Location: Sweden
Sweden Supports Ukraine with a Record Aid Pledge
Sweden supports Ukraine with €10.7 billion in aid, marking the largest pledge to another country in modern Swedish history. Four years after Russia’s full-scale invasion, Swedish political, military, and economic leaders met at Kulturhuset in Stockholm on February 16, 2026. Their message was clear: backing Ukraine strengthens Sweden’s own security and Europe’s stability.
Torbjörn Becker, Director of the Stockholm Institute of Transition Economics (SITE), joined senior officials to discuss how military innovation and economic endurance shape the war and might impact its outcome. As Sweden’s support for Ukraine continues, attention is shifting to both battlefield technology and financial resilience.
Technology Transforming Ukraine’s Front Lines
The war has evolved at a remarkable speed. Sweden’s Minister for Defence, Pål Jonson, described a battlefield defined by drones, satellites, and electronic warfare. As a result, troops can no longer hide easily. Innovation cycles that once took years now unfold within months.
Vice Admiral Eva Skoog Haslum warned that the front lines remain extremely dangerous. She described parts of the battlefield as “kill zones,” where constant surveillance and precision strikes limit movement. Meanwhile, Ukraine has weakened Russia’s naval presence in the Black Sea by using smaller, flexible systems instead of traditional large warships.
Swedish military equipment has played a significant role. The CV90 combat vehicle and Archer artillery system have performed effectively in combat. Designed for harsh northern conditions and to counter Russian systems, they have proven highly relevant in Ukraine.
Economic Pressure and Long-Term Advantage
Although military developments matter, economic endurance may decide the war. Becker emphasized that while Russia’s economy is much larger than Ukraine’s, the combined economic power of the EU and the United States far outweighs Russia.
“Russia’s economy is roughly ten times the size of Ukraine’s. But compared to the EU and the United States together, it is closer to 1 to 20. If political support holds, the resources are there to sustain Ukraine over time,” Becker explained.
Russia depends heavily on oil revenues. Therefore, when oil prices fall or sanctions tighten, state income drops. At the same time, Russia relies increasingly on China for advanced technology components. According to Becker, this dependence creates long-term vulnerability.
Interest rates in Russia have climbed to around 20–25 percent. Such high rates strain banks and businesses. Over time, financial instability could weaken Russia’s ability to finance the war.
Planning for Ukraine’s Economic Recovery
Ukraine also faces serious fiscal challenges. The country spends more than half of its state budget on defense. Public debt now exceeds 100 percent of GDP. As a result, debt restructuring will likely be necessary.
Becker pointed to roughly USD 300 billion in frozen Russian central bank reserves held abroad. Using these funds could provide a stronger financial foundation for rebuilding Ukraine. “The main obstacle is not technical or legal,” Becker said. “It is about political coordination and will.”
As Sweden’s support for Ukraine continues, European leaders are rethinking both defense strategy and economic resilience. The lessons learned from this war will likely shape European security policy for years to come.
Key Conclusions on Sweden’s Support for Ukraine
- Russia’s war economy faces mounting pressure from high interest rates and shrinking reserves.
- Western economic strength gives Ukraine a structural long-term advantage.
- Oil revenues remain central to Russia’s fiscal stability.
- Frozen Russian central bank assets could help fund Ukraine’s reconstruction.
Further Reading on Sanctions Against Russia and Economic Pressure
Energy exports remain the backbone of Russia’s economy and a tool of geopolitical leverage. Sanctions targeting this sector aim to reduce state revenue and limit Moscow’s influence abroad.
Visit the Sanctions Portal Evidence Base to explore research on energy sanctions against Russia. You can also review the Timeline of Western Sanctions and Russian Countermeasures to see how both sides have adapted since the full-scale invasion.
Explore SITE’s research articles, policy briefs, datasets, reports, and additional publications on the SITE website, and subscribe to the newsletter to stay informed about important updates.
Income Polarization and Climate Policy Backlash
A recurring challenge for climate policy is political backlash. Over the last decade, we have seen prominent examples like the repeal of the carbon tax in Australia in 2014, the ‘Yellow Vests’ protest against the French carbon tax between 2018 and 2020, and the rollback of climate policy in the transport sector in Sweden between 2022 and 2024. A common argument put forward to explain this backlash is distributional concerns – that carbon and fuel taxes are regressive, disproportionately burdening low-income households. Yet, these prominent episodes often look like middle-class revolts. Studies find that the Yellow Vests supporters in France had ‘modest incomes’, but few came from the poorest deciles of the income distribution. Similarly, a study of Swedish fuel tax protesters found that they had relatively high incomes. This brief proposes a complementary explanation to regressivity: when the income distribution becomes more polarized – with stronger growth at both tails relative to the middle – the tax burden can shift toward the middle. A simple three-agent example illustrates how polarization can ‘squeeze’ the middle class, potentially undermining the durability of climate policy even when the poorest are compensated.
Climate Policy Backlash: Why “Not Just the Poor”?
Fuel and carbon taxes have repeatedly triggered political controversy and, in some cases, reversals. In France, the planned 2018 increase in the carbon tax became a focal point of the Yellow Vests protests. In Australia, the economy-wide carbon pricing introduced in 2012 was repealed just two years later. And in Sweden, the current government has reduced transport fuel taxes and the biofuel mandate to lower pump prices.
These episodes are often interpreted through the lens of tax progressivity (Douanne and Fabre 2022; Ewald et al. 2022): if energy and transport fuels are necessities, the tax-to-income burden can be higher for low-income households, with implications for policy stability. But the political patterns are frequently more complex. In France, many protesters were working or middle-class rather than poor (Dormagen et al. 2022). In Sweden, fuel tax protesters had, on average, relatively high incomes (Ewald et al. 2022), and households in the bottom third of the income distribution have no transport fuel expenditure at all, which weakens a simple “regressivity” narrative.
Figure 1. Share of Swedish households with zero transport fuel expenditure, by income decile.
Source: Household expenditure survey data 1999-2012 from Statistics Sweden.
This motivates the question: what if the distributional conflict that matters politically is not only bottom-versus-top, but, more importantly, concerns what happens to the middle class?
