Financing Green Industrial Transitions: a Swedish Case Study.
Achieving global climate targets requires massive reductions in greenhouse gas emissions from energy-intensive industrial sectors. Energy-intensive industrial production accounts for about 25% of all carbon dioxide (CO2) emissions globally. In a new journal article published in Energy and Climate Change, Kersti Karltorp and Aaron Maltais consider Sweden as a case study to investigate whether financing is an important obstacle for achieving radical emissions reduction.
The Swedish Context
Sweden is comparatively advanced in its planning for transitions to low-carbon industrial production with incumbent companies across a range of industrial sectors having announced plans to implement low-emissions production methods. In steel for example, the HYBRIT project using green hydrogen for steel production has been successfully piloted in Luleå. Now the project jointly supported by SSAB, LKAB and Vattenfall has moved to the demonstration stage with the aim to have green steel on the market before 2030.
The research considers five industrial sectors in Sweden – refining, steel, cement, chemicals, and pulp and paper, and is based on interviews with senior representatives from the largest industrial actors including SSAB and LKAB who are members of LeadIT, and large banks and asset managers.
HYBRIT pilot plant direct reduction, Luleå/Åsa Bäcklin
Key Insights
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industry and financial actors do not view the size of capital investments or financing availability as significant barriers in Sweden;
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non-financial barriers are seen as more critical such as: market demand for green industrial products, supporting infrastructure for low-carbon industrial processes (e.g. low-carbon electricity generation & carbon capture and storage), and permitting processes;
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there is an expectation that industrial producers will face increasing carbon prices in the EU that will be high enough to create the market conditions for selling green industrial products;
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Sweden’s implementation of a system of public financing supporting piloting and demonstration of innovative low-emissions industrial processes and its early adoption of a national net-zero climate target help to explain why it has been an early mover in industrial decarbonization;
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companies do see an important role for public financing to help to mitigate the risks of industrial transitions and find Sweden’s system of credit guarantees for commercial scale investments as appropriate;
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however, companies in Sweden are also cautious about public funding playing a large role given that smaller countries like Sweden are not able to mobilize public funds at the same level as larger economies, which can distort markets and create an unlevel playing field;
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policymakers should focus on support for innovation, market demand and formation to bolster the business case for green products, and non-financial barriers;
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Financing as an obstacle for industry transition is more likely to be an issue in developing economies.
In Sweden and the EU, we see a set of policies that are creating the enabling conditions for mobilizing investment into green industrial transitions. To maintain this leadership and fully reap the benefits of being first movers in technological innovations, policymakers must continue to ensure that both the demand side for green industrial products and necessary supporting infrastructure are in place.
Aaron Maltais
Policy Lead, LeadIT Secretariat
Recent Developments
Since the study was conducted the economy has experienced high inflation and rapidly increasing interest rates. This should be expected to make financing a more significant obstacle, however in Sweden this does not seem to have impacted any major decarbonisation projects. The long-term operating costs of production processes that are reliant on high volumes of low-carbon electricity are likely more important for business cases in industrial sectors than the upfront capital expenditure.