can be found in the Swedish EPA internal database. The database contains information submitted by municipalities in the form of complete Excel spreadsheets providing basic details of the financial outcome of the measures, such as total investment, environmental investment and funding. The database also shows quantified environmental impacts and employment effects. Employment is shown as permanent jobs and person years. The term "person year" has the same meaning as the expression "man-year's work" used in this report. LIP has also required investments on the part of the project owners. The term total investment refers to the total cost of the measures. Many of the investments also have nonenvironmental elements, and project owners have therefore been asked to specify the environmental investment. The final grant averages 25 per cent of the additional cost incurred as a result of the environmental investment. Explanations of other expressions and abbreviations used in this report are given in the chapter "Abbreviations and definitions".
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Local Investment Programmes The following section provides an introduction to the funding of local investment programmes for environmental sustainability, the objectives of the funding scheme and the form of funding available.
History of LIP Applications for funding for local investment programmes (LIP) could be made between 1998 and 2002. Around half (55 per cent) of all Swedish municipalities were granted funding; the vast majority of projects have been carried out in large or medium-sized municipalities. Principals responsible for municipal projects have mainly been municipal administrations and municipal companies, although private enterprise and other legal entities have also been able to implement projects. In total, some 270 Swedish municipalities submitted complete LIP applications. 161 of them were granted funding. Several municipalities have had more than one programme over the years. 34 municipalities are carrying out two programmes, five are carrying out three programmes, and one municipality is carrying out no fewer than four programmes. There are also programmes being implemented by associations of local authorities and by several municipalities jointly. A total of 211 programmes have received LIP funding. LIP's total budget appropriation was SEK 6.2 billion between 1998 and 2002. The projects concluded and approved when this evaluation was made involved total funding of SEK 1.8 billion. Swedish EPA officials estimate that SEK 4.7 billion will have been paid out when final reports for all projects actually carried out have been submitted. The Ministry of the Environment was originally responsible for LIP funding, but the Swedish Environmental Protection Agency has administered grants for local investment programmes since 2002. The sole right to decide grants and modification of measures was also transferred from the Government to the EPA with effect from 2002. Following LIP a new form of support has been created, known as KLIMP – the Climate Investment Programme. The structure of that programme very much resembles LIP, but the programme itself focuses more specifically on measures relating to climate impact.
Links to other environmental policy LIP was preceded by a series of similar but less comprehensive programmes. A budget appropriation of SEK 100 million was made during 1995 – 1997 for investment grants for the transition to ecological sustainability (SFS 1995:1044). Aside from aiding ecological transition, the aim was to create employment opportunities. Many of the projects focused on waste and sewage treatment (Swedish EPA 1997). There then followed an appropriation of SEK 1 billion, known as "the ecocycle billion", (SFS 1996:1378) during 1997 - 1999, intended to support investments in buildings and technical infrastructure considered to promote ecologically sustainable development. Sweden adopted Agenda 21 following the Rio Conference of 1992. One of the principles under Agenda 21 is that of subsidiarity, ie, decisions should be taken as close as possible to those concerned. From a Swedish viewpoint, municipalities have been a natural platform for local Agenda 21 initiatives. Under Agenda 21, Sweden made a commitment to begin imple-
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menting the Agenda 21 concept locally. Under article 28:2 of Agenda 21, the aim was to reach local agreement on the form of the local agenda by 1996. Much of Sweden's local Agenda 21 was decided on in 1997 (Swedish Institute for Ecological Sustainability, 2004; Gothenburg University, 2004). Local Agenda 21 is expected to encompass municipal administration, private enterprise, various organisations and public agencies, as well as all private individuals. LIP can be seen as a part of this process. As a rule, LIP is linked to Agenda 21 at local level, since LIP also uses municipalities as a platform. The regional relevance of local investment programmes is checked by way of the fact that the ordinance requires the county administrative board to be involved in the application and implementation. A year after the introduction of LIP, in 1999, the Swedish Parliament adopted 15 overall environmental objectives. County administrative boards set regional objectives on the basis of the national ones, and in some cases municipalities also set local objectives. However, these objectives had not been specified in sufficient detail to affect the implementation of local investment programmes in the early years. But LIP measures are being carried out in relation to most of the environmental objectives and are contributing to their achievement
Aims of LIP Under the State Funding for Local Investment Programmes Ordinance (SFS 1998:23), municipal measures under local investment programmes will only be eligible for state funding if their purpose is to: 1) reduce the burden on the environment; 2) increase efficiency in the use of energy and other natural resources; 3) favour the use of renewable raw materials; 4) increase reuse, use and recycling; 5) help to conserve and improve biodiversity and safeguard our cultural heritage; 6) help to improve the circulation of nutrients in natural cycles; or 7) improve the indoor environment in buildings by reducing the presence of allergenic or other hazardous substances and materials, provided that the measure, alone or in combination with other measures is also intended to achieve one or more of the environmental effects under 1 – 6.1 Another aim of LIP was that the programmes would help to reduce the relatively high rate of unemployment. The ordinance provides that "eligibility for a grant requires that the measures under a local investment programme may be expected to reduce unemployment" (SFS 1998:23, section 3). In addition to the specific environmental and employment-related objectives, the funding scheme had overall aims. These included the explicit aim that LIP should also help to achieve greater equality of the sexes and that grants would be available for measures leading to increased sexual equality, provided that the environmental objective criterion was met (SFS 1998:23, section 1a (4))2. Investment programmes were also to explain how the measures would contribute to new technologies, promote architectural quality and safeguard cultural heritage. But achievement of these effects is not an explicit objective.
1 This item was added by Ordinance 2000:735 2
This item was added by Ordinance 1999:735
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The ordinance imposes restrictions on the funding, of which the most important are as follows. • Grant eligibility requires that the measures are not performed in compliance with laws or other statutes, or constitute regular maintenance. • Grants are not available for measures that fall within the scope of normal operations and that would have been carried out in any case. • Grants for profit-making operations may not exceed 30 per cent. A further general comment that may be made is that measures that could be regarded as profitable, with a reasonable payback time, were not eligible for a grant. Types of LIP The 211 programmes in receipt of funding have involved a great variety of measures. Table 1 shows a breakdown of measures and some examples of measures placed under each category. Table 1 Examples of measures Main category
Examples of measures
Traffic
Heavy-duty vehicles - biogas, eco-vehicles, extension of the cycleway network
Multi-dimensional projects
Modernisation of housing areas, from mass production to environmental programme, miljötorg ("environmental square")
Conversion to renewable energy
Conversion to district heating, solar heating, district cooling and "free" cooling, energy-efficient climate control
Water and sewage treatment
Reed beds for sludge treatment, environmentally friendly car washes, creation of wetlands
Waste
Industrial environmental cooperation, digester gas units and energy production, composting units
Building modifications
Modification of residential properties, modernisation of historic industrial premises
Industrial projects
Emission reductions, investments in less environmentally harmful machinery
Site remediation
Controlled composting of contaminated excavated materials
Energy efficiency/energy saving
Supply of waste heat, efficient lighting, energy saving
Supportive measures
Involvement of residents, public education, administration of the programme, quality assurance
Nature conservation
Wetlands, promotion of biodiversity, creation of nature parks close to urban areas
All in all, LIP grants have been awarded for more than 1800 measures. Around one third of them are energy-related.
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The LIP process All programmes have undergone a process that may be divided up into three main stages: (i) the application process; (ii) implementation; and (iii) final report and follow-up. The division of responsibility in the process has changed during the lifetime of LIP, but the main stages have remained the same. The application process Applications were prepared in each municipality, often in consultation with a number of municipal and other local actors. In many cases various proposals were discussed and examined, some of them then being combined to form a programme. Under the ordinance (SFS 1998:23), municipalities must also consult the county administrative board in their county, and the board must then submit a consultative statement to the Government. For the first four years measures were assessed by the Ministry of the Environment. This responsibility was then delegated to the Swedish EPA. Funding decisions were taken by the Government until 2002, when the Investment Support Council at the Swedish EPA took over. Where necessary, experts from relevant government agencies, such as the Swedish Energy Agency (energy projects), and the National Road Administration (traffic and transport) have been consulted. During the first four years municipalities had first to submit a pre-application. A number of promising municipalities were then invited to the Ministry of the Environment for a dialogue, in which they were informed of criticisms of the programme in terms, for example, of its environmental effects, grant-funded components, and the consistency of the measures with the regulations. These dialogues were only conducted until the end of 1999. Assessments were made of programmes as a whole, and also of each measure involved. Grants were awarded to entire programmes. Implementation Implementation is based on a timetable and investment plan drawn up by the municipality. 80 per cent of the grant for the first year is paid out in line with the plan. This enables municipalities to begin implementing their measures. This part of the process thus involves the final division of responsibility, possible procurement etc. During implementation interim reports are submitted each year to the relevant county administrative board. These reports must state whether the timetable has been adhered to, the environmental and employment effects achieved, and how the progress of the programme should be monitored in the future. If the principal wishes to change the form of the measures, a request to that effect must be submitted to the Swedish EPA (previously the Ministry of the Environment). The request must set out the effects of the change on economic aspects, environment and employment. The municipality will be notified whether or not the change has been approved within three months. Final report The municipality must submit a final report when the investment programme has been completed. Facilities ready for operation can be regarded as completed even where no final inspection or monitoring of effects has been performed (Swedish EPA, 2003). At the final
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report stage the relevant county administrative board must submit a statement in which it comments on the implementation and reporting of the programme. The environmental effects achieved must be presented in conjunction with the final report. Where those effects will only become evident in the longer term, an estimate must be made and the material on which the estimate is based must be presented. It may be necessary to supplement final reports before they receive approval. The last stage is a final decision on funding and disbursement of the remainder of the grant (maximum 20 per cent). If it is not considered that the effects have been fully achieved, the municipality is expected to refund the portion of the grant exceeding the funding that is finally approved. The final report must also clearly state the methods to be used to monitor and evaluate the measures. However, any monitoring and evaluation of measures need not then be reported to the authority.
Summary • •
• • •
LIP was a state funding scheme under which grants were paid, mainly to Swedish municipalities, between 1998 and 2002. This evaluation covers programmes for which final reports have been submitted. Those programmes have received SEK 1.8 billion out of total approved funding of SEK 6.2 billion. Programmes receiving funding totalling SEK 4.7 billion are expected to be completed. The main aims of LIP were environmental improvements using new technologies and new approaches, and also reduced unemployment. Grants were only available for measures that had not been begun and did not form part of the principal's normal operations. The LIP process consisted of three main stages: (i) application; (ii) implementation; and (iii) final report.
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Background and scope of the evaluation This chapter defines the purpose of the evaluation, the approach chosen and the resulting delimitations. A brief description of the reference group for the project is also given.
Reason for the evaluation The report addresses some socio-economic aspects of the investment programmes that have been implemented. This evaluation forms part of a wider evaluation of LIP, whose various parts are being carried out at the instigation of the Swedish EPA. This evaluation is based on the premise that the aim of the government funding is to provide maximum benefit for the public money invested. The assignment therefore includes defining the aims of LIP, ie, the intended benefit, so that a relevant assessment can be made. One difficulty in evaluating LIP is that one aim has been to achieve highly cost-effective funding, but that the measures implemented should not be financially profitable. It is therefore of interest for this report to examine the way the projects and the reports on them (eg, investment assessment and appraisal of environmental effects) have developed before and during project implementation. Long-term project development, including the technical lifespan and economic stability of investments, is also relevant, since it determines the extent of the total impact of the projects. An evaluation of an instrument from a socio-economic perspective may be made in relation to two types of effectiveness. Actual achievement of quantitative objectives can be examined. Another kind of effectiveness is whether development in a given direction at a low cost is achieved. The second type of effectiveness is the one most relevant to evaluation of local investment programmes. But one basic problem is that several instruments act together in a way that sometimes makes it difficult to determine the significance of an individual instrument.
Focus and delimitations of the evaluation A complete socio-economic analysis requires that account be taken of all positive (income) and negative (cost) effects, and that these be allocated in relation to the relative importance of the various objectives. This is not possible in this case. The measures taken under the local investment programmes span a long time horizon and consist of projects that vary in scope, location and approach. This evaluation is based on programmes completed and entered in the Swedish EPA database in June 2004. This means that 101 of the 211 LIP programmes are represented here. The grant funding component for those programmes is approximately SEK 1.8 billion, which may be compared with an expected total of SEK 4.7 billion
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This project is confined to measures in the same fields and having similar environmental objectives. The environmental objectives that the evaluation focuses on are carbon dioxide, sulphur dioxide and nitrogen oxides, and the projects concerned relate mainly to energy and traffic. The main reason for this delimitation is the availability of quantified data and the ability to produce relevant key figures. These emissions reflect the transition from using fossil fuels to renewable energy sources and various ways of improving energy and resource-use efficiency. The conclusions drawn in this evaluation project are of importance for the ongoing discussion of this transition and how to design appropriate instruments for achieving it. Specifically, lessons can be learnt from this evaluation for the present funding system – Klimp (Climate Investment Programme). The socio-economic dimension of this evaluation is mainly a national one, ie, LIP as a whole. Local socio-economic effects, such as the socio-economic impact of the measures based on local reference cases, is not involved. An additional option under the terms of reference was to evaluate the effects of LIP on employment. Since it has become evident that the aim of reducing unemployment, particularly in the early stages, was of great importance, the evaluation includes the impact of LIP on employment. We also discuss the allocation of grants in relation to levels of employment in municipalities involved in LIP. The evaluation of LIP and employment covers the 101 programmes on which final reports have been submitted, except for the review of grant apportionment, which includes all programmes for which grants were awarded. The consideration that was to be given to architectural qualities and sexual equality has not been evaluated (mainly owing to a compendious and unmanageable body of reporting material). However, there is a qualitative discussion of the impact of LIP on new technologies and new approaches. The fact that this evaluation is one of a series of evaluations (see Appendix 1) has influenced the emphasis we have chosen. There will be a degree of overlap, however, and some measures will probably not be covered by the overall evaluation initiated by the Swedish EPA. Discussion of objectives As mentioned above, the aim of state-funded instruments is to produce maximum benefit per krona invested. Benefit is a relative concept, depending on the object of the instrument. In the case of LIP, there are several aims, which very much complicates an evaluation. It used to be thought by many officials in the Swedish Government administration that trying to achieve several objectives simultaneously by using a single measure was risky and contrary to sound principles governing the use of political instruments. One reason given in support of this view is precisely that it is then difficult to evaluate the effectiveness of the measure. But the tradition of using single measures to achieve multiple goals is more firmly established in the EU. The reason given for this approach is that measures having several positive effects can help to achieve a better overall level of socio-economic effectiveness. LIP is an example of a measure of this kind at national level. This kind of evaluation may therefore become increasingly important. During the lifetime of the LIP programme there have been changes in the LIP ordinance itself and in the administration of the municipal programmes. But most of all, the objectives
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have changed. The main underlying aim of LIP was to increase employment. It was easier to politically justify environmental investments, since they were combined with the employment goal (Eriksson, 25 October 2004). The focus shifted increasingly to environmental effects when responsibility was delegated to the Ministry of the Environment, and later to the Swedish EPA. Another reason for this was the drop in unemployment towards the end of the LIP era. The project application discusses the possibility that this evaluation could seek to identify key figures for individual objectives, as well as for combinations of objectives. The individual objectives – a reduction in negative environmental impacts and increased employment – will be assessed separately. However, it has proved difficult to make an allocation between various objectives. For instance, it has not been found to be feasible or worthwhile to weight the value of a person year in comparison with the value of a one-tonne reduction in carbon dioxide. The effects of using this method are discussed in relation to the individual key figures. Suitable priorities for the evaluation have been identified in discussions with the reference group. One central strategy has been to use the quantitative estimates and visits to the municipalities as a basis. Other aspects, such as effects on dissemination of technologies and competition, are addressed in the concluding qualitative discussion.
