In Europe's greenest city, even its power plant smells more like a sauna

It doesn't look like the heart of a green revolution. The smoke stacks stick up jarringly above the line of pine trees and don't make for the most scenic view as you meander around the clear blue waters of the nearby lake.

But it is this power plant that has helped the small Swedish city of Växjö (pronounced vek-shur) become arguably the greenest place in Europe. On closer observation, the only thing emerging from the chimneys is the faintest wisp of steam. And inside it smells more like a sauna than a furnace. That's because it is not oil fuelling the plant, but woodchip and other wood waste from the area's sawmills. And as well as generating electricity, it also supplies 90 per cent of this southern Swedish town with heating and hot water.

"We are in the middle of the woodshed and we wanted to take advantage of that," explained Tommy Sandh, who works in the control room.

The gases produced as the wood burns are condensed into liquid form, and are purified before they reach the chimney. And instead of dumping this liquid, the power plant pumps it around town. Some gushes piping hot out of the town's taps; the rest is directed through plumbing that runs through individual heaters, warming homes and offices.

The pile of wood chippings in the yard towers above head height and takes almost five minutes to stroll around. According to Mr Sandh, that's enough to keep Växjö warm on the snowiest day in winter, or supply it with hot water for a fortnight in summer, and it's a good way of using the paper industry's waste. As well as the centuries-old Swedish policy of planting a new tree for every one felled, the ashes swept out of the furnace each day find their way back to the forest as fertiliser.

It was this biomass plant that netted Växjö the European Union's inaugural award for sustainable development this year, an accolade which some might say makes it the greenest city on the continent.

Lying in the heart of Smaland, Växjö has perhaps absorbed the lesson of living harmoniously with the environment the hard way. Just over a century ago, many of its people were forced to emigrate to the US after withered crops and devastated pasture land precipitated a famine.

However, it is not just the citizens' consciences and moral histories to which the town's current-day authorities are appealing. They know how to talk to their wallets too. Oil-generated electricity costs about 16,000 kronor a year (£1,170) per person, while the new power plant's electricity comes in at two thirds of the price.

What is striking is how long ago the town woke up to global warming. Long before Joe Public was talking about off-setting and aiming for a carbon-neutral lifestyle, the seeds of green revolution were being sown in Växjö.

More than 10 years ago, when oil prices were hovering around $20 a barrel, Växjö announced its aim of becoming a Fossil Fuel Free City. Later it set a date for that goal - 2050, and then added intermediary steps, such as halving the carbon emission per inhabitant by 2010. Already Växjö is well on course. It has clocked up a 25 per cent reduction in per-capita emissions, and at 3.5 tonnes of carbon per person, it hasthe lowest urban level in Europe. It is certainly below the Swedish average of five tonnes and minuscule compared with the United States, where emissions are more than 20 tonnes per person.

But according to Anders Franzen, the head of planning and development department at the city council, there is no room for complacency: "The battle in the energy sector has been won, yes, but the next battleground is transport."

While the cycle paths are busy on summer evenings as residents travel into town for a meal on two wheels, not four, it is still hard to get them to abandon totally their petrol-hungry Volvos.

The council owns a communal fleet of green cars that run on ethanol, and is hoping to get residents to follow suit. Mr Franzen practises what he preaches and drives a Prius. One carrot the council is offering is free parking for low-emission vehicles, and it is also training its gaze on converting the public transport system. But he added that the government in Stockholm must play its part.

The other innovation that Växjö is trying is wooden buildings. Ikea meets Barrett Homes, if you will. Not only are they carbon-neutral, they blend harmoniously into the landscape.

On the shore of Lake Trömmen, construction is almost finished of an eight-storey apartment block, set to be the tallest wooden structure in Europe. The site manager reckons it is 5 per cent cheaper to build than concrete or brick structures, and already all but a handful of the apartments, due to be completed next March, have been snapped up.

Now that climate change is the latest trendy celebrity cause, delegations are beating a path to Växjö. Mr Sandh reckons he is showing at least 20 groups a week around the biofuel plant, some from Sweden but others from Germany and as far afield as Japan.

Mr Franzen confesses being proud at being streets ahead of the rest of the world over the problem of global warming. He recalls the summer of 1968, wiling away the hours at parties on Harvard University's campus, talking about music and girls with Al Gore. "It did make me chuckle when he launched the whole Live Earth thing. We will try to get him to come here. He could learn a lot from Växjö."