In our opinion, the scientific evidence of climate change is clear and the message of the latest IPCC report (November 2014) is stronger than ever: the time to act is now. A significant step forward in international climate collaboration was made in December 2015, when a universal climate agreement was reached in Paris. The Paris Climate Agreement will take effect in 2020.
Energy production is a significant source of greenhouse gases globally. At the same time, however, electricity produced with renewable energy sources and district heating and cooling are significant solutions to reducing greenhouse gas emissions.
Climate change is a threat and an opportunity
Fortum is exposed to physical risks of climate change, including changes in weather patterns that could alter energy demand and supply. Higher precipitation and temperatures may affect hydropower production, dam safety and bioenergy supply and availability. In addition to climate change mitigation, we are also adapting our operations to climate change and taking climate change into consideration in production planning and in evaluating growth projects, for example.
We expect the concern about climate change to increase the demand for low-carbon and energy-efficient energy products and solutions. We believe that our know-how in carbon-free hydro and nuclear power, in energy-efficient CHP production, in wind and solar energy, as well as in research and development of the future energy system and its technologies will prove to be a competitive advantage for the company.
Towards low-emissions production
Fortum’s primary means of mitigating climate change is to reduce production emissions. We are investing in carbon-free production in Europe, switching to lower emissions fuels at our existing plants and improving the energy efficiency of our production. We see business opportunities also in providing climate-benign energy solutions for sustainable urban living and electrification of transport.
In Europe, we produce carbon-free electricity at hydro and nuclear power plants and at combined heat and power (CHP) plants that utilise biomass,bio liquids and waste-derived fuels. 97% of our electricity production in the EU area was carbon-free in 2015. The rest of the electricity was produced mainly with coal.
Our electricity production in Russia is based entirely on fossil fuels, mainly on natural gas. Our new plant units in Russia are based on gas turbine technology, which represents the best available technology in natural gas combustion. Including Russia, about 64% of our electricity production is carbon dioxide-free.
New climate-benign production
The following projects improving energy efficiency and reducing carbon dioxide emissions were completed in 2015:
- Kapeli solar power plant in India
- Suomenoja heat pump station in Finland
- Joensuu power plant’s flue-gas condenser in Finland
- Refurbishment projects for hydropower plants in Sweden and Finland
- Energy efficiency improvements of turbine plants at the Argayash and Chelyabinsk CHP 3 power plants in Russia
We have calculated that these projects will reduce annual carbon dioxide emissions by about 150,000 tonnes.
The bio-oil plant constructed next to the Joensuu power plant started production during 2015, producing about 8,300 tonnes of bio-oil. The major part of this was used in Fortum’s own heat plants. The bio-oil was also delivered to Savon Voima in Finland and for test use to EON’s Karlshamn power plant in Sweden.
We launched the pilot “HorsePower” service in Finland in 2015. With this service, Fortum delivers bedding to horse stables and picks up the bedding-manure mixture for combustion at the Järvenpää power plant. The pilot project will continue until March 2016, when a decision will be made on continuation of the service.
Climate-benign products and services
We offer our customers a range of energy products and services to help them improve their energy efficiency and reduce their carbon footprint.
Carbon pricing and emissions trading
Climate regulation primarily impacts Fortum through the price of carbon dioxide determined in EU emissions trading. This also determines the financial value for emission reductions. The price of emission allowances has to a large extent been passed on to the electricity price in the Nordic electricity markets. In accordance with the objective of emissions trading, the price of carbon dioxide emissions is a financial incentive to produce electricity with emissions-free production forms and to improve the efficiency of energy production and use. The price of carbon dioxide increases the production cost of fossil-based energy, but it also raises the prices of energy products. The best way to reduce the risk related to the price of carbon dioxide is to increase carbon-free and low-carbon production.
Russia does not have a similar emissions trading scheme for the regulation of greenhouse gases, nor do carbon dioxide emissions currently have economic value.
We want to promote global carbon pricing and the establishment of a global carbon market. Fortum has signed the Carbon Price Communiqué, an international business statement for setting a price on carbon emissions. We also participate in several international business initiatives promoting the role of business in climate change mitigation, including Caring for Climate, under the UN Global Compact, and Carbon Pricing Leadership Coalition, by the World Bank.
EU emissions trading scheme
Over 95% of carbon dioxide emissions from our energy production in Finland, Poland and the Baltic countries is within the sphere of the EU’s emissions trading scheme. We had a total of 48 (2014: 49) plants in five member countries within the EU’s emissions trading scheme in 2015. Fortum was granted free emission allowances corresponding to 1.3 (2014: 1.4) million tonnes per year. Our carbon dioxide emissions within the EU’s emissions trading scheme were 2.1 (2014: 3.6) million tonnes. So in terms of the emissions allowances, we had a deficit and had to purchase the shortfall of emissions allowances from the markets.
Fortum’s view is that emissions trading is the most cost-efficient way to achieve emissions targets. In our view the Emissions Trading Scheme (ETS) should be the key means for realising the EU climate targets also in the future. However, the functionality and emission ceiling of the ETS need to be developed further. In late 2014, the EU approved the greenhouse gas emissions reduction targets for 2030. A market stability reserve mechanism for the emissions trading scheme was approved in 2015 and will be deployed at the beginning of 2019. Additionally, the EU Commission presented a proposal to revise the emissions trading directive for the post-2020 period.
Fortum is currently a participant in the international Prototype Carbon Fund (PCF) climate fund. In 2015 we received a total 180,000 CER emission reduction units from the fund. We have so far received a total of 1,240,000 emission reduction units, and we estimate that we will still receive about 170,000 units during PCF’s operating period.