Reference group To support the evaluation process, the Swedish EPA appointed a reference group, which contributed comments on the emphasis, methods and reporting at three meetings during the course of the project. A brief presentation of the members of the reference group is given below. • Anna Bergek, a lecturer at Linköping University, researching in industrial dynamics. • Professor Roland Clift, University of Surrey, who has many years' experience of manufacturing industry, as well as analysis and strategies for development of environmental technologies. • Professor Marian Radetzki, Luleå Institute of Technology, an economist, whose research deals with the economics of natural resources and the interaction between markets and politics. • Professor Thomas Sterner, University of Gothenburg, an economist specialising in the economic characteristics of environmental policy instruments. • Lars-Christan Roth, Swedish EPA (until June 2004). • Ingvar Jundén, Swedish EPA (from September 2004).
Summary • •
The evaluation assumes that the Government expects maximum benefit to be derived from the state funding, based on stated objectives. The fact that LIP has had multiple objectives has been found to render the evaluation more difficult.
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•
•
This evaluation addresses the effects of LIP on the environment and employment from a socio-economic perspective. This has been done by producing key figures and also by means of a qualitative discussion. A reference group comprising four researchers in economics, environmental technology and industrial dynamics, together with a representative from the Swedish EPA, have met regularly to comment on the reports we have made, thereby contributing to the evaluation.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Summary of findings This section summarises the findings of the evaluation. More specific results and discussions are presented in the following sections. Estimates based on reported reductions in emissions to air show a significant impact and a high level of effectiveness. Total Swedish emissions of carbon dioxide have fallen by one per cent as a result of the local investment programmes on which final reports had been submitted at the time of this study (approximately 50 per cent of the total number of programmes). The cost to the state of these emission reductions has been limited in relation to the socio-economic value reflected by environmental taxes on the same emissions. The environmental tax on carbon dioxide may serve as a measure of the societal valuation of emissions. Using this measure, a clearly positive result has been achieved from a socio-economic viewpoint. One reason for this is that LIP measures have largely been carried out in sectors in which there is a reduced environmental tax on emissions or no tax at all. Measures in sectors with a lower tax rate account for 40 per cent of the carbon dioxide emission reductions achieved under the 101 programmes that have been evaluated. Moreover, those measures have a better average level of grant effectiveness than other measures. Grant effectiveness The cost of grants for investment in carbon dioxide emission reductions is SEK 1.20/kg of recurring annual reductions. Taking into account project lifespan and interest, the state investment cost is estimated at SEK 0.12/kg CO2.
Measures to reduce carbon dioxide emissions appear to be even more socioeconomically cost-effective, bearing in mind that they were decided at a time when the carbon dioxide tax was less than half its present level. If the present tax is used as the value of the reduction, then projects in taxed sectors are clearly cost-effective. After all, the current tax rate is higher than the tax plus LIP funding per kg of emission reduction when the measures were decided. Creation of employment was originally an important objective of LIP. The direct effects have meant the creation of approximately 8,400 jobs at a reasonable cost to the state. However, we have found no signs that the effects on employment have been a consistent priority objective. For example, it is not so that more grants have been paid out to municipalities with high levels of unemployment. Indirect effects include two effects that appear to be important and substantial in comparison with the direct effects described in the project reports. First of all, there are several projects in which waste heat from manufacturing plants has been utilised for district heating purposes. This has generated an additional source of operating income for those plants. This income makes the factories more competitive and reduces the risk of them being closed down if a recession were to hit their industry. In the second place, many measures have increased the use of biofuels. Biomass production by the forestry sector for energy purposes creates long-term job opportunities in forest regions. These are also the regions where unemployment is highest and where increased employment can have the greatest socio-economic benefits. The number of permanent jobs
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
created in this way can be assumed to be approximately equal to the number of job opportunities reported by all LIP projects together. In addition to specific socio-economic benefits related to emission reductions in untaxed sectors, a number of other positive effects resulting from LIP have been identified. Effects such as the fact that knowledge is disseminated, new technologies are tried out and companies supplying more sustainable technical systems gain a stronger position are important. However, it has been difficult to quantify these effects, although we do have examples of best practice. One difference of relevance in industrial terms is that LIP has provided support for customers in the process of procuring technical solutions. Many other forms of support have been aimed at suppliers of new technology. There are shortcomings in the reports, but a review of the database has not revealed any systematic errors enhancing the final results. Our random samples among municipalities also support these findings. Our visits to municipalities instead revealed that the reporting of effects contained underestimates. There are clear examples of measures that have obviously reduced emissions directly as well as indirectly, but where these have not been quantified in the final report. Moreover, the study reveals several instances where the quantified effects are lower than the actual outcome. A calculation based on converting from use of oil to biofuel showed that carbon dioxide emissions were reduced by a figure of around 100,000 tonnes in addition to that which had been reported in the database. Results reported and actual results are thus better than those suggested by earlier reports based on applications and grant awards3. We have identified two mechanisms capable of explaining this. The first we call progressive selection. This mechanism means that the various stages of the LIP process have eliminated the measures that have been less costeffective and have had less environmental impact. One observation is that after funding has been granted by the state, in some cases municipalities or those responsible for implementing the measures have chosen not to carry out any projects, even though a grant has been awarded. Projects have also been discontinued when it has been discovered during implementation that they would be more costly or less effective than planned. Hence, the elimination process has been more extensive and has involved more steps than expected. The second process, in this report called constructive evolution, means that flexibility on the part of the Ministry of the Environment, and later the Swedish EPA, has enabled measures to be developed within the framework of the approved funding. This flexibility has allowed changes that have improved the results. But the authorities have adhered to the principles of never increasing the size of the grant ultimately paid out. This has capped the cost to the state and ensured that account has been taken of cost-effectiveness in the municipalities. Socio-economically speaking, it is also important that LIP has been found to produce solutions that, over time, have become commercially viable and competitive. Higher oil and electricity prices, higher green taxes, the EU scheme for trade in emission rights and the EC Waste Directive have rendered many projects more profitable than could have been foreseen.
3
See, for example, Kågeson 1998, Parliament 1999/2000
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Investigative method This section presents the methods used in this evaluation. The various sub-studies made are described, and selection, representativeness and quality of the data gathered are discussed.
Levels of evaluation This report has three main parts: (i) an overall study (ii) a municipal study; and (iii) an industry-specific study evaluating projects in the same sector. Table 2 shows a diagram illustrating the various levels of LIP to aid understanding of the methods used in this report. Table 2 Analysis levels
National level Nationell niv
LIP Programme Program
Programme Program
Programme Program
Municipal level Kommunnivå
Huvudmannaniv level Measure Measure Measure Measure Measure Measure Measure Measure Measure Measure Measure Measure Measure Measure Measure Measure"Principal"
Sektornivå / Sector/Industry level
Overall study In the overall study we have made calculations using the database. These calculations include 101 programmes on which a final report has been submitted. Calculations have been made of quantified environmental impacts in the form of carbon dioxide, nitrogen oxides and sulphur dioxide, as well as quantified effects on employment. Municipal study The municipal study is both quantitative and qualitative. Here we have chosen to examine more closely the projects quantifying effects in the form of emission reductions of CO2, NOx and SO2 in 10 selected municipalities. The projects concerned are mostly in the following sectors. • Traffic (eg, public transport, biogas fuel) • Conversion to use of renewable energy (eg, heating using biofuels, solar energy) • Improved energy efficiency (eg, energy saving in homes, energy-efficient climate and lighting control systems) • Waste (eg, biogas unit) Some projects included in the municipal study are not included in the calculations made in the overall study. There are instances where municipalities have taken measures that ought to
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
have an impact on CO2, SO2 and NOX but where those impacts are not recorded in the database. These have therefore not been included in the municipal study. The interviews at municipalities gave us an idea of the quality of reporting and how the calculations in the overall study may be interpreted. In some cases final reports were submitted on programmes before the investments were fully in operation. The municipal study therefore helped us to ascertain how well the final results as set out in the final reports reflected reality one or a few years later. A list of the measures discussed in the ten selected municipalities is given in Appendix 2. The municipal study of LIP is a way of gaining an impression at local level. We wanted to see that the investments had resulted in economically sustainable facilities that were also working as planned and reported. We also wanted to learn to understand the way state funding affects processes in municipalities. The evaluation focused on measures to reduce emissions of CO2, NOX and SO2. The conclusions drawn cannot therefore be directly extrapolated to other LIP measures (waste reduction, public education projects etc). Industry-specific study This evaluation also includes a project focusing on an individual sector: the pulp and paper industry. The project has been carried out in the form of a university dissertation and will be reported separately as such. Selected parts of the study are included in this report. Where reference is specifically made to "the study on the pulp and paper industry", this is entirely based on Forssman (2004). The pulp and paper industry is of great interest, since these projects account for a large proportion of the funding paid out and the environmental effects achieved. Four projects have been examined. These involve use of sludge from pulp and paper manufacture as a biofuel, and use of waste heat. The main purpose of the dissertation was to examine whether investment in these projects was socio-economically beneficial. Given current conditions, with high oil and electricity prices, waste taxes and the introduction of the electricity certificate scheme, these projects have clearly been profitable. The dissertation also examines whether profitability could have been predicted at the time of application, the pros and cons of grants of this kind for industrial projects and the nature of the benefits to society.
Data gathering and selection As mentioned earlier, the database on which the general calculations have been based contains quantifiable data on 101 programmes out of a total of 211. Hence, account has only been taken of projects that have been completed and on which a final report has been submitted to the Swedish EPA. The final reports have been obtained from the EPA or from the municipalities included in the study of ten municipalities. A review of these has provided additional information prior to the interviews and has enabled us to check the reasonableness of the data fed into the database. Interviews have been conducted "on the spot" in each municipality. In some cases there have been follow-up interviews with additional municipal representatives by phone and email. The visits to municipalities have combined interviews with visits to various facilities where this has been of interest.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Information from other evaluations and other information on LIP has also been studied where considered relevant. In most of the municipalities studied other studies have also been made, which we have read. Data quality The information in the database is based on information supplied by the municipalities themselves, as reported to the authority. There are some problems with the quality of the data in the database. Some corrections have therefore been made where obvious errors have been detected (eg, duplicated reporting on environmental effects, non-entry of environmental effect). To make it easier to reproduce our calculations, the corrections we have made are shown in Appendix 3. No further corrections have been made in the key figure calculations, but some adjustments have been made in relation to certain other calculations, where this is clearly stated. There is no standard method of calculating environmental effects in final reports. An analysis has therefore been made of the sensitivity of certain key data in the database. In addition, a general aim of the municipal study has been to gain an idea of the quality of the data and how well it reflects reality. A fairly high proportion of the projects included in the key figure calculations have also been included in other evaluations. Those other evaluations have obtained additional information using questionnaires and interviews covering a large number of measures and municipalities4. This has further enhanced the quality of our data and results. Additional issues have been resolved with the help of telephone calls and e-mail. Data quality is discussed in further detail in the presentation of results. Selection of municipalities and their representativeness The municipal study forms one part of this evaluation. Ten programmes in ten municipalities were selected for closer study. Those projects represent around ten per cent of the total number of programmes in the database on which final reports have been submitted, and 15 per cent of the grants paid out to date under the LIP scheme. In selecting municipalities, account was taken of the size and content of the programmes, the size and geographic location of the municipality and the year the programme application was submitted. The selection is shown in Table 3.
4
Swedish EPA (2004). Bättre miljö med utbyggd fjärr- and närvärme. En utvärdering av LIP-finansierade fjärr- och närvärmeprojekt ("A better environment by developing district and local heating") - an evaluation of LIP-funded district and local heating projects. Report 5372. Swedish EPA (2004). Goda möjligheter med spillvärme. En utvärdering av LIP-finansierade spillvärmeprojekt . ("Waste heat potential" - an evaluation of LIP-funded waste heat projects). Report 5373.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Table 3 Municipalities included in the municipal study Municipality LIP year Total investment* Grant paid No. of inhabitants** Kristianstad 1998 SEK 351,967,087 SEK 69,963,310 74 161 Trollhättan 1998 SEK 157,855,464 SEK 27,133,823 52 891 Umeå 1999 SEK 88,108,198 SEK 19,069,524 104 512 Solna 1999 SEK 198,029,974 SEK 48,476,655 56 605 Hedemora 1998 SEK 100,192,708 SEK 21,913,320 15 857 Karlshamn 2000 SEK 68,477,722 SEK 14,937,715 30 741 Hässleholm 2000 SEK 30,558,727 SEK 9,467,100 48 580 Göteborg 1998 SEK 288,021,455 SEK 60,055,956 466 900 Linköping 1999 SEK 216,537,161 SEK 40,929,002 133 168 Karlstad 2000 SEK 83,616,436 SEK 23,322,056 80 323 Total SEK 1,583,364,932 SEK 335,268,461
County Skåne Västra Götaland Västerbotten Stockholm Dalarna County Blekinge County Skåne Västra Götaland Östergötland Värmland
* Investment in measures receiving grant funding ** In 2000
In total, grants were awarded for 176 measures in these municipalities. Measures actually implemented totalled 140; approximately 65 per cent of the funding granted was used. All measures under LIP have been classified into groups and sub-groups. One objective of the selection process has been to ensure that it remained within the confines of reasonable representativeness in this respect as well. Figure 1 shows a breakdown of funding between the various groups. The breakdown includes grants paid out under the 101 programmes in the database on which final reports have been submitted.