This brief introduces a three-agent model to show that under income polarization, the relative tax burden may shift to the middle. Traditional tax progressivity indices may fail to capture this shift as they weight different parts of the income distribution. At the same time, such a change is likely to have large implications for the political action and ultimately, the environmental policy design.
A Simple Model of Tax Burden Shifts
Consider an economy with three types of households: low-income (L), middle-income (M), and high-income (H). When a good like gasoline is taxed at a constant rate, each household’s tax burden depends on how much of their budget they spend on the taxed good; their ‘budget share.’
As incomes grow over time, these budget shares change. The direction of change depends on whether the taxed good is a necessity or a luxury. For necessities — goods where spending doesn’t keep pace with income growth — the budget share falls as income rises. For luxuries, the opposite occurs. The speed at which budget shares change over time is thus governed by two factors: how responsive spending is to income changes (the income elasticity), and each household’s income growth rate.
To track how tax burdens shift between different income groups, we can examine the relative changes in their budget shares. With three income groups, we need to make three comparisons: poor versus rich, poor versus middle, and middle versus rich. If the budget share falls faster for the relatively richer household in all three comparisons, the tax becomes more regressive. If it falls faster for the relatively poorer in all three comparisons, the tax becomes more progressive.
However, a third pattern is possible: the burden can shift in a ‘polarized’ way, where the middle class loses ground relative to both the poor and the rich. In this case, whether the tax is progressive or regressive is ambiguous – it depends on which comparison we prioritize in our social welfare function.
Polarization Squeezes the Middle
We use the example of income polarization to illustrate how this middle-squeeze can occur. Following Esteban and Ray (1994) and Wolfson (1994), we define income polarization as a situation where the middle group’s income grows more slowly than both the bottom and top groups. Under polarization, the middle class shrinks as a share of total income, while both the poor and rich expand their shares. Such income polarization has been well documented in the US and Europe (e.g., Goos et al. 2009; Autor 2022).
Table 1 shows a stylized numerical example of income polarization. Low- and high-income households have higher income growth compared to the middle, whose income share shrinks. Furthermore, gasoline is a necessity (in high-income countries), and we assume uniform income elasticities so that the budget share declines as income grows for all three income groups.
Table 1: Example of income polarization
What happens to relative tax burdens under these conditions? Because low-income households have the fastest income growth, their gasoline budget share falls the quickest. The middle class, with much slower income growth, sees its budget share fall more slowly. This means the middle class shoulders more of the tax burden relative to the poor.
Similarly, high-income households also experience faster income growth than the middle class, so their budget share also falls faster. Again, the middle class ends up shouldering more relative to the rich. The middle is thus ‘squeezed’ from both directions.
Importantly, when we compare the poor directly to the rich, the tax burden shifts in a progressive direction — the poor’s relative burden falls compared to the rich. Yet this ‘traditional’ progressive pattern masks the fact that the middle class is bearing an increasing share of the burden compared to everyone else.
The political implication is clear: when taxing a necessity under income polarization, the middle class can become relative losers even when the tax appears progressive in traditional comparisons between top and bottom. In this case, climate policy backlash would come from working and middle-class groups rather than the absolute poorest, and compensating mainly the poor may be insufficient for political durability.
What This Suggests for Climate policy design
The mechanism illustrated above does not deny that tax progressivity matters. Rather, it highlights an additional vulnerability: in a polarized economy, a carbon tax on necessities may face backlash when the middle class is squeezed. Three practical implications for climate policy design follow from this.
First, protecting the bottom is essential, but may not be sufficient for political durability if the middle becomes the relative ‘loser.’ The traditional focus in the economics literature on the political economy of climate policy and its potential distributional effects is on measures like revenue recycling (‘carbon dividends’) – especially to the poor – to counter regressivity. This compensation may be insufficient for policy stability, however, and targeted measures toward the middle class may be needed (such as a reduction in middle-income tax rates).
Second, backlash may potentially be lower when there are credible substitutes, thereby reducing the budget share of the taxed goods over time. If, for instance, the middle-class are relatively more dependent on private transport, compensatory policies aimed at making electric vehicles more affordable may reduce both the objective burden and the intensity of climate policy aversion.
Third, summary indices of tax progressivity — like the Kakwani (1977) and Suits (1977) indices — may obscure ‘middle-squeeze’ patterns. A useful complement to these summary measures would thus be to report incidence separately for bottom–middle and middle–top comparisons, and to track how polarization changes these margins over time.
References
- Andersson, J. J., & Atkinson, G. (2025). The Progressivity of Gasoline Taxation: The Role of Income Inequality. Working Paper.
- Autor, D. (2022). The labor market impacts of technological change: From unbridled enthusiasm to qualified optimism to vast uncertainty. National Bureau of Economic Research.
- Dormagen, J-Y., & Michel, L., & Reungoat, E. (2022). United in diversity: Understanding what unites and what divides the Yellow Vests. French Politics, 20(3), 444–478.
- Douenne, T., & Fabre, A. (2022). Yellow vests, pessimistic beliefs, and carbon tax aversion. American Economic Journal: Economic Policy, 14(1): 81–110.
- Esteban, J.-M., & Ray, D. (1994). On the measurement of polarization. Econometrica, 62(4), 819–851.
- Ewald, J., & Sterner, T., & Sterner, E. (2022). Understanding the resistance to carbon taxes: Drivers and barriers among the general public and fuel-tax protesters. Resource and Energy Economics, 70.
- Goos, M., & Manning, A., & Salomons, A. (2009). Job polarization in Europe. American Economic Review, 99(2): 58-63.
- Kakwani, N. C. (1977). Measurement of tax progressivity: An international comparison. Economic Journal, 87(345), 71–80.
- Suits, D. B. (1977). Measurement of tax progressivity. American Economic Review, 67(4), 747–752.
- Wolfson, M. C. (1994). When inequalities diverge. American Economic Review, 84(2), 353–358.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Maria Perrotta Berlin, Anna Anisimova, and Kata Fredheim on Displaced Ukrainians’ Integration in Sweden
A recent article from the Directorate-General for Migration and Home Affairs highlights several studies on migrants’ social norms and integration. Among them is a FREE Network policy brief by Maria Perrotta Berlin, Anna Anisimova, and Kata Fredheim, offering insights into Sweden’s approach to receiving and integrating displaced Ukrainians.
