Sweden embarks on a radical green transformation of its economy and society

Sweden embarks on a radical green transformation of its economy and society

The Cross-Party Committee on Environmental Objectives (Miljömålsberedningen) has delivered its final report. The 762-page report contains a series of proposals for the future of Sweden, which when implemented, will bring about radical change to many aspects of Swedish society. Mundus International summarized the key targets and strategies, and also spoke with Anders Wjikman, the Chairman of the Committee, to understand his perspective of what has been proposed, and, in our view, will very likely be implemented.

On June 22, the day before the Midsummer’s holiday, that marks the beginning of two months of summer vacations in Sweden, a committee of Swedish politicians released their final report on the country’s policies to address global warming and air pollution. Swedes with an interest in what has been proposed could fill their entire summer reading and analysing the lengthy report in order to understand the details. Although not as relaxing as taking fika by a lake, this may be a good use of time, for what is planned will have a profound affect on most aspects of Swedish lives over the next decade, as Sweden’s politicians implement a blueprint designed to be a ‘model for other countries’.

A series of responses to global warming and energy strategies

Mundus International has already covered many of the major policy announcements that this government has made in the lead-up to COP 21, and subsequent to the Paris Agreement.

Successive Swedish governments have already made the case that the EU ETS needs to be strengthened to drive down emissions from power generation and industry faster. The Interim Report from the Committee on Environmental Objective released in February this year[1] identified a target of ‘no net emissions of GHGs’ by 2045, and recommended that the government implement a climate change bill mandating governments to table their action plan, consistent with the targets. Further pieces of the jigsaw were put in place by the Bonus-Malus incentives for vehicles[2], and, on 10 June, the Energy Commission presented its recommendation of 100 per cent renewable electricity target by 2040[3].

But, as we reported in May, breaking the reliance on crude oil as a feedstock for transport fuels and solving the particular issue of replacing diesel fuel for heavy-duty trucks has remained a complex issue for the government to tackle.   Now, in its final report[4], the Committee on Environmental Objectives has delivered punchy conclusions that aim at a ‘significantly faster conversion of society to low-emission levels compared with developments so far’.

The report by the Committee on Environmental Objectives includes recommendations on both targets, as well as the policies required to achieve the targets. While the world is likely to focus on the headline GHG numbers, the parallel efforts to slash atmospheric pollutants such as sulphur and nitrogen oxides, and cancer-causing particulates should not be ignored.

The report proposes a set of interim targets for Sweden, consistent with the long-term vision of no net emissions by 2045[5];

  • Emissions outside the EU ETS 63 per cent lower by 2030 (than 1990), with 8 per cent of this available through ‘accompanying measures’, for example, soils and forests
  • Emissions outside the EU ETS 75 per cent lower by 2040 (than 1990), with just 2 per cent of this available through ‘accompanying measures’
  • Emissions from domestic transport to be 70 per cent lower (than 2010) by 2030

In targeting atmospheric pollutants, the Committee believes that it can save 5,500 premature deaths each year, which together with other related illnesses cost around SEK 40 billion p.a. to treat. Measures include;

  • 25 per cent of journeys in urban areas to be on foot, by bike or on public transport by 2025[6]
  • Emissions of nitrogen oxides from ships on the Baltic and North Seas to be halved by 2025

Ambition sets Sweden apart

Given that the latest recommendations apply to the 60 per cent of Swedish GHG emissions that fall outside of the EU ETS, the ambition-level is immediately apparent. Observers should also note the aggressive time scale, given the intent to change out the majority of the nations fuelling infrastructure in just 13 years.

Such an ambition clearly requires wholesale changes to current policy settings if the government is to achieve successful implementation. This includes mainstreaming the recommendations into all policy areas. Particular mention is made of the desire to ‘urge the EU to amend the Energy Tax Directive and other relevant rules on incentives to lower emissions’. This strong language within the press release could be assumed to imply a frustration at conflicting rules within the EU that call for climate action, but block the possibility for market solutions to drive it, conveying a sense of urgency to have such policy conundrums resolved.