Water supply and sewerage 9% Traffic 13%
Waste 7%
Site remediation 6% Improved energy effeciency 11%
Supportive measures 3%
Building modifications 2%
Nature conservation 5% Multi-dimensional projects 9%
Conversion to alternative energy effiency 34%
Industrial projects 1%
Figure 1 Breakdown of grants paid out to the programmes on which final reports have been submitted (101)
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Figure 2 shows a breakdown between various categories in the municipalities selected for closer study.
Other 0% Water supply and sewerage 9%
Waste 4% Site remediation 6%
Traffic 18%
Nature
Improved energy efficiency 16%
Supportive measures 3%
Building modifications 3%
conservation 3%
Multi-dimensional projects 17%
Industrial projects 0%
Conversion to alternative energy efficiency 23%
Figure 2 Breakdown of grants paid out per category in the ten municipalities studied
The breakdown of grants differs somewhat between the municipalities studied and the total grants disbursed under LIP. This is mainly because one major multi-dimensional project, representing a quarter of all funding so far granted to multi-dimensional projects, has been implemented in one of the ten selected municipalities. However, the most important consideration is that the types of measure on which this study focuses - conversion to renewable energy sources, improved energy efficiency and traffic - do not differ substantially from one another when broken down into their components.
Summary •
•
•
•
•
The study comprises three elements: an overall study, a series of study visits to ten municipalities and a specific study of some projects in the pulp and paper industry. The entire evaluation is based on a database covering the programmes on which final reports have so far been submitted: 101 programmes out of a total of 211. Account has been taken of some shortcomings in the quality of the data in the database. Necessary corrections and a check of the sensitivity of the data have been made. The following municipalities are included in the municipal study: Kristianstad, Trollhättan, Solna, Hedemora, Umeå, Hässleholm, Karlstad, Linköping, Gothenburg and Karlshamn. The municipal study gave indications as to the quality of the data and information about the way municipal processes had worked.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Evaluating instruments When evaluating an instrument it is relevant to discuss it in relation to other instruments. In this section LIP will primarily be seen in terms of its role as an environmental policy instrument. A comparison with other measures to reduce unemployment is made in the chapter entitled "Impact on employment”.
Types of instrument It has been recognised that state intervention is necessary to tackle environmental problems. This is because activities in our society, such as industrial operations, have direct and indirect negative external effects on the environment and human health. The current debate in the field of environmental economics is not so much about whether the state should intervene; it is more a question of how and to what extent it should act. The state must therefore choose between a number of instruments of various kinds. According to Vedung (1998), there are many ways of classifying instruments. One can choose not to classify them at all, ie, to list all conceivable instruments, or to classify them according to various viewpoints and characteristics. But Vedung advocates dividing instruments into three categories, which we have also chosen to do. The basic idea of informative instruments is that well-directed information and education and training projects will change attitudes among the target group and encourage a change in behaviour. This should be distinguished from information about instruments. Economic instruments are those using price and market mechanisms. Under this category we find subsidies, grants and flexible mechanisms such as trade in emission rights and certificates. Administrative instruments are mandatory. They include prohibitions and permit requirements. But one problem of classification is that, as a rule, there are always instruments that fall outside the chosen classification and that certain classifications are debatable. Trade in emission rights, which was placed in the economic instrument category above, is one such example. Trade of this kind is dependent on a legislative (administrative) quota, yet the resulting improvements are largely dependent on the economic incentives created by trade in emission rights. Voluntary agreements also represent a grey area. A voluntary agreement is where, for example, a given sector agrees with the state that it will reduce its use of natural resources or emissions. These agreements may be linked to a reduction5 of a tax or an underlying threat of administrative action or a new tax, however. It is considered beneficial to combine instruments. The combination chosen depends on the nature of the environmental problems, as well as the market and actors potentially affected by the instrument. According to basic economic theory, those responsible for negative impacts should also pay for them. Pigouvian taxation6 of adverse environmental impacts means that improvements are achieved where they are cheapest. To some extent, subsidies have similar theoreti5
In the Netherlands and the United Kingdom, energy-intensive companies have voluntarily agreed to improve their energy efficiency in return for lower energy taxation. There is a proposal before the Swedish Parliament to introduce exemption from electricity tax for energy-intensive enterprises that enter into a voluntary energy-saving agreement. 6 Pigouvian taxation is a charge equal to the marginal cost of an external cost incurred (Pigou, 1920).
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
cal effects on the willingness of industry to invest if the subsidy is related directly to the emission reduction. But subsidies, unlike taxes, may allow a number of enterprises at the margin to remain in the market (Sterner, 2003). Another factor is that, generally speaking, subsidies are not desirable since they depart from "the polluter pays" principle. An instrument may have various kinds of effect at various levels. Environmental problems may occur locally but have an impact globally as well as locally. This may also serve to determine which instruments are effective. The solution considered optimal from an environmental viewpoint is preventive behaviour, ie, improvements occur at the beginning of a process, not merely as a result of improved cleaning or treatment techniques. Instruments offer varying potential in relation to this, and this is one reason that non-administrative instruments such as subsidies and information campaigns are used. One argument in favour of a given instrument is cost-effectiveness. Another is legitimacy, ie, how it is perceived by those affected by it, which may in turn influence their behaviour. According to van der Doelen (1998), instruments may be assumed to have a repressive role as well as a stimulating one. But he considers that one should be wary of imputing too strong a correlation between the legitimacy of an instrument and its effectiveness. Van der Doelen (1998) is also of the opinion that instruments are often designed according to the principle of "give and take". Legitimacy is then created by first introducing informative and positive economic instruments, and then more direct administrative and economic sanctions to achieve maximum effect.
Evaluation methods As discussed above, there are other aspects of instruments apart from their specific quantifiable impact on a given type of environmental problem. Evaluation criteria are therefore the subject of much discussion in economic theory. The criteria chosen may depend on the aims to be achieved by the instrument. But in practice the criteria used are often those seen by the evaluator to be adequate for his specific analysis. The economic effect, ie, the cost-effective achievement of the stated aims, is often crucial. With schemes like LIP, which have a diversity of aims, multi-dimensional in themselves, and which are intended to help bring about a systemic change, it is important to examine the instrument from several angles. This is essential so to arrive at a socio-economic perspective. However, bearing in mind the multi-faceted objectives and the number of measures involved, a complete socio-economic analysis is not possible. A number of criteria considered relevant to this evaluation are given below. These will be discussed indirectly in the following sections and directly in the concluding discussion of LIP as an instrument. • Is it an appropriate instrument for achieving the objectives? (APPROPRIACY) • Have the desired effects been achieved with the help of the instrument? (EFFECTIVENESS) • How much has it cost the state to achieve these effects? (GRANT EFFECTIVENESS) • Is this an instrument that creates incentives for continuing efforts to achieve the objectives, even without further instruments among the actors affected by it? Has it had lasting effects? (ENDURING EFFECTS)
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
•
How well has the instrument been received and the distribution of the effects perceived? Has the process been an open one? (OPENNESS AND DISTRIBUTION)
The above illustrates a need to see the "benefit" of an instrument in a broader perspective than merely in mere terms of its grant effectiveness. Hence, when evaluating LIP, it does not suffice to examine specific grant effectiveness alone. More long-term effects and the response of the market to LIP as an instrument are also relevant. A further relevant factor is the scope for using a similar funding system in the future. As mentioned earlier, it is desirable to be clear about the objectives in order to understand that which is to be evaluated. This study and our evaluation focused initially on the environmental effects. As part of our evaluation, we identified the original aims by interviewing those who had initiated LIP. It was clear from those interviews that the employment objective had been paramount at the time. Thus, it is quite evident that LIP had a number of objectives. It has never been solely a matter of grant effectiveness; the aim has also been to demonstrate new technology and to initiate a learning process via cooperation. It is necessary to base this evaluation on a reference case to make it clear what the findings are being measured against. One key question is: What would have happened without funding? This is discussed to some extent in this study, partly by way of the municipal interviews. In addition, the taxes and charges on the estimated emissions of CO2, SO2 and NOX, will be used as a reference when assessing the key figures. The reference case for employment is confined to existing retraining and job creation schemes.
Summary • •
•
Political instruments may be classified into three main types: informative, administrative and economic. LIP must be evaluated not merely in terms of pure grant effectiveness, but also in the light of other factors such as the appropriacy and enduring effects of programmes. A key question to be borne in mind is what would have happened without funding.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Findings This section begins with an appraisal of reporting by municipalities, the emphasis being on those that have been the subject of closer study. This is followed by an assessment of the extent to which objectives have been achieved and a discussion based on the evaluation criteria set out earlier.
Municipal assessments and reporting This section outlines reporting by municipalities and conclusions drawn from the interviews on reporting. General quality of reporting One definite observation is that the quality of final reports varies. The extent to which quantitative effects are described differs. But the main variation between reports concerns the general account of measures and their other effects. In the municipalities visited, we saw no clear link between the quality of the final report and how well the LIP measures had been carried out. In some cases final reporting has been hindered by the fact that different people have had coordinating responsibility during the course of the programme, or the coordinator has left the project entirely before it was completed. Investment assessments As a rule, there has been no requirement that the principal responsible for the measures should submit a detailed account of the investment assessments forming the basis for the application. According to the municipalities themselves, it has been difficult to assess investments, since it is hard to estimate costs, particularly when tenders have to be invited for major contracts. A requirement for grant eligibility was that the measures had to still be at the planning stage, and so exact cost estimates were not usually available. The assessment was even more difficult where new technologies were to be procured. The authorities, too, found it difficult to accurately assess whether cost estimates were reasonable. Calculating quantitative environmental effects The reporting of environmental effects varies greatly from one municipality to another and from one measure to another. When they submitted their applications, municipalities did not receive any instructions as to how quantitative effects were to be calculated or estimated. In some cases a coordinator submitted reports based on information supplied by the principal; in other instances information came from each project leader. Hence, calculation methods differ. For example, one municipality reported "reduction in number of vehicle kilometres", whereas another also made an estimate of reduced emissions to air resulting from the reduction in vehicle kilometres. It is not quite clear to what extent this is due to a lack of clear instructions, or a greater desire on the part of some municipalities than in others to submit detailed reports. One reason for caution has been a desire to avoid double-counting the effects of measures that are part of large projects involving a number of programmes. For instance, a mu-
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
nicipality may have a biogas project involving extension of the gas supply system under one LIP programme, and gas-driven vehicles under another. There is then a risk of the municipality counting the effects twice. The municipalities mentioned that they usually chose to err on the side of caution in their reporting so that it would be easier to defend the figures in any discussion of the final report. As a rule, they reported the figures they needed to receive a grant, nothing more. The effects of these differences in calculations and report are discussed further in relation to the calculations of the key figures. Reporting of effects on employment As discussed earlier, one of the aims of the funding scheme for local investment programmes was to help fight the country's relatively high level of unemployment at the time. In addition, municipalities were required to show in their application that the programme could be expected to have this effect. Effects on employment have been presented in the reports in the form of person years and permanent jobs. The term "person year" is defined as 12 months' full-time employment and "permanent jobs" are the new, permanent employment opportunities created as a result of the investment. Municipalities themselves have been allowed to decide what constitutes a permanent job. The municipal study has revealed that there are also differences in the way municipalities report effects on employment. One example of differences is the way that indirect effects have been calculated. In some cases account is taken of effects among suppliers, in others only the direct effects of the measure. Reporting the hours spent by the principal itself has also been considered difficult. The view generally expressed by municipal officials is that assessment of employment effects is complicated. As with environmental effects, it has been apparent that municipalities have chosen a cautious approach. Only in a few isolated cases have municipalities gone beyond the measure itself and estimated the indirect effects.
Emission reduction effects One aim of this evaluation is to use key figures to evaluate the effectiveness of LIP projects. We have studied well-quantified effects in the form of reduced emissions of carbon dioxide (CO2), nitrogen oxides (NOx) and sulphur dioxide (SO2). Before presenting our estimates of effectiveness, it is of interest to examine the direct effects resulting from LIP investments. Significant emission reductions have been achieved even under the 101 local investment programmes included in this study. The results are shown in Table 4.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Substance CO2 NOx SO2 *2002
Reduction under LIP project tonnes/year 545,000 980 590
Total Swedish emissions tonnes/year* 55,000,000 242,500 58,500
Reduction attribute to LIP,% 1.0% 0.4% 1.0%
Table 4 Emission reductions under LIP (101 programmes) in relation to total Swedish emissions
The effect of the LIP scheme in the form of emission reductions is thus a reduction in total Swedish emissions of carbon dioxide and sulphur dioxide of approximately one per cent in each case, and a 0.4 per cent reduction in nitrogen oxides. This may be seen in relation to the fact that NOX emissions were reduced by 25 per cent between 1990 and 2002, CO2 by two per cent between 1990 and 2002 and SO2 by 45 per cent during the same period (Swedish EPA, 2004a). The most reliable figures are those for carbon dioxide, since they have not been appreciably affected by the choice of calculation method (see also the section on "Carbon dioxide (CO2)"). However, sulphur dioxide and nitrogen oxides are more sensitive to the choice of local reference cases used in the calculations (see also the section on "Sulphur dioxide (SO2)" and "Nitrogen oxides (NOx)"). The effects on carbon dioxide emissions have been underestimated. An adjustment of the data in the database based on reported reductions in oil use, indicates a further emission reduction of 100,000 tonnes of carbon dioxide. Taking into account this underestimate, the final result is a reduction in Swedish emissions of 1.2 per cent to date. This calculation is based on national emissions, in the absence of local data. It would be more relevant to calculate the effect in relation to local emissions in the municipality and on the basis of the specific reference case for the measures. This could be used as an indication of the cost and potential throughout the country as a whole.
Grant effectiveness The key figure in this report is grant effectiveness. The object is to identify the cost to the state of the environmental benefit achieved under the local investment programmes. The ideal approach would have been to ascribe a relative value to these emission reductions so that the grant per unit could then be allocated, which would clearly illustrate the grant effectiveness for each substance. This was found to be impracticable, however, because there is no uniform objective to be achieved by all measures (eg, acidification, greenhouse gases) that could be used as a basis for allocation. Another reason is that measures in various sectors operate under differing conditions and are subject to differing taxation, which makes it complicated, if not impossible, to make a monetary allocation. A discussion of the significance of tax levels follows in the chapter entitled "LIP as an instrument” under the heading "Significance of green taxation".