In their brief, the authors examine how Sweden’s implementation of the EU Temporary Protection Directive has created uncertainty for displaced Ukrainians. This uncertainty has hindered both their integration and participation in the labor market.
While Sweden shows strong political and public support for Ukraine, limited rights and unclear long-term status pose challenges. Refugees face fewer benefits and opportunities than in neighboring Nordic countries or Poland, making Sweden a less attractive destination.
Many Ukrainians arriving in Sweden are highly educated and employable. Yet, barriers such as limited access to language training, housing, and stable residence permits slow their economic inclusion. Civil society and private sector initiatives, including mentorship and job-matching programs, have helped fill some gaps. However, these efforts remain insufficient without stronger institutional support.
To read the full policy brief on migrant integration in Sweden, visit the FREE Network website. For more expert analysis from SITE, explore the SITE website.
AI in the Energy Transition – Insights from Energy Talk 2025
As flexibility needs and energy security concerns grow, artificial intelligence (AI) is playing an increasingly central role in managing, optimizing, and securing energy systems. At the 2025 Energy Talk: AI and the Future of Energy, organized by the Stockholm Institute for Transition Economics (SITE) in collaboration with Energiforsk, several key experts and innovators showcased how AI is shaping the energy system, from household-level optimization to national infrastructure forecasting and regulation. The discussions highlighted AI’s potential to enhance efficiency, resilience, and user responsiveness, while also raising critical issues around data governance, cybersecurity, and value distribution. This policy brief summarizes the main takeaways from the event.
AI as an Actor in Energy Networks
AI is now embedded in everything from electricity generation forecasts to district heating systems and real-time price optimization. As Chloé Le Coq, Research Fellow at SITE and Professor at Paris Panthéon-Assas University, noted in her opening remarks, this marks not just a technological upgrade but a systemic shift in how energy systems operate. Where systems were once reactive, AI opens the door to adaptive, self-learning networks that can respond dynamically to demand and supply. Examples shared at the 2025 Energy Talk showed how this transformation is already underway across Europe.
In the Baltic region, AI is contributing to a broader transformation of the energy system. Dzintars Jaunziems, Advisor for Energy and Climate Policy at Latvijas Banka and Assistant Professor at Riga Technical University, explained that the region has undergone several major transitions over the past three decades by building liberalized market economies and opening energy markets. More recently, the Baltics have halted energy imports from Russia, fully disconnected from the BRELL grid, and completed synchronization with the EU electricity network.
Against this backdrop, AI is now supporting the Baltics’ transition from fossil fuels to renewables. In grid operations, AI is used to assess overhead lines and remotely monitor systems in real-time. It also optimizes transmission capacity and supports renewable energy forecasting, particularly for solar generation. In district heating, digital twin technologies are being introduced, while in the mobility sector, AI helps manage electric vehicle (EV) charging and route planning. The region has one of the highest smart meter penetration rates in Europe, although full-scale utilization is still pending.
In Ukraine, AI plays a crucial role in managing the energy system—both in daily operations and in maintaining resilience during wartime. Andrii Starzhynskyi, co-founder and CEO of a-Gnostics, presented several examples of how AI is already deeply embedded in the sector. Since 2018, machine learning has been used to forecast electricity consumption and generation with over 98 percent accuracy. This fully automated system also enables predictive maintenance by detecting failures in critical equipment such as transformers. One example is an app that analyses the sound of machines to detect faults early and prevent breakdowns.
AI also supports automated decision-making around electricity flows—for instance, whether to buy, sell, or store solar-generated electricity. At a-Gnostics, multiple AI models—primarily based on time series data—are used to manage and coordinate forecasts across different applications. According to Starzhynskyi, these solutions are already used daily by customers in sectors such as mining, agritech, energy production, and energy trading.
AI is also being used at the household level to enhance energy system efficiency. Björn Berg, CEO of Ngenic, presented how their system integrates AI in real time to control and optimize heat pumps, using live data rather than historical averages. Reported benefits include over 20 percent energy savings, fewer boiler starts, and reduced system losses. Berg noted that if optimization were scaled to one million heat pumps, the aggregate impact could exceed the output of Sweden’s three nuclear reactors—highlighting the potential of household-level AI integration at scale. At the same time, he pointed to current forecasting limitations, referencing a recent two-gigawatt prediction error as a reminder that learning models still need improvement.
Infrastructure, Governance, and Cybersecurity
The shift in how energy systems operate today also adds complexity. As energy systems become more decentralized, with growing integration of intermittent sources, and data volumes expand rapidly, new governance challenges emerge. Key questions include: Who owns the data and the algorithms? How can we ensure fairness, accountability, and cybersecurity?
Filip Kjellgren, Strategic Initiative Developer Energy at AI Sweden, shared how interactive visualization tools are making future energy needs more accessible to individuals. Traditional methods, such as static bar charts, often fail to engage. In contrast, tools like the so-called Behovskartan allow users to explore different demand scenarios and, visualize, and test assumptions such as reduced fossil fuel use. Kjellgren emphasized that while solar and wind installations are expanding rapidly due to falling costs, public resistance to local infrastructure remains strong—often stronger than for other infrastructure projects. In this context, AI-driven visualizations can help bridge the gap between energy system planning and public acceptance, improving both actual and perceived fairness and facilitating green transition.
Figure 1. Behovskartan
Source: Printscreen from behovskartan.se
Similarly, Michael Karlsson, Programme Coordinator Heat & Power at Energiforsk, introduced the organization’s newly launched AI cluster—an initiative designed to disseminate research and applied insights about AI in the energy sector through webinars, seminars, and other outreach activities. He also highlighted the limited involvement of energy economists in AI projects and called for greater interdisciplinary collaboration to close that gap and broaden the field.
These highlighted initiatives set the stage for a panel discussion focused on the broader policy and structural questions facing AI in energy systems. As AI becomes embedded in critical infrastructure, concerns have been raised about the controls over data and algorithms that drive energy decisions. Speakers warned against relying on proprietary “black-box” models, calling instead for open-source alternatives and domestic oversight. The discussion also highlighted the importance of building national capabilities to avoid overdependence on international actors with limited public accountability and at times questionable agendas. Legal frameworks were seen as lagging technological development—particularly regarding new forms of data, such as sound recordings from equipment, which are not clearly covered in existing regulations.
