* Vaxjo cuts greenhouse gas emissions sharply as economy grows
* Sets hard-to-match example of how to meet Paris climate goals
By Alister Doyle, Environment Correspondent
VAXJO, Sweden, Aug 23 (Reuters) - Ringed by forests in southern Sweden, the city of Vaxjo is thriving even as it cuts greenhouse gas emissions at rates more typical of economic crashes in recessions or wars.
It is a radical example of tackling climate change by cutting the use of fossil fuels, offering a glimpse of how the world could stay within warming limits which U.N. scientists say are needed to avoid significant environmental damage.
Vaxjo's power plant runs on biomass from timber. In winter, snow ploughs clear bicycle paths before roads to discourage cars, and political parties all back a target of making the city fossil-fuel free by 2030 to eliminate carbon dioxide emissions from oil, natural gas and coal.
Around the world, governments are struggling to meet their various pledges to cut emissions under the 2015 Paris climate agreement, amid unease about heat waves, droughts, and wildfires that have raged this summer from Greece to California.
Leading climate scientists are set to warn governments in October that global carbon emissions from energy use will have to plunge by up to seven percent a year to meet Paris' toughest goals - unless they develop technologies to suck carbon from the air, according to a draft U.N. report obtained by Reuters.
Extreme falls are usually known only from World Wars, the 1930s Great Depression or in Russia, where emissions plunged 16 percent in the year after the 1991 collapse of the Soviet Union.
Coal-dependent emerging economies led by China and India are all raising energy use to end poverty and developed countries are wary of sacrificing growth for the environment.
What works in a city in a rich, stable Nordic democracy is not an easy blueprint.
Still, isolated examples like Vaxjo, a city of 66,000 inhabitants where the twin-spired red medieval cathedral contrasts with ultra-modern wooden buildings, are intriguing for policymakers since it has cut emissions and continued to grow.
Bo Frank, president of the city council and an architect of the green shift, said his advice boiled down to: "Heavy, heavy tax increase on fossil energy and reduce the tax on all kinds of renewable energy."
Per capita, Vaxjo says carbon dioxide emissions have fallen by 58 percent from 1993-2016, to 1.9 tonnes from 4.5, while local gross domestic product (GDP) rose 32 percent from 1993-2014, according to the latest available figures.
The trajectory is uneven, but equates to an annual rate of emissions cuts of 3.7 percent with 1.33 percent growth.
By contrast, worldwide carbon emissions rose by two percent last year to a record high of almost five tonnes per capita, according to scientists who compile a Global Carbon Budget.
Vaxjo aims to eliminate carbon emissions from fossil fuels by 2030 - in homes, industry and transport including planes taking off from the local airport. It says its accounting follows U.N. guidelines, treating the municipality as if it were a mini-country.
The city estimates that carbon dioxide from fossil fuels accounts for 65 percent of the municipality's greenhouse gases. Vaxjo has cut other gases, such as methane and nitrous oxide, by 42 percent since 1993 but has not yet set deadlines for phasing them out.
Thanks to the early green start, Vaxjo's carbon cuts are far ahead of the timetable set by almost 200 nations in the Paris climate agreement to phase out net emissions of all greenhouse gases sometime from 2050-2100.
Sweden as a whole has also cut emissions while sustaining strong economic growth. The country of 10 million tops international environmental rankings and imposes the world's highest carbon tax, of up to 137 euros ($158.84) a tonne.
"The notion that a carbon tax is harmful for the economy in any country is a political notion. Not a factual notion," said Swedish Environment Minister Karolina Skog, of the Green Party.
The burning of biomass also emits carbon dioxide but can be made carbon neutral by planting new forests, as in Vaxjo, which absorb the gas to grow.
Almost no countries have forests covering two-thirds of the country like Sweden, but Skog noted that all nations have some form of renewable energy, such as solar or wind power.
The Organisation for Economic Cooperation and Development (OECD) says Sweden produces $11.13 of GDP for every kilo of carbon emissions, almost three times the average for rich nations of $3.91.
Skog cited companies like flat-pack furniture group IKEA, which aims to be "climate positive" by 2030, to show that strong environmental goals do not undermine profits but said "we have not yet completely decoupled our economy from carbon emissions".