If this is the case then it could become another point of contention between Sweden and the European Commission.  Sweden is already at loggerheads with the EU on the level of ambition for emissions covered by the ETS, upping its commitment to changing the moribund system. On 2 July, the government unveiled a program committed to spending SEK 300 million per year between 2018 and 2040 on buying back emissions allowances and cancelling them. According to a press release, a checkpoint will be set up in 2025 and evaluations of possible further measures in the program in relation to the development of the EU's total emissions will be conducted every five years. It was also announced that the government would invite more countries to participate in the program.[7] This tactic will have minimal economic impact on the ETS, but it is a clear diplomatic message that Sweden is 'putting pressure on the EU'. Additional foreign-policy implications may also arise from the desire to reduce deaths from air pollution, with the Committee recommending ‘specific actions against countries with large emissions east of the EU’.

The Committee report discusses the ‘outspoken political priority to have a vehicle fleet that is independent of fossil fuels’, enunciating a belief that, with its manufacturing base and innovative car industry that ‘Sweden has good prospects to show examples … that other countries … are able to emulate.’ Therefore, the Committee proposes goals that ‘are a very sharp break’ compared with present day. The goals are not just to drive emissions to the new targets, but also to ‘stimulate technology development, including … a more extensive bio-economy’. The Committee proposes to adjust the Carbon tax (on fuels) for effects such as more efficient vehicles, so that a driving force of kronor per kilometre is maintained. The Committee then wants to provide biofuels with relief from the Carbon tax in order to promote investment and drive motorists away from gasoline and diesel. However, this contravenes the current EU Energy Taxation Directive, which, as noted above, is a point of contention with the EC.

If Sweden is successful with a remedy for the Taxation Directive it will enable Sweden’s ambition to be a pioneer in climate adaptation. The country could then guide support to companies with the greatest potential to decrease emissions in Sweden, and abroad. The Committee proposes that Sweden take advantage of its bountiful forests, as a feedstock for an expanded bio-economy, for usage in both materials and in the chemicals and fuel industries.

Stakeholder reactions

In the week since the release of the report the mainstream press have been dominated by discussions about Brexit in the aftermath of the UK referendum. Public reaction and debate has therefore been limited. However, several industry associations have provided comment. Swedish Enterprise, a business association, is a prominent opponent of the proposals[8], calling them wishful thinking, and sub-optimal, given the targeting of transportation with its own goals.   Similar concerns are echoed by SweMin, a mining and minerals lobby group. BilSweden, the Swedish trade association for manufacturers and importers of cars, trucks and buses highlights their concern that economic modelling has forecast that the price of diesel and petrol is likely to be 20 SEK/litre, and could potentially rise to 40 SEK/litre, shocking the economy, and putting Sweden well out of step with trading partners[9].

Interview with Anders Wijkman

Following the report’s publication, Mundus International spoke with Anders Wijkman, to understand his perspective and rationale, and the likely timetable for implementation. Although not a current member of the Riksdag, Mr Wijkman (KD) was chosen to chair the Committee given his political stature as a former MEP, and long-standing, public commitment to humanitarian and environmental issues.

Mr Wijkman prefaced his comment on the report’s conclusions with an explanation of the rationale with which the work was done. Opinion polls imply that neither the Alliance nor the government coalition partners can have a strong expectation of forming a majority government after the next election. In that context, it makes sense for the parties to come together on an issue of vital, long-term importance, and on which they share significant common ground. His opinion is, that despite what some environmental advocates may say, the report’s recommendations are highly ambitious, arguably at the extreme for what can be achieved in a market economy, and with a clear blueprint for action.

In addition, he noted the impression that the British government had made on the Committee during their tour of the UK, which produced tangible impacts for their report. Mr Wijkman summarises the Committee’s analysis in terms of six themes;

  1. Planning

City planning needs to be fundamentally rethought, away from vehicle-centric solutions. 80 percent of trips are in cities, where the distances communicated are short. Although difficult to forecast trends, planning priority needs to be given to foot, bicycles and then public transport. For long-distance transport and freight, both north-south and east-west, Sweden needs to expand the role of rail.

  1. Transport

Larger cities need to be encouraged to expand their public transport systems. Local councils are already highly enthusiastic and cooperative partners in this thinking.