Cybersecurity and system resilience emerged as recurring themes. AI can help detect anomalies, anticipate grid stress, and support decentralized energy configurations. One example illustrates how AI can detect abnormal behavior in connected devices—so-called Internet of Things (IoT) components—by analyzing how equipment behaves in real-time, rather than relying solely on code-level protections. Several participants stressed the need to build resilience into infrastructure design. In the case of cyber-attacks or physical disruption—like those experienced by Ukraine—systems should be capable of switching to “island mode”, operating autonomously during crisis. Others pointed to privacy-preserving data architectures, where AI models are deployed to the data, avoiding the need to centralize sensitive information—an approach already used in sectors like healthcare and finance.
The panel also raised the question of fairness: Who benefits from AI in the energy sector? While large industrial users are already reaping the rewards, such as a farm that significantly lowered its electricity costs using AI-based forecasting, it remains unclear whether smaller consumers are seeing comparable gains. In regulated systems, efficiency improvements may translate into lower tariffs; however, several speakers noted that public acceptance of AI will depend on whether consumers can clearly perceive and share the benefits. Ultimately, the long-term legitimacy of AI will depend on how these gains are distributed in practice.
Concluding Remarks
The 2025 Energy Talk AI and the Future of Energy made clear that AI is no longer a future consideration—it is already transforming how energy is produced, distributed, and consumed. From national-level forecasting to household-level optimization and strategic planning, AI is increasingly present in every part of the energy system. Yet, as participants emphasized, its rapid deployment has outpaced both regulation and public awareness. Successfully integrating AI into the energy system requires a broader policy dialogue—one that goes beyond the technical regulation to address economic and social matters. The Energy Talk brought these intersecting areas into focus and highlighted the need for broader conversations on AI in energy.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Complementary but Different: The Politics of Green Industrial Policy and Carbon Pricing
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.
Two Climate Policy Instruments
Over the past decade, climate policymaking has undergone a significant shift. Governments in Europe, USA, and China have increasingly adopted green industrial policy as a central strategy to reduce carbon emissions, moving beyond the traditional focus on carbon pricing.
Green industrial policy serves both environmental and economic purposes. It mobilizes government efforts toward decarbonization while fostering the development of zero-carbon technologies and domestic firms to drive employment, innovation, and growth in green sectors (Rodrik, 2014). Common policy tools include subsidies, loan guarantees and state loans. Sweden’s emphasis on loan guarantees and state loans to support nuclear energy is not unusual, as these are among the most widely used industrial policy instruments in rich countries (Juhasz, Lane, and Rodrik, 2023). A historical parallel can be found in France, which relied on state loans and loan guarantees in the 1970s and 1980s to support its nuclear energy expansion (Andersson and Finnegan, 2024).
Carbon pricing, on the other hand, focuses solely on emissions by putting a price on the negative externality of carbon emissions. By equalizing the private and social cost of releasing carbon, carbon pricing leaves it to the market – firms and households – to decide how to most effectively reduce emissions. While carbon pricing is a form of government intervention to correct a market failure, it is technology neutral, and the state is not actively steering the economy toward specific pathways of decarbonization in the same way that green industrial policy does.
Complements Rather Than Substitutes
At its core, decarbonization requires shifting the cost advantage from fossil fuels to the zero-carbon alternatives of wind, solar, and nuclear. The key factor is the relative price between the two energy categories. This shift can be achieved by increasing the cost of fossil fuels through carbon pricing or by lowering the cost of zero-carbon energy via industrial policy.
The cost of energy production – particularly electricity – can be divided into three main components: capital investment costs, operation and maintenance, and fuel costs (IEA, 2005; 2020). While operation and maintenance costs are typically a minor share of the (levelized) cost of electricity for all energy sources, there are large differences in investment and fuel costs between fossil fuels and zero-carbon alternatives. The cost of fossil fuels is sensitive to fuel prices, which often account for more than half (coal), to around 80 percent (natural gas), of total costs in most regions. Wind and solar, on the other hand, have zero fuel costs but are highly dependent on capital investment costs, making them particularly sensitive to interest rates. Nuclear energy, though requiring some fuel costs, is also predominantly capital-intensive (IEA, 2015).
Because of these differences in cost structure between the energy categories, carbon pricing and industrial policy work as complements rather than substitutes. Carbon pricing raises the variable fuel costs of fossil fuel-based energy, making it less competitive, while industrial policy can reduce the fixed capital costs of zero-carbon technologies, improving their affordability. A well-balanced climate strategy may employ both approaches to achieve decarbonization. A revenue-neutral model could even use carbon pricing revenues to fund industrial policy, balancing cost burdens and investment incentives.
Figure 1 illustrates how the two policy instruments of carbon pricing and industrial policy are complements when it comes to climate policy as they both shift the relative price in favor of zero-carbon energy sources.
Figure 1. Decarbonization and relative prices
Source: Authors’ illustration.
Differences in Their Political Economy
Despite their complementarity, the political economy of carbon pricing and green industrial policy differs significantly, making the latter more politically feasible.
First, carbon pricing and green industrial policy differ in how they distribute costs and benefits across time and geography. Carbon taxes impose short-term, localized, and visible costs on consumers and producers while generating long-term, globally dispersed benefits. Because the costs and benefits are unevenly distributed over time and space, the households that bear the costs are likely not the same as those that receive the benefits. In contrast, green industrial policy can create immediate and visible local benefits for households and businesses, while spreading the costs more broadly. These costs can be distributed nationally using general taxation, internationally through global climate funds, or shifted into the future via deficit spending.
Second, carbon pricing generates a first-mover disadvantage, as the implementing country will incur higher energy prices for producers and consumers and thus potential deindustrialization and unemployment as firms relocate to countries with less stringent climate policy and lower energy costs. Green industrial policy inverts this narrative by incentivizing low-carbon firms to relocate to countries offering substantial state support. As a result, the first country that adopts generous green subsidies will put political pressure on other countries to do the same for fear of job loss and diminished competitiveness. This dynamic has been in play over the last couple of years with European leaders fearing the impact on European competitiveness of the Inflation Reduction Act in the U.S. – the largest climate bill ever implemented in that country – and green industrial policy in China. In this sense, subsidies offer a first-mover advantage, encouraging early adoption.