The nation's greenhouse gas emissions fell 26 percent between 1990-2016, but the rate of decline has slowed in recent years; Rolf Lindahl of Greenpeace said Sweden was doing better than most but not enough in terms of phasing out fossil fuels.
Wildfires have made the environment a big issue in elections due on Sept. 9, with most parties pledging tougher action on climate change.
The anti-immigrant Sweden Democrats, who oppose Sweden taking a global lead in cutting greenhouse gas emissions because of fears it could slow the economy, are expected to make the biggest gains with an expected fifth of the vote. But mainstream parties on left and right have ruled out cooperating with them.
The Paris agreement set a goal of limiting the rise in average global temperatures to "well below" two degrees Celsius (3.6F) above pre-industrial times, while "pursuing efforts" for 1.5 (2.7F). Temperatures are already up by about 1C.
As part of the Paris deal, world leaders asked scientists to write a report about ways to achieve the 1.5C goal, a goal that many experts say is unrealistic.
The draft by the U.N.'s Intergovernmental Panel on Climate Change (IPCC), to be unveiled in South Korea in October, acknowledges "there is no documented historical precedent" to limit warming to 1.5C but outlines four possible ways to do it.
Three rely heavily on unproven technologies for extracting carbon dioxide from nature and burying it. A "low energy demand" (LED) scenario is the only one to focus solely on rapid cuts in emissions and an acceleration of planting forests to absorb more greenhouse gases.
Arnulf Gruebler, of the International Institute for Applied Systems Analysis in Vienna, the lead author of the LED, said the rise of the internet in recent years showed that new technologies can abruptly transform economies.
Smart phones, for instance, could reduce energy demand if they replace cameras, radios, telephones, clocks, televisions and music players rather than being an extra gadget.
But many say the LED scenario is also pie-in-the-sky.
Christian Azar, a professor of energy and the environment at Chalmers University in Gothenburg, said it would probably require unpopular restrictions on driving, flying, even diets.
"I don't think that's going to happen," he said.
U.S. President Donald Trump, who says he doubts climate change is primarily driven by man-made emissions, plans to pull out of the Paris agreement, asserting that it will undermine the economy.
So far, the deepest national cuts in emissions delivered by peacetime policies, according to a study in the journal Nature Climate Change, were 4.5 percent a year in Sweden from 1976-86 after oil price spikes drove the nation to adopt nuclear power.
Spurred by the oil shocks, Vaxjo was one of the first Swedish cities to build a district heating plant run on biomass in 1980, pumping hot water around the city and generating electricity.
After the oil crises "we realized we live virtually in the woodshed," said Henrik Johansson, environmental coordinator at Vaxjo municipality. "It was a win-win."
Local forest owners producing timber earned extra money from selling waste branches, sawdust and bark to fuel the new power plant. The forest owners then paid more taxes, enriching the municipality.
Overall, Sweden's green shift was eased by a lack of a strong oil or coal lobby, even though it does have a big, energy-dependent steel industry and car makers such as Volvo.
In Vaxjo, buses run on biogas, bus routes are altered to stop at new housing developments even before they are built and changes to building codes are being planned to limit new parking spaces.
The city is also upgrading insulation in older buildings and has decreed that 50 percent of all new municipal buildings will be made of wood by 2020. An urban garden near the centre grows tomatoes, squash, pumpkins and sunflowers.
Sweden's local municipalities have huge power, raising taxes and spending about 70 percent of all public money on everything from education to pensions.
"In Sweden we have very high taxes and we are also the most decentralized country in the world. So what I say happens," said Mayor Anna Tenje, of the ruling mainstream conservative Moderate Party.
It is not always popular. Frank, president of the city council, said Vaxjo's strong line on the environment had led a satirical newspaper to describe him as the head of a "green fascist state".
And not everything is on track. Gleaming new bicycle racks for commuters at Vaxjo railway station were mostly empty one recent day.
Tenje said the biggest headache was persuading people in rural areas to forsake cars run on diesel or gasoline, making the fossil-free goal hard to reach.
"We will achieve the goal but maybe it won't be by 2030," she said. "Maybe it will take until 2035."
($1 = 9.1841 Swedish crowns) (Additional reporting by Niklas Pollard in Stockholm; editing by Philippa Fletcher)
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