Vulnerable after the 1970s oil crisis, Denmark turned into a trailblazer for renewable energy. As eyes turn towards a critical UN summit in Copenhagen, does this small, self-sufficient nation hold answers to the climate change challenge?

When world leaders arrive in Copenhagen for the UN climate change summit this month they could do worse than take a look around the host country for inspiration to solve the global warming challenge.

Over the past 30 years Denmark has gone from almost absolute dependence on imported fuels to self-sufficiency, and in what is often called the "Danish miracle" the national economy has experienced 80 per cent growth yet energy consumption has remained static.

Denmark is a country of paradoxes. A large welfare state has not stopped it from consistently featuring among the World Economic Forum's list of the most competitive nations. And record-breaking taxation levels do not deter foreign direct investment. The highest marginal tax rate has recently been cut from 63 per cent to 56 per cent, but low corporation tax of 25 per cent means that, according to the World Bank's Doing Business 2010 report, it is still in the top 10 countries where it is easiest to do business. And the Economist Intelligence Unit believes high taxes maintain a well-educated workforce, a good quality transport system and infrastructure, and high standards of public services.

But it is in renewable energy where the Scandinavian country has really excelled. The story of green energy in Denmark goes back to the oil crises in the 1970s, which left the nation vulnerable. First hit by the Arab oil boycott of the US and western Europe after the war between Israel and Egypt/Syria in 1973, Denmark again ground to a halt six years later when the Iranian revolution sent oil prices rocketing. The experiences led to a government decision to aim for energy self-sufficiency, focusing first on saving fuel and second on developing new sources.

"You can see the roots of Denmark's success today stem back to that period when there was a determined effort to build up a renewable sector," says Ben Jones, an analyst from the Economist Intelligence Unit.

Thirty years ago Denmark was 98 per cent dependent on imported fuels for its energy needs, but in a remarkable transformation it is now the only European Union country to be a net exporter of energy. More than 720 Danish businesses are involved in the development of cleaner technologies such as wind power, soil cleansing, waste disposal and water technology. The cleantech sector accounts for 21 per cent of trade exports. The windmill industry alone, with a turnover of 50bn kroner (£6.1bn), employs 29,000 people.

Søren Hermansen, director of the Energy Academy on the island of Samsø (see page 36), says Denmark decided to focus on many different sources of decentralised energy production. "Other nations like France and England had some really big power units that produce energy for large areas and it is difficult to introduce smaller units, but in Denmark we had the possibility to do exactly that and try to educate Danes to not use too many fossil fuels," he says.

"The government introduced high carbon taxes and it was decided politically for that revenue to be redirected into science, research and support for renewable energy developments. That led to a progressive development of the wind-power business."

Today wind power accounts for 20 per cent of the country's energy and 60 per cent of households are heated by district plants where a central boiler supplies 200 to 400 households with heating.

Jones points to two elements when explaining Denmark's success in renewable energy. "There is the political will and there is the financing," he says. "The Danish government was willing to provide loan guarantees to banks that were lending to companies investing in renewable areas, and at the moment the government is negotiating with the banks to provide guarantees for loans to homeowners who want to renovate their homes in a green fashion."

For Peter Rathje, chief executive of Project Zero in Sønderborg in southern Denmark, it is the partnership between the public and private sectors that makes it possible to inspire real change. Project Zero aims to have the whole region around Sønderborg carbon-neutral by 2029 and has involved business from the outset. "Many companies in the region have low-carbon consumption as the core of their products and services, so the idea was to create the best frame for growing these private companies," he says. But although the business sector liked the idea, at first it said it was too busy to take part. "We went to them and said 'this is not just about what is good for business but what is good for the environment. Let's do this for the business challenge as well as the climate challenge'," says Rathje. "From day one our approach has been to combine climate and business."

Project Zero today has both large and small businesses from the region, as well as the public, committed to cutting energy consumption. "For businesses the real driver is not the energy saving. It is being able to look their customer in the face and answer, straight and honest, what their climate strategy is," says Rathje.

So what can the UK learn from Denmark about the climate challenge? Jones believes the main difference is the political will. "I don't think we have a political culture in the UK in which politicians could follow through on the lofty goals they will all pronounce and be confident the electorate will follow," he says. "I think that political culture is still lacking; especially when you look at what needs to be done here over the next 20 years in terms of decarbonising the electricity sector."

Higher taxation, he says, may be the way forward. "The public is yet to wake up to the scale of sacrifice and it is right to point out that a willingness to pay is essential, and that has clearly been important in Denmark."

But is it simply easier to deal with the challenge in a small country such as Denmark with a population of just 5.4 million people? No, says Jones. "It has been done in local areas in Denmark. Is there any reason why a city or a town in this country couldn't do that?" he asks. "There is a depressing lack of foresight in the UK."

Hermansen says that for an advanced society the way the UK develops new initiatives feels old-fashioned. "I'd advise England to start revitalising the local and regional communities; by law ask them to do green things to get a quick start. You have to do it using a combination of top-down policy and by creating a framework that will create possibilities for local businesses and people's activities."

Although Denmark has been a trailblazer in the renewable-energy sector, Jones says it has fallen behind in the past decade. "When the current centre-right government came to power in 2001 it decided to cut back on subsidies for wind power and that has had an impact on the installation of wind capacity," he says. Jones believes Denmark is in for a few tough years. "Household debt is phenomenally high in European terms and in terms of competitiveness it has been losing ground over the past 10 years. Unemployment is rising rapidly and the business sector faces problems about wage growth."

Just as world leaders must chart a new way forward in Copenhagen, it looks like Denmark again needs to find a fresh direction to turn things around.

Green and pleasant land
When, in 1997, the Danish government looked for a community to try out a full-scale development of renewable energy, the small island of Samsø entered a competition and won. Fast-forward 12 years and the island is not only carbon-neutral, but also carbon-negative: entirely self-sufficient and selling surplus energy, generated by windmills, to the national grid. It has cut its carbon footprint by 140 per cent.

"The government wanted to prove that it was possible, based on technology, policy, laws and regulations, and subsidy programmes, to fulfil a dream of a 100 per cent renewable energy to supply the community," says director Søren Hermansen.

Initially nervous about the change and cost, the islanders slowly subscribed to the idea and today most of them own a share in one of the wind turbines. Eleven onshore windmills supply all the domestic energy needed while 10 offshore turbines produce power that is sold to the grid, making the shareholders a tidy profit. "There is a psychological effect in owning a share in a wind turbine," says Hermansen. "The fact that a person owns a share makes them think that it is there for a reason. It feeds their bank account, and they do something good for the environment."

The government has encouraged people to join in by guaranteeing a fixed kilowatt power price for the first 10 years of the turbine's lifetime. Heat pumps, solar panels and district heating plants have replaced oil and gas. It has been a huge investment; over 10 years €55m (£49m) were spent and, considering the population of just 4,000 people, the cost per capita has been considerable. "But oil is expensive, too," says Hermansen. "We would have had a problem if the price of oil had dropped dramatically."

He says that Samsø is both an experiment and a blueprint. "We wanted to see how far we could go with public participation and local ownership. We based it on old knowhow because we have had co-operative ownership in Denmark for many years. The blueprint was to say that it could work and a lot of other local communities are looking at the development and formulating visions of CO2 reductions."