Combined, these two important political economy factors make green industrial policy more politically feasible by increasing public and political support compared to carbon pricing.
The first-mover advantage of green industrial policy also has important implications for global climate policy. The advantage, coupled with increasing opportunity costs of non-adoption (loss of competitiveness), can result in an equilibrium where the largest economies, such as the U.S., China, and the EU, all adopt similar green industrial policies. The first country that adopts green industrial policy pressures other nations to follow suit, fearing job losses, diminished competitiveness, and market-share erosion, creating a domino effect that results in a global implicit carbon price. This outcome is an equilibrium since none of the “players”, observing the choices made by others, have an incentive to withdraw their state support and subsidies for the green sector.
In contrast, a globally imposed carbon price using taxes, such as through international agreements like the Paris Agreement, does not constitute an equilibrium. Countries under such an agreement continuously face incentives to defect by repealing their carbon taxes to gain competitive advantages and free-ride on the ambitions of others. To transform such an agreement into a stable equilibrium, there must be credible punishment mechanisms – such as border carbon adjustments that penalize imports from defecting countries – to reduce incentives for free-riding (Nordhaus, 2015). Yet, such a global agreement with credible punishments has remained elusive, reflecting the complexities of international cooperation.
Two Key Challenges
While politically more feasible compared to carbon pricing, governments face two key challenges with industrial policy: how to finance it and how to select the right technologies and companies to support. These challenges are not just theoretical – they have real-world consequences. The recent failure of the Swedish battery manufacturer Northvolt highlights the potential risks governments face when using industrial policy.
Founded in 2015, Northvolt aimed to supply batteries for electric vehicles and energy storage, positioning itself as Europe’s main competitor to dominant Chinese manufacturers. With a rapid expansion of factories, the company struggled with production delays, mounting losses, and an inability to secure additional capital investments, ultimately leading to its bankruptcy. The Swedish government has provided some economic support but was unwilling to match the kind of large-scale state subsidies that China provides to its battery industry (Ekström och Mikaelsson, 2024). Likely, the level of financial support required for Northvolt to compete globally would need to come from the EU level, rather than national funding alone (Milne et al., 2025). The Northvolt case emphasizes one of the main challenges for green industrial policy: financing. Unlike carbon pricing, which generates revenue, industrial policy requires substantial government funding. High fiscal costs may limit its feasibility outside of large economies like China, the U.S., and the EU.
Furthermore, even if Sweden had provided stronger financial support – similar to its proposed subsidies for nuclear energy – Northvolt may still have failed due to technological competition. Experts suggest that Chinese competitors will be reluctant to acquire Northvolt’s Swedish factory, as Chinese investors believe it’s not correctly constructed for battery manufacturing (Nordensson, 2025). This underscores the second risk of industrial policy: governments may invest in technologies and companies that ultimately fail to compete.
Conclusion
Carbon pricing and green industrial policy are complementary tools for climate mitigation, but their distinct political economies make industrial policy more politically feasible. However, with green industrial policy, governments are faced with the risks of “picking winners” and how to finance the policy.
Sweden faces these two risks with its nuclear energy strategy. For instance, the levelized cost of nuclear energy has risen over time (Bilicic and Scroggins, 2023). Today, nuclear is the most expensive source for new grid capacity, while wind and solar are the cheapest. By 2045, when Sweden’s planned ten new reactors are expected to be operational, renewables may be so cheap that nuclear power struggles to compete, leading to financial losses and high electricity prices (SVT, 2024). In this sense, Sweden’s focus on a single zero-carbon technology may turn out to be a costly mistake.
Sweden should use green industrial policy as a complement to, rather than a substitute for, its previous carbon pricing strategy. Furthermore, to reduce the risks of not picking the “winners,” it should diversify its support across multiple zero-carbon technologies – including electric vehicles, battery manufacturing, solar, and wind – rather than focusing narrowly on nuclear power.
References
- Andersson, J. and Finnegan, J. (2024). Industrial Policy and Decarbonization: The Case of Nuclear Energy in France. Working Paper.
- Bilicic, G. and Scroggins, S. (2023). 2023 Levelized Cost of Energy+. Lazard.
- Ekström, J., and Mikaelsson, C. (2024). Därför nobbar regeringen Northvolt. Svenska Dagbladet. October 6, 2024.
- IEA. (2005). Projected Costs of Generating Electricity: 2005 Edition. International Energy Agency. Paris.
- IEA. (2015). Projected Costs of Generating Electricity: 2015 Edition. International Energy Agency. Paris.
- IEA. (2020). Projected Costs of Generating Electricity: 2020 Edition. International Energy Agency. Paris.
- Juhazc, R., Lane, N., and Rodrik, D. (2023) The New Economics of Industrial Policy. Working Paper 31538, National Bureau of Economic Research.
- Milne, R., Johnston, I. and Bounds, A. (2025). Boss of bankrupt Northvolt urges Europe to invest in homegrown battery sector. Financial Times. March 13, 2025.
- Nordensson, B. (2025). Expert: Inga utsikter driva Northvolt vidare. Svenska Dagbladet. March 12, 2025.
- Nordhaus, W. (2015). Climate Clubs: Overcoming Free-riding in International Climate Policy. American Economic Review, 105(4), 1339–1370
- Persson, I. (2022). Allt du behöver veta om ’Tidöavtalet. SVT Nyheter. 14 October, 2022.
- Rodrik, D. (2014). Green Industrial Policy. Oxford review of economic policy 30 (3):469-491.
- SVT Nyheter. (2024). Kärnkraften kan bli nära dubbelt så dyr som regeringen trott. SVT Nyheter. January 25, 2024.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
From Integration to Reconstruction: Standing with Ukraine by Supporting Ukrainians in Sweden
Sweden has strongly supported Ukraine through both public opinion and government actions, yet there has been little discussion about the needs of Ukrainian displaced people in Sweden. The ongoing war and the rapidly shifting geopolitical landscape have created uncertainty – geopolitical, institutional, and individual. Ukrainian displaced people in Sweden face an unclear future regarding their rights, long-term status, and opportunities, making future planning or investing in relevant skills difficult. This uncertainty also weakens the effectiveness of integration policies and limits the range of policy tools that can be deployed, which hinders participation in the labor market, affecting both displaced and employers. Addressing these challenges is essential, not only for the well-being of Ukrainians in Sweden, but also for Sweden’s broader role in supporting Ukraine. Helping displaced Ukrainians rebuild their lives also strengthens their ability to contribute both to Swedish society and to Ukraine’s future reconstruction and integration into Europe.