  1. Electric vehicles

The Committee forecasts that by 2025 half of new vehicles sold could be electric, and that the vehicle fleet could be 10-20% electric. The public sector will likely need to play a significant role in providing infrastructure for this, to replace refuelling at petrol stations.

  1. The internal combustion engine will be around for many years to come

Even the most optimistic forecasts are for a large percentage of private cars and trucks to be driven by petrol and diesel. ‘Drop-in biofuels’ are required that enable the existing vehicle fleet to change-over to a renewable solution. Further, it is not forecast that electrification is a commercial solution for heavy-duty vehicles, even in the medium-term.

The problem that the Committee foresees is that given their inherent higher costs, in a market economy biofuels need tax incentives and support to stimulate demand and production. Sweden does currently provide such tax relief, but this is done under a short-term exemption from the Energy Tax Directive. State-aid to companies seeking to invest in new production techniques is also not allowed. Until this can be changed, it is unrealistic to expect that industry will invest the billions of euros required to build infrastructure to produce the bio-refineries of the future.

  1. Digitisation of the economy

The need for transport is reduced in a world where digital solutions reduce, or even eliminate, the need for offices. High-speed broadband is an essential part of the solution that governments need to plan for.

  1. Economic Instruments

In order to incentivise desired changes the government will need to raise the Carbon tax.

The report has now been sent to several hundred organisations and companies within Sweden for their comment, a process that is expected to take 3-4 months. Following this public consultation he expects that the government will present a bill to the Riksdag, at some point during 2017. Given the overwhelming majority of parliamentarians and their party leaders support the report’s recommendations the expectation is that a bill will pass before the next election.

Comment

The final report by the Cross-Party Committee on Environmental Objectives puts into place the remaining jigsaw pieces, enabling the public and foreign governments to understand Sweden’s future direction. Given the bipartisan development of the policy, and given Swedish societal norms of seeking and developing a consensus on important issues, and then remaining true to what has been agreed, it appears likely that the big picture policy changes are now known. Sweden has now charted its course for the decade ahead, in a way that will have an impact on most aspects of Swedish life; from the dwellings and cities that people live in, the form of transport that they take and the companies that they work for. If this puts Sweden at conflict with other countries in the region and globe it may result in a more assertive foreign policy (still with the Swedish characteristics of tact, diplomacy and a desire to find a harmonious solution). But do not expect them to relent, even in the face of firm opposition. To a Swede, nothing less than the future of the world depends upon it.

[1] https://mundus-international.com/sweden-forges-ahead-following-cop21/

[2] https://mundus-international.com/sweden-takes-whole-society-approach-climate-policy/

[3] http://www.regeringen.se/artiklar/2016/06/overenskommelse-om-den-svenska-energipolitiken/

[4] http://www.sou.gov.se/wp-content/uploads/2016/06/SOU-2016_47-Del-1_webb.pdf

[5] http://www.regeringen.se/artiklar/2016/06/miljomalsberedningen-foreslar-nya-utslappsmal-och-en-klimatstrategi/

[6] http://www.regeringen.se/artiklar/2016/06/miljomalsberedningen-foreslar-atgarder-for-battre-luftkvalitet/

[7] http://www.regeringen.se/pressmeddelanden/2016/07/ny-politik-for-utslappsratter-ger-reella-utslappsminskningar-och-satter-press-pa-eu/

[8] http://www.svensktnaringsliv.se/fragor/miljo-energi-klimat/osakerhet-kring-miljopolitik_651422.html

[9] http://www.bilsweden.se/publikationer/pressmeddelanden/varldsunik-skattechock-goms-i-miljomalsberedningens-forslag

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Sean is responsible for Mundus’ strategy and commercial activities. He began his career in the oil industry Australia. After working internationally in commercial roles with BP in South Africa, the UK and Singapore he moved to Sweden with his family in 2009. He worked in business development and then as the Strategy and Growth Director for NASDAQ Commodities from 2009 to 2015. Sean holds an engineering degree from Adelaide University and an MBA from the Darden Business School at the University of Virginia. He blogs about energy and innovation at www.renovamus.com