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
The following method was instead used to calculate key figures (using CO2 as an example): 1) A report was extracted from the database containing all projects for which CO2 emission reductions have been quantified in the database. The reduction is reported as emissions in kg/year. 2) The report also specifies the size of the investment, environmental investment and state grant used by each project. 3) It was then assumed that all other effects were equal to zero (0) in those projects. 4) The total cost of the measures broken down into investment, environmental investment and grant, divided by the reported annual reduction in emissions of CO2. 5) The result represents the investment, environmental investment and grant expressed in Swedish kronor per annually recurring reductions of 1 kg CO2. The same method was used to calculate the cost of reduced emissions of SO2 and NOX, and for increased employment. The effect of using this calculation method is an overestimate of the cost of the measures. This is because most measures achieve a number of desired effects related to the environment and also to employment. The effect of this overestimate is discussed in relation to each key figure. Grant funding is used for investments that may also affect operating costs. One purpose of the municipal visits was to check that the investments made were actually in operation after completion of the local investment programme. After, all a prerequisite for actual achievement of the often long-term environmental benefits reported is that the facilities are economically sustainable. To all intents and purposes this was true of the cases we studied. Given current green taxes, there is no reason to return to the former systems. Table 5 shows the estimated grant effectiveness for the three substances in question. It should once again be emphasised that the entire investment has been apportioned to each of the emissions and attributed to one year's emission reduction. Environmental Total investinvestment Grant Substance ment (SEK/annual (SEK/annual kg) (SEK/annual kg) kg) CO2 4.90 4.30 1.20 Nox SO2
2,310 2,825
2,125 2,760
580 740
Table 5 Result of estimated cost-effectiveness and grant effectiveness for all substances
Carbon dioxide (CO2) Carbon dioxide is the gas primarily responsible for anthropogenic climate change. Lower carbon dioxide emissions are therefore a political priority and one of the effects LIP was – and KLIMP is - designed to help achieve. Lower emissions of carbon dioxide are also the result most often reported by the programmes forming the basis for this evaluation. Those programmes have reported a total of 158 measures resulting in carbon dioxide emission reductions. The results of the key figure calculations specific to CO2 are shown in Table 6.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
SEK per annual reduced kg CO2 Grant Environmental investment Total investment
1.2 4.3 4.9
Table 6 Grant effectiveness, carbon dioxide
The average cost of reducing carbon dioxide emissions has been low. The fact that the entire cost of the measures has been allocated to this emission reduction means that the net cost has actually been even lower. The degree of effectiveness differs between the various measures, which is illustrated by Diagram 1. A large proportion of measures found to be particularly effective have been projects involving district and local heating and use of waste heat. The highest costs per kg carbon dioxide have been incurred in a few biogas projects and in bicycle and traffic projects. It is not only the type of a measure that determines where it is placed in this description. The grant portion has varied, which means that the effectiveness of measures is not necessarily correlated to grant effectiveness. Furthermore, carbon dioxide reduction has not always been the main object of these projects, and high grant costs per kg may occur if a carbon dioxide effect is nonetheless reported. Diagram 1 Breakdown of grant effectiveness for reducing CO2 emissions
Calculations of grant effectiveness have also been made in previous evaluations, but then in relation to specific types of measure. In an evaluation of district and local heating projects (Swedish EPA 2004:5372), it was found that the average grant cost was SEK 0.97 for annually recurring reductions of 1 kg CO2. A similar evaluation of waste heat projects (Swedish EPA 2004:5373) produced a result of approximately SEK 1.50 per kg CO2.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Investments are by definition a one-off cost that affect cash flow positively and negatively for several years. An investment in environmental technology may also be expected to have favourable environmental effects for many years, assuming the technology is properly maintained. Hence, it is essential to bear in mind that local investment programmes result in annual reductions, not once-only occurrences. Given that the investments are mostly in technology, the effects may be presumed to lat for several years, which will reduce the actual cost per kg. There are also LIP investments that may be fairly short-term and measures that will ultimately have to be discontinued. But there are also major investments, such as thermal power boilers, waste heat utilisation, district heating networks, local heating networks and cycleways, which may have a much longer lifespan.
To obtain a measure of the cost per kg emission reduction, we have chosen to use an annuity factor of 10 per cent for the investments, which represents an interest rate of five per cent and a lifespan of 15 years. An annuity factor is used to convert a one-off investment into an annual cost during the lifespan of the investment. This constant annual cost is intended to cover the return and repayment of the money invested. This takes account of the interest effect and the fact that the lifespan of different measures varies. This annual cost, representing the grant, can then be divided by the annual emission reduction. The final result is then that the reduction in carbon dioxide emissions has been achieved at a grant cost of approximately SEK 0.12 per kg.
It is somewhat simpler to calculate the final investment cost for measures of the same type, since there is a more uniform view of lifespan. In the evaluation of district and local heating projects a lifespan of 20 years was assumed. Without taking interest into account, the final grant cost was SEK 0.05/kg CO2 (Swedish EPA 2004:5372). Calculation methods and their significance The fact that reductions in emissions of CO2 resulting from LIP measures have been estimated in different ways is particularly evident where electricity consumption has been reduced by energy saving or improved efficiency. This also applies where electricity has been replaced by other energy sources (energy conversion) or where energy production from renewable sources has been increased. When reporting on measures of this kind in the final reports, those responsible for the measures have chosen different values to calculate the reduction in carbon dioxide emissions. The variations may have the following explanations. • 0 kg/MWh based on effects in the specific municipality • 95 kg/MWh based on the combination of electricity sources used in the Nordic region • 700 kg/MWh marginal electricity from coal-fired power plants • 1000 kg/MWh marginal electricity from poor quality coal-fired power plants A sensitivity analysis has been made of the measures involving energy saving or conversion from electricity to alternative energy sources. This was to ascertain the significance of the choice of calculation models on the final result. To illustrate this, Diagram 2 shows the re-
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
sults of measures designed to reduce energy consumption, not conversion to alternative energy sources. Diagram 2 Significance of carbon dioxide reporting in energy-saving measures in relation to the total reported reduction in carbon dioxide emissions (101 programmes)
The diagram shows the potential significance of the method of calculating electricity savings in relation to the total emission reduction reported (ie, 101 programmes). The bar shows the quantity of carbon dioxide reported by all completed programmes (approximately 540,000 tonnes). The vertical line at the top represents the margin of error resulting from different ways of calculating carbon dioxide emissions from electricity generation. The diagram shows that, on average, results reported are at the bottom end of the margin of error. It has not been possible to make a sensitivity analysis of this kind in relation to other energy projects, such as conversion from electricity to biofuel. However, a review of those projects suggests that those reporting on them have also adopted a cautious approach to carbon dioxide emissions from electric energy. A clear majority have chosen not to report any carbon dioxide effect separately. It may be estimated that consistent reporting based on the combination of electricity sources used in the Nordic region would yield a further reduction of around 4,000 tonnes CO2 as an effect of LIP. Including "marginal" electricity from coalfired power plants would add another 100,000 tonnes or so. This estimate is described in detail in Appendix 4. The system of trade in emission rights introduced in the EU in 2005 changes the premises for calculating these direct effects. Increased or reduced electricity generation will not affect the total quantity of emissions, since that quantity will be limited by the absolute limit on the quantity of emission rights.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
There is also some variation in the calculation of emissions from oil use. But here too, a review of the database has not revealed any substantial deviations from normal factors in the calculations of emission effects per m3 oil. The deviations identified have little impact on the final result. Once again those reporting have instead erred on the side of caution. It is evident that most projects have only reported the reduction in oil consumption, not the effects of that reduction in the form of carbon dioxide emissions. A rough estimate based on the reported reduction in oil consumption7 shows that emissions have been underestimated by almost 100,000 tonnes CO2 (see Appendix 5). The study of 10 municipalities has shown that doubts as to the effects on carbon dioxide emissions have been greatest when reporting on traffic and bicycle projects. Traffic projects have not generally taken any "rebound" effects into account8. In bicycle projects it has been difficult to determine how much cycling has increased, and to what extent cycling has replaced other vehicle use. The same is true of measures to improve public transport. An evaluation of biogas vehicle projects under LIP (Swedish EPA 2004:5405) has shown that there is some risk of gains in the form of reduced CO2 emissions being overshadowed by the increased methane emissions that these measures may have caused. The approach to assessing the handling of the raw materials used to make biogas is important, however (Börjesson and Berglund, 2003). Even if methane emissions were as high as claimed in the first report, this would have little impact on our final results. These measures represent only two per cent of the CO2 emissions reported to date. The pulp and paper industry The projects included in the study of the pulp and paper industry display an extraordinarily high level of effectiveness, particularly in three of the four projects studied. Funding granted to the four projects totalled SEK 1 per kg annual reduction in CO2. The cost to the state of reducing annual carbon dioxide emissions by 1 kg was SEK 0.60 in the three most effective projects. Using the annuity factor described above, the cost to the state of these three measures is a mere SEK 0.06 per kilo of reduced carbon dioxide emissions. The overall environmental effect in these projects is positive. The projects have helped to achieve an annual reduction in carbon dioxide emissions of 160,000 tonnes and also reduced landfill of organic waste sludge by 160,000 tonnes. Sulphur dioxide (SO2) Emissions of sulphur dioxide are the main cause of acidification and it is therefore essential that they be limited. Sweden has already substantially reduced its emissions of sulphur dioxide over the last 25 years. Emission targets have been met, but the burden on the environment is still considered too great. Among the 101 LIP programmes on which final reports have been submitted there are 70 measures in total that have quantified sulphur dioxide emission reductions. Diagram 3 shows the key figure calculation results.
7 3 Assuming that 1m oil is equivalent to 2,700 kg carbon dioxide. 8
"Rebound" effects are counterproductive effects resulting from a measure. For instance, it is a recognised problem that a person who has bought a more fuel-efficient car may increase his mileage.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Diagram 3 Result of cost calculation, SO2
SEK per annual reduced kg SO2 Grant Environmental investment Total investment
740 2,760 2,825
Assuming an annuity factor of 10 per cent, the grant cost of reducing SO2 emissions is SEK 74/kg.
The cost of reducing SO2 emissions is relatively high in comparison with the level of taxation, for example, which was SEK 30/kg throughout the period. However, there is nothing to suggest that this is due to poor project implementation. The explanation is rather that there are fairly few projects whose main objective has been to reduce SO2 emissions. As a result, the data includes a number of projects that have chosen to report small SO2 emission reductions, but where the cost per kilo is then unreasonably high. In addition, the proportion of LIP projects reporting on SO2 has increased over time as more detailed accounts have been requested in recent years. The cost of reduction should thus be seen as an overestimate, and a direct comparison with the tax level is therefore difficult. The best level of effectiveness has been achieved by measures to improve cement manufacture, reduced emissions from ships and conversion to alternative energy sources. Some projects have attained a high degree of effectiveness by including the SO2 effects of replaced electricity, based on emission factors for "marginal" electricity from coal-fired power plants. Measures such as traffic projects and improved energy efficiency are among the projects with a high cost. This applies particularly where reduction of SO2 emissions has not been the prime objective. There is more uncertainty about the figures for sulphur dioxide than those for carbon dioxide. No definite conclusions about grant effectiveness are therefore drawn here. Since sulphur, unlike carbon dioxide, is not covered by a European emission ceiling, indirect effects remain relevant. Nitrogen oxides (NOX) Nitrogen oxides cause a number of environmental problems. Like sulphur dioxide, nitrogen oxides acidify soil and water. Nitrogen oxides also form ground-level ozone when they are exposed to sunlight. Ground-level ozone causes a deterioration in air quality and has serious adverse effects on human health. 101 LIP measures reducing NOX have so far been reported. The cost effectiveness of these projects is shown in Table 7. Table 7 Result of cost calculation, NOX
SEK per annual reduced kg NOx Grant Environmental investment Total investment
580 2,125 2,310
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
The result for nitrogen oxides also reflects the overestimated marginal cost of the emission reduction. A large proportion of traffic projects are behind these figures. These have generally been difficult to quantify, but have involved fairly substantial investments. Assuming an annuity factor of 10 per cent, the grant cost of reducing NOX emissions is SEK 58/kg.
The NOX charge is SEK 40/kg, but is only paid by large plants and only affects five per cent of the country's emission sources. A large proportion of the emission reductions achieved under LIP have resulted from traffic measures and plants not affected by the NOX charge. Among projects achieving the largest reduction in relation to grant are those intended to reduce emissions from work machines and public cleansing vehicles, as well as projects for conversion to alternative energy sources. The least effective measures in terms of NOX include some traffic projects, solar energy projects and projects to improve energy efficiency. Many projects have expressed the aim of reducing NOX emissions, but a large proportion of these planned reductions have not been quantified in the final reports. The reasons for the high cost of reducing NOX are that this has not been a priority in some of the projects, and also that the results have been underestimated or not reported. One reason for the extremely low cost in a few isolated instances is that some of those responsible for the measures have calculated replaced electricity using emission factors for electricity generated at coal-fired power stations, which has also occurred in SO2, reporting. The figures for NOX are also considerably more doubtful than those for carbon dioxide and we therefore draw no definite conclusions as to grant effectiveness for NOX. Measures involving reduction in emissions of CO2, NOx and SO2 There are 47 measures reporting a reduction in all three substances. An attempt has been made to examine whether there are project categories where the cost of achieving the various effects has been similar. Substantial differences in reporting have made it difficult to discern a clear pattern.
Effects on employment As discussed earlier, the State Funding for Local Investment Programmes Ordinance was drafted at a time of relatively high unemployment. In some sectors, such as the construction industry, unemployment was particularly high. An explicit aim was therefore to help to reduce unemployment by creating job opportunities by measures that would also promote sustainable development. Diagram 4 shows unemployment during the period when funding was available for local investment programmes.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Diagram 4 Unemployment in Sweden during the LIP period (Source: Statistics Sweden, 2004)
Unemployment
% 9 8 7 6 5 4 3 2 1 0 1998
1999
2000
2001
2002
Year
Allocation of funding It may then be asked whether there are any clear signs that the employment objective was given higher priority than other objectives. One such sign would be that a larger proportion of funding was allocated to municipalities where unemployment was high. We have examined whether there has been any such correlation, in order to gain a better understanding of the way priorities were decided between the objectives. Effects on employment have been examined in all programmes in receipt of funding, ie, including those on which no final report has yet been submitted. A simple calculation of average unemployment in the municipalities receiving funding is shown in the table below. The comparison is based on the years in which programmes applied for grants, and unemployment rates in municipalities at the time their applications were considered and approved.