The Swedish Approach to Displaced Ukrainians
In response to the Russian full-scale invasion of Ukraine, the Temporary Protection Directive (2001/55/EC) (commonly referred to as collective temporary protection) was activated in March 2022, granting Ukrainians seeking refuge temporary protection in EU countries, including Sweden. This directive provides residence permits, access to work, education, and limited social benefits without requiring individuals to go through the standard asylum process.
However, the practicalities of the Directive’s use differed significantly between countries. Sweden, despite its, until recent, reputation of being relatively liberal in its migration policies, has at times, lagged behind its Scandinavian neighbors in supporting Ukrainian displaced people. To illustrate this, it is useful to compare the Swedish approach to that of other Nordic states, as well as Poland.
Comparison to Other Nordic States
The Nordic countries have implemented the directive in different ways, adopting varying policies toward Ukrainians demonstrating different degrees of flexibility and support. Despite its generally restrictive immigration policy, Denmark introduced some housing and self-settlement policies for Ukrainians that were more liberal than its usual approach. Norway also initially introduced liberal measures but later tightened regulations, banning temporary visits to Ukraine and reducing financial benefits. Finland, meanwhile, has taken a relatively proactive stance, granting temporary protection to over 64,000 Ukrainians – one of the highest per capita rates in the region. Its strong intake reflects a more flexible and effective implementation of the directive, particularly from late 2022, when it surpassed Sweden and Denmark in number of arrivals.
In Sweden the so-called “massflyktsdirektivet“ grants Ukrainians temporary protection until at least March 2025. Its future beyond that, however, remains uncertain, adding to the challenges faced by refugees and policymakers alike. Sweden – considered liberal in migration policies (at least, up until 2016) – has been criticized for offering limited rights and financial support to displaced Ukrainians, making it one of the least attractive destinations among the Nordic countries (Hernes & Danielsen, 2024). Under “massflyktsdirektivet”, displaced Ukrainians were entitled to lower financial benefits and limited access to healthcare compared to refugees or residents with temporary permits. It was only in July 2023 that they became eligible for Swedish language training, and only in November 2024 could they apply for residence permits under Sweden’s regular migration laws – a pathway that can eventually lead to permanent residence.
Figure 1 illustrates significant fluctuations in the number of individuals granted collective temporary protection in the Nordic countries over the first two years following Russia’s full-scale invasion. As Hernes and Danielsen (2024) show in a recent report, all Nordic countries experienced a peak in arrivals in March-April 2022, followed by a decline in May-June. Sweden initially received the most, but aside from this early peak, inflows have remained relatively low despite its larger population (Table 1). Since August 2022, Finland and Norway have generally recorded higher arrivals than Denmark and Sweden. By August 2023, Norway’s share increased significantly, accounting for over 60 percent of total Nordic arrivals between September and November 2023.
Figure 1. Total number of individuals granted collective temporary protection in the Nordic countries
Source: Hernes & Danielsen, 2024, data from Eurostat.
Table 1. Total number of registered temporary protection permits and percent of population as of December 2023
Source: Hernes & Danielsen, 2024, data from Eurostat.
Comparison to Poland
Sweden’s policies and their outcomes compare rather poorly to those of Poland, one of the European countries that received the largest influx of Ukrainian migrants due to its geographic and cultural proximity. A key factor behind Poland’s relatively better performance is that pre-existing Ukrainian communities and linguistic similarities have facilitated a smoother integration. Ukrainians themselves played a crucial role in this regard, with many volunteering in Polish schools to support Ukrainian children. Sweden also had a community of Ukrainians who arrived to the country over time, partly fleeing the 2014 annexation of Donetsk and Crimea. Since these individuals were never eligible for refugee status or integration support, they had to rely on their own efforts to settle. In doing so, they built informal networks and accumulated valuable local knowledge. Nevertheless, after the full-scale invasion in 2022, they were not recognized as a resource for integrating newly arrived Ukrainian refugees – unlike in Poland.
However, Poland’s approach was shaped not only by these favorable preconditions but also by deliberate policy choices. As described in a recent brief (Myck, Król, & Oczkowska, 2025), a key factor was the immediate legal integration of displaced Ukrainians, granting them extensive residency rights and access to social services, along with a clearer pathway to permanent residence and eventual naturalization.
Barriers to Labor Market Integration
Despite a strong unanimous support for Ukraine across the political spectrum, there is less public debate and fewer policy processes in Sweden regarding displaced Ukrainians, most likely attributable to the general shift towards more restrictive immigration policies. The immigration policy debate in Sweden has increasingly emphasized a more “selective” migration, i.e. attracting migrants based on specific criteria, such as employability, skills, or economic self-sufficiency. This makes it puzzling that displaced Ukrainians, who largely meet these standards, have not been better accommodated. Before the full-scale invasion, Sweden was a particularly attractive destination among those who wanted to migrate permanently, especially for highly educated individuals and families (Elinder et al., 2023), indicating a positive self-selection process.
When large numbers of displaced Ukrainians arrived after the full-scale invasion, many had higher education and recent work experience, which distinguished them from previous refugee waves that Sweden had received from other countries. Despite a strong labor market in 2022, their integration was hindered by restrictions imposed under the Temporary Protection Directive, which limited access to social benefits and housing. At the same time, Sweden explicitly sought to reduce its attractiveness as a destination for migrants in general, contributing to a sharp decline in its popularity among Ukrainians after the war escalated.
In addition to the restrictiveness and numerous policy shifts over time, the temporary nature of the directive governing displaced Ukrainians – rather than the standard asylum process – creates significant policy uncertainty. This uncertainty makes it difficult for Ukrainians to decide whether to invest in Sweden-specific skills or prepare for a potential return to Ukraine, whether voluntary or forced, complicating their long-term planning. It also hinders labor market integration, increasing the risk of exploitation in the informal economy. Another key challenge is the unequal distribution of rights, as entitlements vary depending on registration timelines, further exacerbating the precarious situation many displaced Ukrainians face in Sweden.
