From Guest Blogger Sara: Sweden – An Energy Policy Model For the U.S.

President Obama’s recent press conference with Swedish Prime Minister Fredrik Reinfeld elicited an important comment. The U.S. could learn about sustainable development from Sweden. President Obama believes that Sweden is far ahead in maintaining a sustainable planet as opposed to other countries.

From a policy, political and economic perspective, there are many lessons that the U.S. can learn from Sweden. Michael A. Levi, an energy security expert in the U.S. believes that ‘renewable’ measures are necessary, and perhaps the country can take heed from neighbors such as Brazil (on bio-fuel projects).

The Neighbor Scenario

From the ‘neighbor’ perspective, the U.S. is already showing signs of improvement. This can be seen from the recent supply of relatively cleaner natural gas to Mexico. Mexico has begun to increase its demand for natural gas supplied by the United States. This development has gained attention from industry veteran Blake Zimmerman, who states that the country must take action when the demand is greater than the supply, and either look for alternative resources or start producing natural gas themselves.

This development indicates how oil exports from the U.S. are shifting more towards gas-based since the power generation in the neighbors is gas-centric as well. This is also a significant trend to note from the investor point of view.

Sweden’s Model

The Swedish energy model is based mostly on hydroelectric and nuclear power. The most interesting thing to note is that they started investing in the sector way back in the 60s. One defining statistic is that 47% of total energy produced in Sweden comes from renewable sources. Wind based generation is also on the rise, contributing to the renewable quota.

The fundamental question that the U.S. policy makers should look at is how Sweden was able to achieve such a remarkable rate of renewable production?

The answer is simple – through a long standing and defined carbon tax.

The carbon tax in Sweden started way back in 1991 at $133 per ton. The current tax is now at $150 per ton, showing steadiness. The taxation policy has shifted slightly from the industry to the consumers, ensuring responsible use.

The economists in Sweden realized a simple fact. Oil prices are on the rise and imports are a burden. Also, the feasibility of bio-fuels has encouraged people to support renewable energy rather than debate the carbon tax.

The International Energy Agency reports that oil accounts for a mere 27% of the energy supply in Sweden which is the lowest share among all IEA member countries. The domestic demand for oil (mostly imported from Russia) has declined and has been replaced by green alternatives.

Apart from the carbon footprint reduction efforts, Sweden has a market based certification system that offers incentives to the industry. This was established a long time before the U.S. launched such initiatives such as the deregulation of energy supply in Texas, renewable tax deduction, etc.

Analysts who indicate that the oil sector is important for the economy should note that despite the carbon tax, the Swedish economy has thrived. This can be seen from the fact that it has one of the lowest inflation rates in Europe and even manages a surplus budget. Compared with the U.S., its corporate tax rates are also low. Sweden also spends a lot in R&D, with Stockholm’s Royal Institute of Technology as proof.

So, now that President Obama acknowledges a ‘sustainable development’ precedent, there is a need to revamp the energy policy without stressing over the economic outcome.