Application year 1998 1999 2000 2001 2002
Average national rate of unemployment (%) 5.1 5 4.1 3.4 3.3
Average rate of unemployment in LIP municipalities (%) 5.1 5.1 4.1 3.6 3.7
Range in LIP municipalities (%) 2.7 - 8.6 2.5 - 10.1 1.2 - 7.6 1.7 - 5.6 1.5 - 6.0
Median unemployment in LIP municipalities (%) 4.8 4.7 4.2 3.5 3.7
Table 8 Comparison between unemployment nationwide and unemployment in LIP municipalities, based on the year of the programme application (Labour Market Board 2004, Swedish EPA, 2004b)
The results give no indications of any difference between unemployment in the country as a whole and that in LIP municipalities. There is some difference at the end of the programme period, but by then unemployment had fallen to a fairly low level. It may also be seen from
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
the table that grants had been awarded to municipalities with comparatively low unemployment (around 1 – 2 per cent), as well as to municipalities with very high unemployment (around 9 – 10 per cent). Using a weighted average linked to the municipalities’ relative share of LIP funding each year, the result is as follows. Year
National average (%)
LIP average (weighted,%)
1998
5.1
5.4
1999
5.0
5.1
2000
4.1
4.7
2001
3.4
3.7
2002
3.3
4.2
Table 9 Unemployment (%), national average and weighted average in municipalities receiving LIP funding
This suggests a certain tendency for more funding to be allocated to municipalities with higher unemployment. Finally, a diagram has been produced for each year to see whether there seems to be any correlation between grant per inhabitant available for work and the percentage unemployment rate. Diagram 5 shows the results for 1998. Average unemployment was then 5.1 per cent. Each dot on the diagram represents a municipality. Where there is a direct correlation between grant funding and unemployment in municipalities, the dots should follow the broken line. Results for other years during the LIP period are given in Appendix 6. Diagram 5 Scatter diagram showing the degree of correlation between grant funding and unemployment, 1998
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
It may be seen that it is not possible here to discern any direct correlation between funding allocation and unemployment. The inference to be drawn is that employment was seen as an objective related to the individual programmes and measures, but not to municipal unemployment levels per se. We interpret this to mean that an overall appraisal was made of the programmes in which both employment and the environment were factors to be considered. Thus, grant funding was not allocated to programmes on the basis of a need to increase employment. Grant effectiveness Another aspect is the effectiveness of LIP as a measure in comparison with other measures to reduce unemployment. Grant effectiveness has therefore been calculated according to the same principle as for emission reductions (see previous chapter). All other effects have thus been assumed to be zero. The key figure results relating to employment are presented in Table 10. Number Person year Permanent jobs
LIP grant (SEK million each)
6,142 455
0.284 1.695
Table 10 Cost per job created with the entire grant allocated to the individual items
The grant cost in the table is obviously overestimated, since the entire grant has been allocated first on the basis of person year, then according to permanent jobs. Most measures that have created permanent jobs have also created person years. Hence, it is not necessary to make an overall calculation. It is difficult to assess "permanent jobs"; it has been up to each municipality to define that term.
Assuming that a permanent job represents five man-years' work, we conclude that a total of 8,400 full years' work has been created. The average grant cost per man-year's work is then approximately SEK 200,000/person year. This is thus an effect achieved in addition to the environmental effects stated as zero for the purposes of this calculation.
This may reasonably be compared with other state schemes to reduce unemployment. According to the Labour Market Board, (Hallvig, 30 June 2004) it is difficult to arrive at an exact figure for the cost to the state of employing an unemployed person in a job creation or retraining scheme. But one example is the "activity allowance", which is currently approximately SEK 11,500 per month. It is taxable, so some of the money is returned to the state, but employment measures under LIP also generate tax revenue. Roughly speaking, not including transaction costs and tax effects, it costs the state about SEK 140,000 to employ a person in a job creation or retraining scheme for one year. It is somewhat problematical to make a direct comparison with traditional state measures, since they are aimed at the unemployed, whereas LIP itself creates jobs. The cost figures supplied by the Labour Market Board provide a benchmark, and show that the costs under LIP have not been unreasonable.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Assessment of the socio-economic effects is made more difficult by two factors in particular. The first concerns the problems in the way effects on employment are to be reported. The second is the risk of "repressive" effects. Municipalities have regarded reporting of effects on employment as a problem. It is difficult to set the limits of the system of measures and therefore difficult to determine how many hours' work should be attributed to the environmental investment. One example could be the installation of a new plant. Work performed in situ is easy to calculate. But whether a plant is built in situ or has been assembled by another company and then transported to its final destination may have a great impact on the number of person years reported. As a rule, municipalities have not taken account of effects at suppliers and the figures reported may be regarded as an underestimate. The other factor - "repressive" effects – is a general problem when assessing job creation and retraining schemes. The "repressive" effect is that a job has been created that would have arisen elsewhere in any case. The measure thus has no positive net effect. There are a number of "LIP municipalities" with very low unemployment, which have received grants. And employment has been created in sectors with relatively few employment problems, such as technical consulting. So it is almost certain that there have been some repressive effects. In general, it is difficult to identify the relative effectiveness of LIP in terms of its specific effects on employment. According to the Labour Market Board, it is difficult to find suitable comparisons for the grant effectiveness of various measures. Moreover, alternative approaches to reducing unemployment, such as changes in taxation, are not discussed here. However, it is of interest to examine further the indirect effects on employment that LIP is considered to have brought about. Potential indirect effects on employment Jobs created by use of biofuels Many local investment programmes involve measures to replace the use of oil or electricity with biofuels9. In addition to the reported effects on employment, conversion to biofuels may also have a significant indirect effect. Most Swedish biofuels consist of by-products from forest felling. Biofuels are more labour-intensive than oil import and electricity generation. Several studies10 have shown that converting to biofuels can create an average of 300 jobs per TWh. Table 11 shows the jobs that LIP can be expected to have generated among suppliers of biofuels.
9 A total of 133 measures under 56 programmes. 10
See Stridsberg (1997) and Danielsson (1997), for example.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Category
53 65 24
Quantity of energy replaced (MWh/year) 185, 874 869,150 261,171
142
1,316,195
No. of projects
Electricity to renewable Oil to renewable Other conversion Total
Jobs created* 56 261 78 395
* Assuming 300 jobs per TWh Table 11 Jobs created at suppliers of biofuels.
The result is that approximately 400 permanent jobs may have been created as a result of conversion to use of biofuels. The indirect effects on employment resulting from conversion to alternative energy sources are thus significant in comparison with the direct effects. If those jobs are added to the total figures, the cost per job is lower. A small proportion of the jobs have been counted twice. Some of the jobs considered to have been generated by conversion to alternative energy are assumed to have been created at biofuel plants. These have probably been reported by the municipalities. As discussed earlier, the value of effects on employment may be difficult to estimate, since there is a risk of "repressive" effects. However, in the case of biofuel production, this risk is considered to be fairly low. Biofuel production is concentrated in sparsely populated areas. Conversion to biofuels thus benefits the parts of the country with higher levels of unemployment. Our study shows that account has been taken of this indirect effect in a few isolated cases, but that it has not generally been taken into consideration in the reporting of effects on employment. A boost for industry Another, possibly significant, indirect effect on employment is the effect that LIP has had on existing industrial enterprises. Employment effects do not solely comprise the creation of new jobs; they can also be seen as the prevention of unemployment. For instance, a relatively large proportion of grant funding was awarded to projects to utilise waste heat from manufacturing processes. This resulted in increased variable income for those companies, which may be assumed to have strengthened their financial position. Assuming that these sectors operate in a competitive environment, the companies can also be expected to become more competitive within that market. This may also be expected to improve job security at those companies. So the effect is not that jobs are actually created; but it is possible that additional unemployment is prevented. We comment further on this in the chapter entitled "Other observations", under the heading "Competitiveness".
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Summary •
•
•
• •
•
LIP has significantly reduced emissions. The 101 programmes examined have achieved one per cent reductions in national emissions of both carbon dioxide and sulphur. A reduction of approximately 0.5% has been achieved for nitrogen oxides. Emission reductions have been achieved at low cost, particularly in the case of carbon dioxide. The cost of reducing carbon dioxide emissions was only SEK 0.12 per kilo. LIP measures have been directly responsible for creating 8,400 man-years' work. Taking indirect effects into account, a further 400 or so permanent jobs may have been created. Given that there are also other effects, employment has been created at a reasonable cost to the state. Municipalities have said that they have adopted a cautious approach to reporting, to make it easier to justify the figures and to ensure that the final report is not called into question. It has not been possible to identify any direct correlations between municipal unemployment and allocation of grant funding.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Analysis of grant effectiveness Compared with previous critical reports, the results reveal a surprisingly high level of grant effectiveness. We suggest there are explanations - progressive selection and constructive evolution - which have operated after grant funding has been approved.
Progressive selection Our calculations reveal a high level of grant effectiveness, particularly for carbon dioxide. One reason for these good results is that projects have been eliminated during the LIP process even after funding has been approved. We call this process of elimination progressive selection. As outlined earlier, the LIP process is made up of a number of stages. For various reasons, measures and sometimes entire programmes fall by the wayside at all stages. Unexpectedly high costs of procurement, organisational obstacles and a lack of interest among customers are some of the reasons given by municipalities. This has often been found to be the result of misjudgements and measures incapable of achieving the intended results in the form of environmental effects and effects on employment. Figure 3 Elimination of projects during the LIP process
Figure 3 shows that elimination has occurred at a number of stages of the LIP process. First of all (1), a number of ideas are discussed by municipalities. Many municipalities chose to invited representatives from the municipality itself, trade and industry, associations and interested individuals to these meetings. Even at this preliminary stage ideas have been rejected as unsuitable in the light of economic factors and a lack of relevance to the municipality as a whole, for example. Once it has been decided which measures are to be included in the programme, an application has been prepared, which, following further consultation with
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
the county administrative board, has been sent to the Ministry of the Environment or the Swedish EPA. The next elimination stage (2) is the assessment of the application by the ministry or the EPA. Most municipalities have included several measures in their applications in addition to those that actually qualified for a grant. The third stage (3) is not as obvious as the first two. When a municipality has been awarded a grant, this has also involved a commitment by the municipality to make an investment. When the time comes for implementation, those responsible for the measures gain a clearer idea of the costs involved and a better understanding of the other conditions for the measures. Projects that no longer appear to be economically feasible have then been eliminated. Finally (4), there are measures that have been implemented but have not received grant funding or have received a reduced grant. This constitutes a further stage of elimination. The projects concerned have not achieved the effects that were promised in terms of the environment or employment. There are only a few examples of this kind. Specific examples of elimination by municipalities (at stage 3) are: • A biogas project was discontinued when the municipality decided to invest in composting instead of waste digestion (Karlstad). • A biogas project was discontinued owing to procurement and/or technical problems (Solna, Trollhättan). • Investments have been made in the district heating projects found to be most effective; less effective ones have not been implemented (Trollhättan, Kristianstad). • There was a lack of customers interested in a district cooling project (eg, Trollhättan, Kristianstad). Cost increases have been the main reason why projects have not been carried out in the municipalities studied. On the other hand, however, there are many examples of projects that have been implemented notwithstanding the high cost. Most projects of this kind have been regarded as being strategically important or as producing long-term benefits exceeding the short-term cost. It has been up to each principal to decide whether or not a measure should be implemented. The concept of progressive selection has been confirmed by all municipalities in the interviews. The elimination process has not been quantified, since it has been difficult to assess the potential environmental effects of the measures that did not qualify for grant funding. It is also difficult to say how cautious municipalities have been in the promises made in their applications. One clear sign of selection is that it is now thought that only SEK 4.7 billion of the total SEK 6.2 billion grant funding approved will ever be paid out. One important point that has been revealed is that it is rarely the LIP process as such that has caused a project to be discontinued once funding has been approved. This leads us on to a discussion of the second mechanism we have identified, that of constructive evolution.
Constructive evolution The Swedish EPA and the regulatory framework have displayed flexibility when principals have applied for approval of changes in the measures to be implemented. This has allowed
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
projects to be changed, extended or reduced. The amount of state funding has never increased, however. During the LIP period a practice was established for assessing the changes requested by municipalities in applications made to the Swedish EPA (2004c). This enabled measures to be developed and improved without the state incurring any additional expense. We have called this process constructive evolution. It is up to the municipality to decide whether the measure involves reasonable expense in relation to the benefit derived from it. The authority has allowed: • the scope and grant to be reduced provided that the environmental objectives are still achieved; • changes in technology and sometimes subject if the environmental objectives are achieved at a lower cost and less state funding; • increases in scope and environmental effects, provided state funding is not increased. • (in some cases) the scope, grant and environmental effects to be reduced. But grant funding has never been increased. The municipal study has clearly confirmed this explanation. All municipalities have applied to make various changes, most of which have been approved by the Ministry of the Environment or the Swedish EPA. This flexibility has yielded better results and has been perceived as necessary, since it has been difficult to accurately monitor the progress of the ideas contained in the application. Many municipalities praise this system in comparison with the static contractual rigidity of EU systems. Support for the constructive mechanism can be found in a number of examples from the municipalities studied, including the following. • Hässleholm municipality was granted approval for a change involving a different approach to modifying a cycleway than that presented in the original application. • Solna municipality was allowed to change the customers for which it was planning a district cooling project when the original customers could no longer take part. Two measures were combined to make one. • Hässleholm municipality was quoted a better price for light fittings than expected, and therefore replaced many more within the grant budget than had been suggested in the application. • Karlshamn municipal district heating project in Mörrum attracted far more customers than had been expected. The environmental effects were therefore better than those projected in the application. • Karlshamn also obtained approval for changes in a landfill gas project. The gas could not be used for the purpose originally intended, so an alternative use was found. • Trollhättan municipality extended the district heating projects that had been shown to be successful, without receiving any additional grant.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Summary • •
•
Two mechanisms that have affected the final results of LIP, and thus helped them to be so effective, have been identified. Under the first mechanism, "progressive selection", less effective projects have been eliminated at various stages of the LIP process. In particular, there have been more stages than expected. The second mechanism, "constructive evolution", is the flexibility inherent in the LIP process. The principal responsible for the measures has been able to modify projects, provided the environmental and employment effects in relation to the grant have been better or as good. The grant has never been allowed to increase.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Other observations During this evaluation observations have been made from a socio-economic perspective that may be relevant to discussions on future instruments.
Other environmental effects The key figure calculations in this report have been based on reductions in emissions of CO2, NOx and SO2. However, the measures involved have created other environmental effects, which add to their overall cost-effectiveness. The measures on which our calculations are based have also resulted in the following reductions of environmentally harmful substances. 300 tonnes of particulates per year 850 tonnes of VOCs per year 22 kg of mercury per year 260 tonnes of tar per year 100 kg of methane per year 34,000 tonnes of waste per year going to landfill 67,000 tonnes of sludge per year going to landfill 20 tonnes of phosphorus per year 17 tonnes of hydrocarbons per year This suggests that the costs in our key figure calculations are somewhat higher than the actual cost, since no account has been taken of these effects. The main national environmental objectives that these projects have helped to achieve are Reduced Climate Impact and Clean Air, but also Natural Acidification Only, Zero Eutrophication and A Good Built Environment. In addition, there have been other objectives motivating those responsible for measures to make investments. One obvious example is investments to replace lights and light fittings in office facilities. Apart from the benefits of energy saving, these measures have also been justified in terms of improvements in the working environment. Another typical example is refurbishment of business premises and housing areas, where the aesthetic and social goals have been an important factor. Measures under LIP also entail additional external costs, which have not been included in the quantitative analysis. One such effect may be the external cost of transporting biofuel to the plants built to use it. The aim that traffic should bear its full costs via taxation is not always achieved in the case of heavy-duty traffic; it is seldom achieved in big cities.
