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Sweden, historically a global leader in carbon pricing, has recently made a significant shift in its climate policy towards green industrial policy. It has moved away from environmental taxation – reflected in reduced transport fuel tax rates and increased emissions from the transport sector – towards a state-driven energy policy centered on nuclear power. To support the planned construction of ten new nuclear reactors, the Swedish government has proposed loan guarantees and state loans of up to $40 billion (Persson, 2022). By lowering transport fuel tax rates while simultaneously offering state support for nuclear energy, Sweden is treating carbon pricing and green industrial policy as substitutes rather than complements. This policy brief challenges that approach, arguing that carbon pricing and green industrial policy should be seen as complementary climate policy instruments. However, their political economies differ significantly, making industrial policy more politically feasible. Yet, the two key challenges with green industrial policy are how to finance it and how to “pick winners” – choosing which technologies and companies to support. We use the recent bankruptcy of Swedish battery manufacturer Northvolt as a case study to illustrate these challenges.

Key points from the policy brief

• Green industrial policy and carbon pricing should work together to lower emissions, because one raises the cost of fossil fuels while the other lowers the cost of clean energy.

• Green industrial policy is often more popular politically because it creates visible local benefits, while carbon taxes increase energy costs for consumers and can hurt national industries.

• However, industrial policy comes with serious risks, such as the recent bankruptcy of Swedish battery maker Northvolt, showing the challenges of financing and choosing the right technologies to support.

Meet the authors

• : Assistant Professor at the Stockholm Institute of Transition Economics (SITE); affiliated researcher at the Mistra Center for Sustainable Markets (Misum)
  Email: Julius.Andersson@hhs.se
  
  

• Jared Finnegan: Assistant Professor at the University College London (UCL)

Photo: LukeOnTheRoad, Shutterstock