A survey of 2,800 displaced Ukrainians conducted by the Ukrainian NGO in Sweden “Hej Ukraine!” in February 2025 provides key insights into their labor market integration (Hej Ukraine!, 2025). Survey results show that, currently, 40 percent of respondents are employed, with 42 percent of them holding permanent contracts while the rest work in temporary positions and 6 percent being engaged in formal studies. Employment is concentrated in low-skilled sectors, with 26 percent working in cleaning services, 14 percent in construction, and 12 percent in hospitality and restaurants. Other notable sectors include IT (11 percent), education (8 percent), warehousing (7 percent), elderly care (5 percent), forestry (3 percent), and healthcare (3 percent). The lack of stable permits, access to language courses (until September 2024), and financial incentives for hiring displaced persons have complicated their integration.
As mentioned above, the Swedish government has over time introduced several initiatives to facilitate the integration of displaced Ukrainians. However, assessing their effectiveness is crucial to identify persistent challenges and to formulate targeted policy solutions.
The Role of the Private Sector and Civil Society
The business sector, civil society and NGOs have also played a role in supporting displaced Ukrainians, filling gaps left by the public sector. This includes initiatives aimed at creating job opportunities that encourage voluntary return. However, broader systemic support, including simplified diploma recognition and targeted re-skilling programs, is needed to enhance labor market participation.
Moreover, there is a lack of information among displaced, potential employers and public institutions (municipality level) about the tools and programs available. For example, a community sponsorship program funded by UNHCR, which demonstrated positive effects on integration by offering mentorship and support networks, was only applied by five municipalities (UNHCR, 2025). Similar programs could be expanded to address structural barriers, particularly in the labor market. Another example is the Ukrainian Professional Support Center established to help displaced Ukrainians find jobs through building networks and matching job seekers with employers (UPSC, 2024). The center was funded by the European Social Fund, and staffed to 50 percent by Ukrainian nationals, either newcomers or previously established in Sweden, to facilitate communication. Experiences from this initiative, shared during a recent roundtable discussion – Integration and Inclusion of Ukrainian Displaced People in Sweden, highlighted that between 2022 and 2024, about 1,400 Ukrainians participated in the project, but only one-third of participants found jobs, mostly in entry-level positions in care, hospitality, and construction. Restrictions under the temporary protection directive, along with the absence of clear mechanisms for further integration, posed significant challenges; the lack of a personal ID, bank account, and access to housing were considered major obstacles. The uncertainty of their future in Sweden was also reported as a significant source of stress for participants.
Implications and Policy Recommendations
The lack of clarity surrounding the future of the EU Temporary Protection Directive, as well as its specific implementation in Sweden, leaves displaced Ukrainians in a precarious situation. Many do not know whether they will be allowed to stay or if they should prepare for a forced return. This uncertainty discourages long-term investment in skills, housing, and integration efforts.
Uncertainty also affects Swedish institutions, making it difficult to implement long-term policies that effectively integrate Ukrainians into society. To address these issues, the following policy recommendations are proposed.
- Extend Temporary Protection Status Beyond 2025: Clear guidelines on the duration of protection are necessary to provide stability for displaced Ukrainians
- Improve Labor Market Access: Introduce targeted programs for skill recognition, language training, and financial incentives for businesses hiring displaced Ukrainians
- Enhance Civil Society and Private Sector Collaboration: Support mentorship and community sponsorship programs that facilitate integration
- Acknowledge and Utilize displaced Ukrainians as a Resource: Recognizing displaced Ukrainians as potential assets in rebuilding Ukraine and strengthening European ties should be a priority.
- Increase Public and Policy Debate: There is a need for greater discussion on how to integrate Ukrainians in Sweden, as an important complement to the policy priority of providing aid to Ukraine.
By implementing these measures, Sweden can provide displaced Ukrainians with greater stability, enabling them to engage in the formal labour market rather than being pushed into informal or precarious employment. This not only benefits Ukrainians by ensuring fair wages and legal protection, but also strengthens Sweden’s economy through increased tax revenues and a more sustainable labour force.
As Sweden continues to support Ukraine in its fight for sovereignty, it should also recognize the value of displaced Ukrainians within its borders, fostering their contribution to both Swedish society and Ukraine’s eventual reconstruction.
References
- Hernes, V., & Danielsen, Å. Ø. (2024). Reception and integration policies for displaced persons from Ukraine in the Nordic countries – A comparative analysis. NIBR Policy Brief 2024:01. https://oda.oslom et.no/oda-xmlui/handle/11250/3125012
- Hej Ukraine! (2025). Telegram channel. https://t.me/hejukrainechat
- Elinder, M., Erixson, O., & Hammar, O. (2023). Where Would Ukrainian Refugees Go if They Could Go Anywhere? International Migration Review, 57(2), 587-602. https://doi.org/10.1177/01979183221131559
- EUROSTAT. Decisions granting temporary protection by citizenship, age and sex – monthly data. Dataset. https://ec.europa.eu/eurostat/databrowser/view/migr_asytpfm__custom_15634298/default/map?lang=en
- Myck, M., Król, A., & Oczkowska, M. (2025, February 21). Three years on – Ukrainians in Poland after Russia’s 2022 invasion. FREE Policy Brief. Centre for Economic Analysis (CenEA). https://freepolicybriefs.org/2025/02/21/ukrainians-in-poland/
- Ukrainian Professional Support Center (UPSC). (2024). https://professionalcenter.se/omoss/
- United Nations High Commissioner for Refugees (UNHCR). (2025). Community sponsorship. UNHCR Northern Europe. Retrieved [March 6, 2025] from https://www.unhcr.org/neu/list/our-work/community-sponsorship
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Revisiting the Impact of Rising Gasoline Prices on Swedish Households
Sweden has a long-standing tradition of fuel taxation, but recent shifts in transport policy have significantly altered the cost of driving. This policy brief examines the impact of gasoline tax cuts and reductions in biofuel mandates introduced between May 2022 and January 2024. These measures, alongside a drop in global crude oil prices, have led to a 34 percent decline in pump prices, bringing the cost of driving to one of its lowest levels in the past 25 years. Using a comparative analysis with Denmark, the brief quantifies the impact of the tax cuts and biofuel policy changes, showing how they kept fuel prices lower. However, these short-term financial benefits have broader implications. Lower gasoline taxes have increased household exposure to crude oil price volatility and slowed electric vehicle adoption, reversing progress toward Sweden’s long-term climate targets. Given these trade-offs, the brief argues for a reassessment of transport policies to balance affordability with long-term environmental sustainability.