Other relevant instruments A number of other instruments are used in the sectors covered by our evaluation of environmental effects (ie, energy, waste and traffic). These act to complement, or even counteract, the aims of LIP. A key prerequisite to qualify for LIP funding was that there should be no statutory obligation to implement the measures in question. Another requirement was that projects were not allowed to receive grant funding from other quarters. Nor were grants available for projects that could be regarded a as profitable using existing instruments.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Appendix 7 shows a table of the relevant instruments that have been identified. We comment on the examples of effects revealed by our study here. Grants for domestic users to convert from electricity to biofuel (SFS 1997:634) have had some impact. It can be argued that some results under LIP should be attributed to this instrument instead. But as substitution of electricity did not affect the carbon dioxide reports to any significant extent, the key figures in this report are not affected either. The grant was payable from 1 January 2003. With regard to direct electric heating, the municipal study has shown that there have not been sufficient financial incentives to create interest among individual property and home owners. This may be one reason why a number of district heating projects along these lines were discontinued or modified by progressive selection during the LIP process. Another instrument that has been found to influence measures is the tougher legislation governing refrigerants. According to municipalities that have discontinued projects involving district cooling or free cooling, these laws have caused potential customers to rapidly choose other options. Since this happened during the time between submission of the municipality's application and grant approval for the measures, there was a loss of customers on which the project had been predicated. The uniform Environmental Code (SFS 1998:808) requires the use of best available techniques (section 3). But it also provides that "these requirements [...] apply to the extent that it cannot be considered unreasonable to fulfil them". It is also mentioned that the benefit derived from a measure should be seen as a complement to this legislation. There is a risk of instruments counteracting each other. The municipal study revealed one such example in relation to energy investment. The municipality had received LIP funding to install a heat pump to replace some of the energy obtained from burning wood chips. But the introduction of trade in electricity certificates favours electricity generation at biofuel-fired thermal power plants. This in turn makes district heating cheaper and heat pumps become unprofitable. Hence, some of the environmental effects of LIP are negated. But this does not mean that developments overall were unfavourable. As a whole, it may be seen that instruments have been supplementary or alternative, but not definitely counter-productive to any great extent.
Spread of ideas, repeat implementation, further development It has been evident that most municipal measures have resulted in repeat implementation and further development without state funding. There are also signs that ideas have spread to other municipalities and enterprises. The study of the 10 municipalities has revealed examples of repeat implementation of successful projects without state funding. New systems for lighting retail premises, burning straw instead of fossil fuels, modification of road crossings to make them safer for cyclists and new signposting systems for cyclists are some specific examples. Moreover, both the municipal interviews and the database tend to suggest that good project ideas have been spread from one municipality to another during the LIP years. There are examples of municipalities that have helped neighbouring municipalities with their applications for LIP funding. The Swedish Institute for Ecological Sustainability (IEH, 2004) has also played a
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part in disseminating best practice, supporting LIP municipalities and spreading information about LIP. In most of the municipalities studied LIP has constituted a clear stage within an existing strategy. Projects concerning biogas, development of district heating and investments in public transport and cycling are examples of this. The municipalities think that LIP has helped to attract the necessary political attention for these strategies. The study of the pulp and paper industry also suggests that there is now great interest in the experience gained from projects carried out under LIP. The technique of using sludge for combustion is now established in the industry. One project in particular, involving an entirely new technique for burning 100 per cent of sludge, has attracted considerable publicity at home and abroad. LIP programmes serve as a forum for demonstrating new techniques and approaches. The risks entailed in investing in these techniques are thus partly financed by the state. The measures improve knowledge of costs and which techniques work. When profitability is later achieved, for example owing to price changes, knowledge is available to others wishing to invest. Measures taken by municipalities and industry without state funding can perhaps not be expected to spread to the same extent, since the openness relating to environmental investments and innovations is not required to the same extent.
Competitiveness The fact that measures have been implemented by companies operating in a competitive environment, constrained by short repayment times, may have had a long-term impact on the competitiveness of those companies. Measures involving utilisation of waste heat, which have provided scope for sale of electricity and heat, have helped to reduce companies' variable costs. Lower production costs may have enabled companies to be more competitive and to increase their scope for new investment. And increased competitiveness is also one of the conclusions drawn from the study of the pulp and paper industry. Thanks to changes in the price structure for commodities such as oil and electricity, combined with stricter environmental legislation, the investments made with the help of LIP have improved profitability. If cutbacks become necessary in the corporate groups owning these plants, there is now less risk that those plants will be affected. There are examples where competitiveness may have been adversely affected. One such problem could be that private enterprise has found it more difficult than municipalities to apply for grants. Another example might be where companies that have voluntarily made an environmental investment suffer when a competitor subsequently receives a grant to do the same thing. We have not seen any obvious examples of this. This should be, and seems to have been, something to which the authorities involved should pay attention when funding schemes of this kind.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Summary •
•
•
• •
In addition to reductions in emissions of CO2, NOx and SO2, the measures forming the basis for the key figure calculations have also had a number of other environmental effects. LIP has acted in combination with a number of other instruments in the environmental field. Most of these have acted as a complement, but there are examples of instruments that have conflicted with one another. A significant effect of LIP measures has been that a series of effective projects have been "passed on" to other municipalities or have been repeated without state funding. LIP has provided a boost to industry and has led to some modernisation and lower operating costs. Care must be taken to ensure that this is not prejudicial to enterprises that have developed a high level of effectiveness without state funding.
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LIP as an instrument As discussion of the way that LIP has worked as an instrument and the implications of this in relation to design of future national and international instruments.
Choice of instruments Our study has shown that local investment programmes have reduced emissions of some important air pollutants to a significant extent. Carbon dioxide emissions have fallen by one per cent. The cost to the state of covering the additional costs of the stakeholders is around SEK 0.10 per kg carbon dioxide. A relevant question is whether equally positive effects can continue to be achieved by state funding of investments in the future. If so, is it profitable in socio-economic terms? One criticism of LIP and other forms of state funding of environmental improvements as a matter of priciple is that they do not adhere to the "polluter pays" principle, which creates an incentive for polluters to also pay for measures to reduce emissions. By failing to adhere to this principle in some cases, other polluters may decide not to make voluntary investments to reduce emissions. They expect to receive a grant if they delay taking any action for long enough. However, compulsory emission reductions may lead to "high chimney" solutions where companies with poor finances do not have the capacity to engage in new strategic investments. (See Clayton, Spinardi and Williams, 1999). But in a dynamic process in which environmental requirements and economic instruments are progressively tightened, LIP can be seen as a positive form of support for companies and other operations that have acted as pioneers. Those companies have received grants to introduce systems that subsequently become profitable for everyone when standards are made more stringent. However, at the time of the pioneers' decision, the system was not commercially viable without a grant. The fact that grant effectiveness varies from one project to another (see Diagram 1) need not mean that grants could have been better allocated. Projects in which new techniques are tried out may receive a relatively high grant per unit of pollutant emitted, but here the cost not only reflects the emission reduction, but also the societal learning that may help to achieve future emission reductions. In this case the grant is available to help investors surmount an obstacle. The idea of making funding available for entire programmes was to promote local cooperation and local strategies for sustainable development. One characteristic of the LIP scheme is that state funding is channelled via those responsible for procuring technology. Unlike subsidies paid direct to companies developing technologies, LIP has created demand-driven industrial development. This is likely to mean that this form of support reaches suppliers of technology capable of meeting the demands of prospective customers in a variety of ways. Another quality of LIP is that municipalities and county administrative boards have been assigned the task of placing individual projects in various contexts in the municipality and the region. This is a way of avoiding subsidising solutions that are sub-optimal and have no place in the region's long-term development. Going back to the criterion of enduring effects (see the chapter on "Evaluating instruments"), this has also stimulated visions of sustainable systems of the future to which the investments have contributed
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We have understood from the municipal study that it is right to assume that the investments could not have been made without additional funding in the prevailing circumstances. But in several cases projects would have become profitable later on. Changed conditions, such as raised green taxes, stricter waste legislation and higher energy prices are some of the reasons for this change. Making pioneer projects possible also reduced the element of doubt for other municipalities and companies, which then carried out similar projects without state funding.
Significance of green taxation The question of whether measures carried out under investment programmes are socioeconomically profitable is important and complicated. All three emissions included in the key figure calculations are subject to green taxes or charges. If these levies are accurate measures of the socio-economic cost of the emissions, the grant system can be criticised. A grant for measures resulting in greater emission reductions than that justified by the green tax will then result in unprofitable over-investment. But several factors operate to allow departure from this view in the case of LIP. Industry has paid reduced green taxes even though the effects of emissions are just as expensive whatever their source. Using the reduced green tax rate as the norm, it is thus possible to calculate net profit for the entire LIP scheme. Swedish green taxes are shown in Table 12, with the reduced rate for industry shown in Table 12b.
Green tax/charge SEK/kg Substance
1998
1999
2000
2001
2002
2003
2004
CO2
0.39
0.39
0.39
0.39
0.63
0.76
0.91
NO2 SO2
40.00 introduced 1999
40 30
40 30
40 30
40 30
40 30
40 30
Table 12 Rates of green taxes and charges
The carbon dioxide tax is directly related to the quantity of carbon dioxide in the fuel. Some sectors, such as shipping, aviation, agriculture and manufacturing, pay a reduced rate. This reduction was 25 per cent until 31 December 2004, when it was changed to 21 per cent. A few energy-intensive plants qualify for additional reductions based on the proportion of the sales value of the products that comprises the energy cost. Nitrogen oxides are subject to a charge; only five per cent of emission sources are covered. Moreover, revenues are earmarked and are refunded to industry. The sulphur dioxide tax is related to the sulphur content of fuel and the quantity of fuel in m3 (Swedish EPA 2004a, Swedish Tax Agency 2004).
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Year 1998 Reduction (%) 50
1999 50
2000 50
2001 65
2002 70
2003 75
2004 79
Table 12b Reduced rate of carbon dioxide tax in certain sectors
Almost 40 per cent of the carbon dioxide reductions reported to date have been achieved in the sectors paying a lower rate of carbon dioxide tax11. These projects have also been substantially more effective than other LIP projects, with a cost of less than SEK 0.60 per kg annual reduction in carbon dioxide emissions. Converted into öre per kg, the cost is only SEK 0.06.12. In this case subsidising action to benefit the environment may be socio-economically defensible, provided that the cost is lower than the difference between the tax paid by industry and the green tax. Even in the years when project approval was granted, the reduction was 50 per cent, ie, SEK 0.19/kg carbon dioxide. This is three times higher than the estimated LIP grant for reducing carbon dioxide emissions in this sector. Assume that the current carbon dioxide tax represents the cost to society and that the economy is stationary and in equilibrium. The reduced-rate tax is now 21 per cent of SEK 0.91, ie, SEK 0.19 per kg. Measures whose cost is lower than SEK 0.72 (SEK 91 – SEK 19) may therefore be considered socio-economically defensible at present. The estimated grant effectiveness of projects carried out in the untaxed sector was SEK 0.06 per kg carbon dioxide. These calculations suggest that costs in the industrial sector have been so low that they also compensate for the cost to society of the investments made in the taxed sector. This suffices to render LIP profitable overall in a narrow sense. But this does not mean that LIP has achieved optimal effectiveness. After all, it could be decided not to subsidise measures in the taxed sector. However, as described above, the tax was gradually raised during the period when local investment programmes were implemented. It must be borne in mind that the socioeconomic outcome is determined by the level of green taxation considered to reflect the cost of emissions.
11
This figure is based on the projects obviously carried out by companies paying the reduced rate tax (approximately 39%). An estimate has also been made of the measures carried out in taxed and lower-taxed sectors, eg, extension of district heating in residential and industrial areas. Only 10% of the latter have been assumed to have been implemented by industrial operations subject to the lower-rate tax, which is a cautious assumption. This estimate accounts for a further 1% of the total carbon dioxide reduction. Thus, all in all, it is assumed that around 40% of measures have been carried out in the partly-taxed sector.
12
In line with calculations in the chapter entitled "Findings", for example, under ”Grant effectiveness” , it has been assumed that the cost per kg totals 10% of the investment cost, taking account of lifespan and interest.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Diagram 6 Potential socio-economic impact of the rate of carbon dioxide tax in relation to the cost per kg of reductions in CO2 emissions under LIP
Diagram 6 illustrates this question. If we assume that the trend has been for green taxation to mirror the socio-economic cost of emissions with increasing accuracy, the earlier subsidies appear to have been highly profitable. After all, the measures were profitable at the level of carbon dioxide tax at that time – SEK 0.39/kg – plus a subsidy of SEK 0.12/kg. The total cost of reducing emissions is then SEK 0.51/kWh. If the value is SEK 0.91/kg, the gain is then SEK 0.40/kg carbon dioxide. But this is only one of the effects. This limitation renders it impossible to argue that this is a complete socio-economic valuation of the measure. There are other intended positive environmental effects and a contribution was made to the initial primary economic activity that generated employment. There may also be unintended negative effects in addition to the investment cost itself. One question here regarding policy on instruments is whether it is right to use state funding to achieve a development that could be encouraged by means of consistent green taxation. Many of the measures that were subsequently implemented thanks to LIP would have been carried out later without LIP when green taxes were later raised. This use of instruments has been described by Van der Doelen (1998). Grants are introduced as a reward for measures taken by pioneers. Stricter legislation is then introduced, such as higher CO2 taxation, restrictions or bans, to persuade the laggards to use the technology required by society. The exercise of valuating state funding in relation to the progressively rising carbon dioxide tax can also be used for other environmental effects. The study of LIP in the pulp and paper industry illustrates how this may work. The study of the pulp and paper industry has shown that many of the measures appear to have been economically profitable investments even without state funding. In the cases studied carbon dioxide taxation is not the most important factor. Global oil prices, restrictions and tax on landfilling of fibrous waste, higher electricity prices and the sharply higher value
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of electricity produced using biomass fuels as a result of the electricity certificate system have had a greater impact. The study of this industry provides a clear example of how the Government has used LIP and instruments to encourage technical developments improving long-term industrial competitiveness. Those who were first to invest were rewarded with grants, whereas those who did not invest quickly had to finance the investments themselves.
Lessons for the future This evaluation considers measures implemented mainly between 1998 and 2003. The question is whether the high level of grant effectiveness can be repeated over the next few years. If available technologies and relative prices of resources are constant, LIP appears to be a way of utilising technical solutions within a certain distance of profitability. When possibilities within than distance have been exhausted, the only options available are at a greater distance, with higher costs. This means that grant effectiveness steadily deteriorates until the scheme is discontinued after a number of years for this very reason. The original important justification for LIP was that it would encourage investment at a time when a large proportion of the labour force was not being used. LIP would then increase the production of welfare by putting unemployed people to work. A scheme of this kind should be ended when the demand for labour without state funding picks up. Another perspective assumes that global sustainable development will demand further dramatic improvements in technical systems. At the same time the relative prices of resources will change owing to rapid economic growth, a lack of environmental capacity and a scarcity of finite resources. Research, innovation and industrial development will cut the cost of new technical solutions. Given these expectations of the future development of industrial society, investments will also be made in the area close to profitability. They move into profitability when technical developments lower costs and because changes in relative prices shift the boundaries of profitability. Industrial projects are examples of this process. LIP funded investments, which later became profitable in themselves. Now there are other technical solutions, which, given the new relative prices, can be carried out with, but not without, investment grants. According to Porter and Linde (1995), there are national competitive gains to be made by making environmental investments and encouraging the development of environmental technology. Demands of this kind bring about a general modernisation and the application of new technologies that will later be used throughout the world. However, this rationale presupposes skill in predicting developments when designing grant funding schemes. One argument supporting the view that LIP has been good at designing economically sustainable projects is that LIP has been designed to bring together private enterprise, municipalities and other stakeholders, uniting in unusually effective joint efforts. The availability of grant funding has encouraged stakeholders to seek opportunities not apparent from the perspective of their normal operations.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Comments on programme design The rapid introduction of LIP gave little opportunity for effective planning of reporting and evaluation. It has therefore been unnecessarily difficult for anyone wishing to examine the effectiveness of the scheme to interpret and understand the reports and their comparability. Funding for local investment programmes has been allocated following a competition. We have studied the winners, who have then succeeded in implementing their projects. It should be noted that there are municipalities and companies that have expended resources on applications without deriving any return. These costs may be sizeable for municipalities concerned but are small in the context of LIP as a whole. The intention that LIP should be used to try out new technologies or new systems using established technologies was an ambiguous one. The ability to increase the demonstration value of projects under the various programmes can be enhanced both in the choice of programme and in the way reports are dealt with. "Constructive evolution", that is, the inherent flexibility of the funding scheme, has been praised by municipalities and is supported by this evaluation. There is scope for further improving effectiveness by flexibility. The municipalities consider that they have only understood this flexibility with the benefit of hindsight, and that they had to wait an unnecessarily long time for decisions on project changes. Changes have been allowed throughout the LIP period, but it took some time before established practice was communicated to municipalities. Short turn-around times are important. Transparency and openness to public scrutiny are important features of any administrative system wishing to maintain high quality. Single or multiple objectives? The multiple objectives of LIP and the fact that priorities among objectives changed over time have complicated the evaluation of grant effectiveness. This does not mean that this reduces the socio-economic effectiveness. Nor is a socio-economic evaluation more difficult because there are several objectives involved in the design and choice of projects. If there is a single goal, a thorough socioeconomic evaluation must anyway take account of all effects of the instrument, not merely the primary purpose of the instrument. The difference with LIP is that there has been a desire to achieve a number of objectives right from the outset, not merely to take into consideration certain goals on the basis of an explicit primary objective. This may help to reduce the risk of projects with negative sideeffects receiving a grant, and hence ensure that a system with broad or multiple objectives has a greater chance of being more socio-economically effective. One thing that is generally missing is a clear method of management based on multiple objectives, followed by an evaluation of the effectiveness of those measures. Societal structures are often divided up according to individual objectives (the Ministry of the Environment, Labour Market Board, Ministry of Finance, and so on). Inter-sectoral projects present a great challenge. However, LIP has shown that a broader/wider view of local environmental performance can be attained by having multiple objectives and by directly involving most stakeholders in society. But the fact that it is difficult to evaluate sustainability, with all its facets, must not cause a move towards single objectives just because it is easier to monitor their achievement.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
In this evaluation key figures and the evaluation itself have mainly been arrived at from a national viewpoint. When performing a study based on more data, it may be important to make a more detailed analysis of LIP projects from the standpoint of local sustainability.
Summary • •
Using green taxation as the norm, it is possible to justify LIP energy projects to reduce carbon dioxide emissions even disregarding all other effects. Assuming a continuing desire to achieve sustainable development, greater value placed on the limits of environmental assets and natural resources, combined with technical developments, will provide continued scope for LIP.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Conclusions The central conclusions we wish to highlight are outlined below. •
The cost to the state of achieving environmental improvements via LIP has been low in comparison with other instruments.
•
Given a higher valuation of the cost of pollution and further technical developments, investment programmes of this kind will continue to have a part to play.
•
If the shift towards more sustainable systems is not to continue, grant schemes such as LIP can be wound up some years earlier than planned.
•
"Progressive selection" of projects throughout the LIP process has meant that the average results from projects carried out have been better than projects at earlier stages. The design of LIP has also enabled some measures to be rejected upon closer examination by those responsible even after grant approval.
•
The flexibility of the LIP scheme has allowed "constructive evolution of projects" so that those implemented have often been better than those originally qualifying for grant funding.
•
The difficulty of evaluation the effectiveness of instruments should not be confused with effectiveness itself.
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References Written sources Börjesson, P and Berglund, M. (2003). Miljöanalys av biogassystem ("Environmental analysis of biogas systems"). Department of Technology and Society, Environmental and Energy Studies Division. Report No. 45. Lund Institute of Technology. Clayton, A., Spinardi, G., Williams, R. (1999). Policies for Cleaner Technology: a New Agenda for Government and Industry. Earthscan: London. Danielsson, B-O. (1997). Employment Effects of Wood Fuel Harvesting. Conference: Forest Management for Bioenergy. The Finnish Forest Research Institute. Vantaa 1997. Forssman, M. (2004). Local Investment Programmes in Sweden. Pulling the Pulp- and Paper Industry to Profitable Investments. A Study of Four Bioenergy Projects in the Swedish Pulp and Paper Industry. IIIEE : Lund. Förordning (SFS 1995:1044) om bidrag till ekologisk omställning ("Ordinance on grants for ecological transition"). Förordning (SFS 1996:1378) om statligt bidrag för en ekologiskt hållbar samhällsutveckling ("Ordinance on state grants for an ecologically sustainable society"). Förordning (1997:635) om statligt bidrag till vissa investeringar för att minska elanvändningen i bostäder and vissa lokaler ("Ordinance on state grants for certain investments to reduce electricity consumption in dwellings and certain commercial premises"). Förordning (SFS 1998:22) om statligt bidrag till vissa investeringar inom energiområdet ("Ordinance on state grants for certain investments in the energy sector"). Förordning (SFS 1998:23) om statliga bidrag till lokala investeringsprogram som ökar den ekologiska hållbarheten i samhället ("Ordinance on state grants for local investment programmes increasing ecological sustainability in society"). Gothenburg University (2004). Agenda 21 – den svenska texten ("Agenda 21 - the Swedish text") Centre for Environment and Sustainability. http://www.mls.miljo.gu.se/agenda21/innehall.htm [15 October 2004] Hanberger, A., Eckerberg, K., Brännlund, R., Baker, S., Nordström, A., Nordenstam, A. (2002). Lokala investeringsprogram – en förstudie inför evaluationen ("Local investment programmes – a preliminary study prior to evaluation"). Umeå Centre for Evaluation Research. Evaluation Reports No. 10.
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Kågesson, P and Lidmark, Ann-Marie. (1998). Konsten att använda 5,4 miljarder. En kritisk granskning av stödet till de lokala investeringsprogrammen för hållbar utveckling ("The art of using SEK 5.4 billion. A critical study of funding of local investment programmes for sustainable development"). Report 9423/98 Labour Market Board, AMS. (2004). Årsstatistik, kommuner ("Annual statistics for municipalities") Available at: http://www.ams.se/rdfs.asp?L=35 [12 May 2004]. Lag (SFS 1990:613) om miljöavgift på utsläpp av kväveoxider vid energiproduktion ("The Environmental Charge on Emissions of Nitrogen Oxides from Energy Production Act"). Markandya, Anil., Richardson, Julie (Ed). (1997). The Earthscan Reader in Environmental Economics. Earthscan: London. Miljöbalk (SFS 1998:808) ("The Environmental Code"). Pigou, A.C. 1920: The Economics of Welfare. London 1920. 4th edition 1932 Macmillan. Porter, M.E and Van der Linde, C. (1995). Toward a New Conception of the EnvironmentCompetitiveness Relationship. The Journal of Economic Perspectives. Vol. 9, pp.97 - 118. Statistics Sweden, SCB. (2004). Arbetskraftsundersökningarna ("Labour force surveys"). http://www.scb.se [24 August 2004]. Sterner, T. (2003). Policy Instruments for Environmental and Natural Resource Management. Resources for the Future: Washington. Stridsberg, S. (1997). Biobränslenas totala sysselsättningseffekt ("The overall effect on employment of biomass fuels"). Swedish Farmers' Foundation for Agricultural Research. Swedish EPA. (1997). Utvärdering av investeringsbidrag till gröna jobb ("Evaluation of investment grants for green jobs"). Report 4744. Swedish EPA Publications: Stockholm. Swedish EPA. (2003). Praxis för bedömning av slutrapporter. ("Practice for assessing final reports"). Investment Programmes Section. Swedish EPA. (2004a). [online]. Sweden’s National Inventory Report 2004. Submitted under the United Nations Framework Convention on Climate Change. Available at: http://www.internat.naturvardsverket.se/documents/pollutants/climate/climate/fcccdata/NIR. pdf . [12 May 2004] Swedish EPA. (2004b). Kommuner som fått LIP- stöd ("Municipalities in receipt of LIP funding"). Available at: http://www.naturvardsverket.se/dokument/hallbar/invprog/lip/pdf/bev_stod.pdf [12 May 2004]
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Swedish EPA. (2004c). Praxis för bedömning av ändringar i lokala investeringsprogram ("Practice for assessing changes in local investment programmes"). Investment Programmes Section Swedish EPA. (2004:5372). Bättre miljö med utbyggd fjärr- och närvärme. En utvärdering av LIP-finansierade fjärr- and närvärmeprojekt ("A better environment by developing district and local heating – An evaluation of LIP-funded distirct and local heating projects"). Swedish EPA. (2004:5373). Goda möjligheter med spillvärme. En utvärdering av LIPfinansierade spillvärmeprojekt ("The potential of waste heat. An evaluation of LIP-funded waste heat projects"). Swedish EPA. (2004:5405). Framtidens möjligheter med nya drivmedel. En utvärdering av LIP-finansierade åtgärder inom alternativa drivmedel ("The future potential of new motor fuels. An evaluation of LIP-funded measures in the alternative motor fuel sector"). Swedish Institute for Ecological Sustainability, IEH (2004). Vad är Agenda 21? ("What is Agenda 21?") http://www.ieh.se/agenda21forum/vad_ar/ [22 November 2004] Swedish Parliament (1999/2000). Riksdagens revisorers förslag angående det statliga stödet till lokala investeringsprogram för en ekologiskt hållbar utveckling ("Proposal by the Parliamentary Auditors regarding state grants for local investment programmes for ecologically sustainable development"). Draft put before Parliament 1999/2000: RR3. Swedish Tax Agency. (2004). Punktskatter ("Selective purchase taxes"). http://www.skatteverket.se Van der Doelen, F.C.J. (1998). The "Give-and Take" Packaging of Policy Instruments: Optimizing Legitimacy and Effectiveness. I M-L-Behelmans-Videc, R.C. Rist and E. Vedung. (Eds). Carrots, Sticks & Sermons. Transaction Publishers: USA. Vedung, E. (1998). Policy Instruments: Typologies and Theories. I M-L-Behelmans-Videc, R.C. Rist and E. Vedung. (Eds.). Carrots, Sticks & Sermons. Transaction Publishers: USA.
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Interviews Municipal interviews Umeå Municipality Hedlund, Thomas (18 June 2004). UMEVA. Umeå. Långström, Britt-Marie (13 October 2004). LIP Coordinator, Umeå Municipality (contact by telephone and e-mail). Solna Municipality Larsson, Eva (7 October 2004) Norrenergi AB Simm, Mia (7 October 2004) LIP Coordinator, Solna Municipality Trollhättan Municipality Svensson, Ronald (13 July 2004). Public Works Department, Trollhättan Municipality. Nyberg, Malin (13 July 2004). KLIMP (Climate Investment Programme) Coordinator, Trollhättan Municipality Hedemora Municipality Andersson, Hans (30 August 2004). Environment and Building Department, Hedemora Municipality Engdahl, Anders (30 August 2004). Hedemora Energi AB Hässleholm Municipality Rundberg, Lennart (17 August 2004). Project Leader for bicycle project Svensson, Mats (17 August 2004). Project Leader for biofuel project Olofsson, Lars (17 August 2004). Project Leader for improving energy efficiency at the town hall Linderberg, Per (17 August 2004). Project Leader for energy-efficient street lighting Karlshamn Municipality Ibertsson, Bernt (11 August 2004). Community Planning Department, Karlshamn Municipality Bengtsson, Hans-Inge (11 August 2004). Karlshamns Energi Gothenburg Municipality Roth, Anders (2 November 2004). Environmental Manager, Traffic Office. Gothenburg Municipality Sigström, Björn (18 November 2004). Environment Department, Göteborgs hamn AB. Karlstad Municipality Huldén, Lena (14 October 2004). LIP Coordinator, Karlstad Municipality Granefelt, Lars (14 October 2004). LIP Project Manager, Karlstads energi AB.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Jönsson, Marie (19 October 2004) Information Officer, Konsum Värmland (interview by telephone). Kristianstad Municipality Erfors, Lennart (3 November 2004). LIP Coordinator, Kristianstad Municipality Linköping Municipality Danielsson, Annelie (7 October 2004). Coordinator, Linköping municipality Kock-Åström, Helena (7 October 2004). Environmental Coordinator, Municipal Office, Linköping Undén, Peter (7 October 2004). Marketing Manager, Svensk biogas Nilsson, Christer (7 October 2004). Traffic Planner, Linköping Municipality Henell, Anders (7 October 2004). District Heating Manager, Tekniska verken i Linköping AB. Other interviews and verification of figures Hallwig, Göran (30 June 2004). Labour Market Board (AMS). Engelmark, Ola (18 June 2004). Swedish Institute for Ecological Sustainability. Henriksson, Mikael (18 November 2004) FEAB. Falköping. Follow-up by telephone and email Eriksson, Andreas (18 November 2004). Mjölby. Follow-up by telephone and e-mail Karlsson, Sven-Georg (18 November 2004). Skara Energi. Follow-up by telephone. Hansson, Göran (22 November 2004). Managing Director, Värnamo Energi. Follow-up by telephone. Frost, Bengt Allan (23 November 2004). Managing Director, Marks Värme AB. Follow-up by telephone.
Reference group meetings 15 April 2004. Gothenburg. Present: Lars-Christian Roth, Roland Clift, Marian Radetzki, Anna Bergek, Vaidotas Kuodys, Tomas Kåberger, Anna Jürgensen. 23 April 2004. Gothenburg. Present: Thomas Sterner, Tomas Kåberger, Anna Jürgensen 1 September 2004. Gothenburg. Present: Marian Radetzki, Roland Clift, Thomas Sterner, Ingvar Jundén, Margrethe Forssman, Anna Bergek, Tomas Kåberger, Anna Jürgensen 25 October 2004. Gothenburg. Present: Olof Eriksson, Marian Radetzki, Roland Clift, Thomas Sterner, Tomas Kåberger, Anna Jürgensen, Ingvar Jundén
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Abbreviations and definitions AMS CO2 IIIEE Klimp LIP NOX SFS SO2
Arbetsmarknadsstyrelsen – Labour Market Board Carbon dioxide International Institute for Industrial Environmental Economics Klimatinvesteringsprogram – Climate Investment Programme Local Investment Programmes Nitrogen oxides Swedish Code of Statutes Sulphur dioxide
Rebound effect A term to describe indirect effects in themselves bad for the environment that may be caused by a measure to improve the environment. For instance, there is a risk that the improved financial situation of someone driving a car with low fuel consumption will enable that person to use his car more, reducing or entirely negating the net effect. Another example is that of a company that reduces its energy costs for lighting and then spends the money it has saved on energy-intensive equipment, such as a cooling system. "The polluter pays" Quite simply, anyone causing an adverse effect on the environment should pay the cost of eliminating the effect and/or compensation for the damage caused. "Repressive effect" Repression arises where employment is created in a sector in which the job created does not result in a real fall in unemployment in the sector. This is because the job would otherwise have arisen elsewhere in the sector.
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Appendix 1 List of all evaluations • • • • • • • • • • • •
Evaluation of LIP-funded water supply and sewerage projects -projects – private sewers /local solutions, and reed beds Evaluation of distribution and use of alternative vehicle fuels Evaluation of large-scale systems for composting and digestion of sorted organic waste LIP as a grant funding system Evaluation of LIP from a socio-economic perspective Evaluation av LIP-funded traffic measures Evaluation av district and local heating projects Evaluation of waste heat projects LIP and environmental policy and protection in seven municipalities LIP –Environmental Technology for Export Evaluation of wetlands A comparative study of municipalities receiving and not receiving LIP grant funding
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Appendix 2 List of measures List of measures discussed by the selected municipalities. Measures not implemented are marked with an asterisk. Solna Municipality (1999) • Measure 01.01. Media monitoring using the "energy compass" • Measure 01.05. District cooling Vreten • Measure 01.06. Improved energy efficiency • Measure 02.03. Removal of PCBs and improved energy efficiency in housing • Measure 03.01. Biogas vehicles* • Measure 06.01. District and free cooling Kristianstad • Measure 01. Development of gas supply system • Measure 05. Local investment programme for the Österäng area • Measure 07. Biogas for sustainable agriculture and cleaner water • Measure 08. Energy from wetland grass at Kristianstads vattenrike • Measure 10. Footpaths and cycleways • Measure 11. Clean town – green town project • Measure 12. District heating Åhus • Measure 13. Local heating at Fjälkinge • Measure 14. Extension of district heating culverts • Measure 15-16. Conversion to district heating and pellets • Measure 17. District cooling in central Kristianstad* • Measure 18. Biofuel at Önnestad • Measure 21. Connection to district heating* • Measure 22. Application for investment grant for district heating plant • Measure 30. Local heating at Åhus-Äspet* • Measure 31. Huaröds Energi* Trollhättan Municipality (1998) • Measure B.05. Individual electricity metering • Measure T.02. Development of existing biogas project at Arvidstorp • Measure E. 04. Upphärad (conversion from oil to district heating)* • Measure T.07. Bicycle campaign • Measure E.03. Sjuntorp • Measure E.07. District heating at Trollhättan shopping centre* • Measure T.06. Biogas for heavy-duty vehicles
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY LIP from a Socio-Economic Perspective
Hedemora Municipality • Measure 01.01. Combined plant at Mässingboån - Brunnsjön • Measure 01.03. Eco-pellet system • Measure 3. District heating for houses - Hedemora stad • Measure 4. District heating for houses - Långshyttan • Measure 5. District heating for houses - Vikmanshyttan* Umeå Municipality • Measure 1a. Pelleting • Measure 1b. Digestion • Measure 5. Improved access for public transport. • Measure 6a. Two ethanol buses* • Measure 6b. Ethanol filling station Linköping • Measure 1a. Public filling station for gas-driven vehicles • Measure 1b. Waste disposal vehicles run on biogas • Measure 3. Bicycle town Linköping • Measure 10. From fossil to renewable fuels • Measure 7. Energy for eklandskapet ("the oak landscape") (Vikingstad) • Measure 13. Ljungsbro – Energy for chocolate • Measure 18. From electricity to district heating • Measure 23. Energy for industry Hässleholm • Measure 12. Modification of ventilation and lighting at the town hall • Measure 14. Behandlingsyta avfall ("treatment surface waste") • Measure 15. Energy-efficient street lighting • Measure 18. Footbridge/cycle bridge over the "Hovdalavägen" road • Measure 19. From oil to biofuel at Vinslövs skola* • Measure 22. From oil to biofuel at Bjärnums skola • Measure 25. From oil to biofuel at Sösdala skola* Karlstad • Measure 2a. Gas-driven vehicles* • Measure 2b. Extension of gas distribution network* • Measure 2c. Public education and bicycle project • Measure 2d. Extension of cycleways • Measure 2e. Replacement of electric fittings • Measure 4a. Konsum Värmland OBS • Measure 4b. Konsum Värmland improved energy efficiency • Measure 5b. Recovery of energy from waste-fired heat plant • Measure 5d. Condensed flue gas biofuel
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Karlshamn • Measure 1. District heating (Mörrum) • Measure 3. Landfill gas (Mörrum) • Measure 4. Improved energy efficiency in buildings • Measure 5. Improved energy efficiency at municipal schools (Mörrum) • Measure 9. Sustainable Hällaryd /Local heating* Gothenburg • Measure 02.02.03 Compost and biogas unit at Marieholm* • Measure 02.02.06 Place for local bus service at Angered shopping centre* • Measure 02.02.07 From electricity to district heating, day-care centre • Measure 02.02.03 Compost and biogas unit* • Measure 02.02.08 Modernisation of bus stops and stations • Measure 03.02.01 Biogas in the gas distribution network • Measure 03.02.02 More biogas from organic waste at Ryaverken. • Measure 03.02.03 Gas filling station for taxis and other gas-driven vehicles • Measure 03.02.10 Light in the dark • Measure 03.02.15 Environmentally friendly laundries • Measure 04.02.01 Emissions from work machines • Measure 04.02.02 Solar cells • Measure 04.02.04 Environmentally compatible vehicles for care and maintenance of streets and parks. • Measure 04.02.07 P-IN. An information system for car drivers. • Measure 04.03.05. Car pool at the Skanska high-rise building • Measure 2.2.1-2. Local environmental bus and car cooperative at Bergsjön • Measure 2.2.1-2. "Wind in the sails"*
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Appendix 3 Adjustments in the database The table below shows the adjustments that have been made to the data from the database for the purposes of our key figure calculations.
Municipality, year and measure
Adjustment
Trollhättan 1998, measure
It has been assumed that 230 permanent jobs have been created at the offices that have been established. These 230 jobs have been removed, since they are not considered to be directly related to the measure.
Falköping 1998, measure 01a and 01b
The environmental effects have been reported twice over.
Lidköping 1999, measure 15
Oil has been reported twice.
Karlstad 1998, measure 07 A
Unit error. A figure of 2050,000 kg nitrogen oxides has been given; it should be 2,050 kg.
Hallsberg 2000, measure 04
A figure of 1,459 kg for reduction of nitrogen oxides is given in the text, which is not included in the Excel table
Mark 1998, measure 01
A figure of 18,200 kg for reduction of nitrogen oxides is given in the text, which is not included in the Excel table
Mark 1998, measure 01 and 02
Environmental effects have only been reported under measure 01. Investment and grant funding have been added together for both measures. Only the quantity of oil (totalling 7,000 m3 ) has been reported.
Timrå 2001, measures 04a-04d
- 120 kg nitrogen oxides has been changed to 120 kg
Värnamo 2000, measures 03a-b
Unit error in investment and grant funding. The figures given in the database are SEK 17,468 and SEK 2,581 respectively. These have been changed to 17,468,000 and 2,581,000 respectively.
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Appendix 4 Adjustment of effects of reduction in electricity use on carbon dioxide emissions As mentioned in the report, municipalities have generally been cautious in the figures they have reported for carbon dioxide effects related to reduced energy use. To gain a more accurate picture of that reporting, and to be able to estimate the total emission reduction, a new calculation has been made based on the database. Unlike the calculation in the main report, this calculation includes all measures that have been reported to have reduced oil consumption. The calculation has been made in the following way. 1) All projects reporting reduced electricity consumption, eg, in the form of energy saving and conversion from electricity to biofuel have been eliminated. 2) A check has been made of the quantity of carbon dioxide reported in relation to electricity. Where doubts have been revealed, an estimate has been made on the basis of the other energy sources that have also been reduced (eg, oil, petrol). 3) A new calculation has been made, based partly on the combination of electricity sources used in the Nordic region (approximately 100 kg CO2/MWh), and partly on "marginal" electricity from coal-fired power stations (approximately 1 kg CO2/MWh).
The result shows that carbon dioxide emission reductions reported in the LIP programmes on which final reports have been submitted are 4,000 tonnes less than those produced using a calculation based on the combination of electricity sources in the Nordic region. The calculation based on "marginal" electricity from coal-fired power stations shows an underestimate of approximately 100,000 tonnes carbon dioxide.
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Appendix 5 Adjustment of effects of reduction in oil use on carbon dioxide emissions Calculation of carbon dioxide emission reduction resulting from conversion from the oil to renewable energy and energy saving. The method of calculation is described below. 1) A list has been created containing all measures in the database reporting a reduction in oil use. 2) The measures have been reviewed to ascertain whether they have also reported reductions in carbon dioxide emissions. Those reductions have then been added together. 3) The carbon dioxide emission reduction was then recalculated. Each MWh of oil replaced was estimated to represent 270 kg carbon dioxide. 4) Figures for grant funding for each measure have also been added to the list, so that an updated key figure calculation could be made. 5) These figures have then been compared to determine how the result of the new calculations affects the overall result for carbon dioxide in the report. Results: It has been found that reduced oil use in measures under the 101 LIP programmes on which final reports have so far been submitted has reduced carbon dioxide emissions by 310,000 tonnes. This figure is more than 100,000 tonnes higher than that reported to the database by those responsible for the measures. This is because 41 of the 78 projects reporting a reduction in oil use have not reported the effects of that reduction on carbon dioxide emissions. The average cost-effectiveness of the projects, based on the new calculation, is SEK 1.20 per annual kg.
The conclusions to be drawn from this is that the level of cost-effectiveness is the same as that suggested by calculations based on the information contained in the database. However, the effects of LIP as a whole are considerably better, since reductions in emissions of carbon dioxide are 100,000 tonnes higher.
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Appendix 6 Scatter diagrams, unemployment 1998
Average unemployment 1998: 5.1%
1999
Average unemployment 1999: 5.0%
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2000
Average unemployment 2000: 4.1%
2001
Average unemployment 2001: 3.4%
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2002
Average unemployment 2002: 3.3%
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Appendix 7 Other instruments The table below shows a number of examples of instruments that have existed in parallel with LIP (or that have been in the process of being introduced) and that may therefore have had an impact on the measures evaluated. There are also instruments, such as trade in emission quotas, that have been introduced later, but that have had an impact on the long-term effectiveness of LIP measures in the municipalities.
Sector
Instrument
Waste
National waste tax on landfilled material (2000) Law banning landfill of sorted burnable materials (2002) Law banning landfill of organic matter (effective 2005)
Energy
Energy tax Electricity certificate scheme Trade in emission quotas Carbon dioxide tax Tax on sulphur in fuel Environmental charge on emissions of nitrogen oxides from energy generation (SFS 1990:613) Ordinance (SFS 2002:187) on ozone depleting substances (eg, refrigerants). State grants for certain investments in the energy sector (SFS 1998: 22) State grants for investments to reduce electricity consumption in housing and commercial premises (SFS 1997:635) State grants for modification and connection of electrically heated buildings to district heating networks (SFS 1997:634) Energy certification (of buildings, for example)
Transport/Traffic
Tax on fuel Vehicle taxation
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LIP from a Socio-Economic Perspective. Local Investment Programmes (LIP) produce good results. This evaluation is the first to deal with funding of local investment programmes in Sweden from a socio-economic perspective. Just over half of Sweden’s municipalities were awarded state grants totalling SEK 6.2 billion between the years 1998 and 2002. This evaluation covers the programmes on which final reports had been submitted by June 2004 (101 out of 211 programmes). The main objectives of LIP were to bring about environmental improvements and create employment. A further aim was to promote new technologies and new approaches. The evaluation is based on the assumption that the aim of state funding is to produce maximum benefit for the state funding invested in these sectors. The authors demonstrate the effects of LIP using key figures and qualitative analyses. The grant funding has been surprisingly effective in achieving a positive impact on the environment. Among other things, it has been estimated that it has cost SEK 0.12 for each kilogram of reduced carbon dioxide emissions, which may be regarded as a very low cost. Since LIP achieves a number of socio-economically important objectives at the same time, the overall assessment of LIP is a favourable one. The evaluation has been made by the International Institute of Industrial Environmental Economics at Lund University, at the request of the Swedish Environmental Protection Agency.
ISBN: 91-620-5479-1 ISSN: 0280-7298
LIP from a Socio-Economic Perspective – an evaluation of state funding of Local Investment Programmes for ecological sustainability in Sweden
Report 5479