The Cost of Driving in Sweden
Sweden has a long history of fuel taxation, having introduced an excise tax on gasoline in 1924. For over seventy years (1951–2021), the nominal tax rate steadily increased without significant reductions. This trend stopped in 2022, when the first of a series of tax cuts was implemented on May 1. This shift in transport policy came in response to a 60 percent surge in gasoline prices between early 2021 and mid-2022. This price spike was driven by pandemic-related supply-chain issues and Russia’s invasion of Ukraine in February 2022. Moreover, the 2022 elections in Sweden, which brought a conservative coalition to power, further transformed transport policy, as the new government had campaigned on reducing pump prices.
In 2022, Celina Tippmann and I published two policy briefs on the impact of surging gasoline prices in Sweden. The first, titled The Impact of Rising Gasoline Prices on Swedish Households – Is This Time Different?, found that despite record-high real gasoline prices, driving was historically affordable due to improved fuel efficiency and rising real wages over the past three decades. The second brief, Who Benefitted from the Gasoline Tax Cut in Sweden?, examined Sweden’s first major gasoline tax cut in decades, implemented on May 1, 2022 in response to the surging price. We found that the tax cut was fully passed through to consumers but likely caused spill-over effects that raised gasoline prices in neighboring countries, shifting part of the burden onto their households.
In this brief, I analyze the developments since the May 2022 gasoline tax cut. This tax cut marked the beginning of significant changes to Sweden’s transport policies. While a part of the May tax cut was reversed by design (the majority of the 1.81 SEK (€0.17) per liter tax cut expired by October 2022), it was followed by the removal of subsidies for electric vehicles in November 2022 and additional tax cuts; one tax cut on January 1st, 2023, and a further reduction in gasoline tax rates on January 1st, 2024, alongside a lower biofuel mandate. Meanwhile, global crude oil prices dropped by more than a third since their June 2022 peak. Together, these changes have likely reduced the cost of driving using gasoline and diesel and created a relative cost advantage for vehicles with internal combustion engines.
Figure 1. Gasoline pump price: 2000-2024
Source: Monthly data on gasoline prices are provided by Drivkraft Sverige (2025).
Figure 1 illustrates the dramatic price movements over the last couple of years. After the sharp increase in gasoline prices from early 2021 to mid-2022, the subsequent drop has been equally dramatic. Since June 2022, pump prices have fallen by 34 percent, bringing real gasoline prices just below the 25-year average of 15 SEK per liter.
Figure 2. Gasoline expenditure per 100 km
Source: Trafikverket (2022) and Drivkraft Sverige (2025).
Furthermore, the recent drop in driving costs is even more dramatic if we factor in improvements in average fuel efficiency over time. New vehicles sold in Sweden today can drive 50 percent further on a liter of gasoline compared to the year 2000. Accounting for this, Figure 2 shows that the cost of driving is now 20 percent below the average cost over the last 25 years.
Lastly, real wage growth has further enhanced the affordability of driving. Since 1991, average real wages in Sweden have risen by nearly 60 percent. As a result, the cost of driving, measured as a share of income, has steadily declined. Figure 3 shows a temporary increase in driving costs in 2022, but today, households spend less than 40 percent of their hourly wage to drive 100 kilometers – a near-historic low.
Figure 3. Cost of driving as share of income
Source: Data on average hourly real wages are provided by Statistics Sweden (2025).
The Cost in the Counterfactual Scenario
While Figures 1–3 show the evolution of driving costs, they do not isolate the impact of recent transport policies. The causal effect of the tax cuts and changes to the biofuel mandate hinges on the pass-through rate to consumers and how much of the benefit of the policy changes has been captured by producers. In addition, we need to separate the price change that is due to policy changes from the part that is due to the falling crude oil price.
Two strategies are available to estimate the pass-through rate to households. The first involves using price elasticities of demand and supply for gasoline, where the relatively inelastic side captures most of the benefit from a tax reduction (Andersson and Tippmann, 2022). However, the unusual conditions in the gasoline market over the past few years – characterized by supply restrictions from underinvestment during the pandemic, sanctions on Russia following its invasion of Ukraine, and shifts in consumer travel behavior – have made elasticity estimates from historical data less reliable for assessing tax incidence today.
The second approach involves a comparative analysis, examining the evolution of gasoline pump prices in Sweden against those in a ”twin“ country – one similar to Sweden but unaffected by recent transport fuel policy changes. This is the method I adopt in this brief. A benefit of using a comparative analysis is that the crude oil price is not a confounder as it affects the gasoline price in the comparison country equally. I selected Denmark as the comparison unit due to its geographical proximity, socio-economic similarity, and minimal changes to gasoline tax rates over the past two and a half years (Drivkraft Danmark, 2025).
Figure 4. Gasoline pump price 2022-2024
Note: Gasoline prices in Sweden and Denmark are provided by CirkleK (2025). Daily exchange rates are provided by Riksbanken (2025). The horizontal lines indicate the four tax changes over the sample period.
Figure 4 shows that nominal gasoline prices in Sweden and Denmark closely tracked each other until the first tax cut on May 1, 2022. Following the tax cut, Sweden’s prices fell by an amount roughly equivalent to the tax cut. When part of this initial tax reduction was reversed on October 1, 2022, the price gap narrowed before widening again due to a new tax cut on January 1, 2023. The gap widened further at the start of 2024 with another tax cut and a reduction in the biofuel mandate (biofuel is typically much more expensive than crude oil). In total, the pump price in Sweden fell by more than 3 SEK relative to the counterfactual scenario. With a full pass-through of the tax cuts to consumers, approximately half of this reduction is attributed to the tax cuts, with the other half resulting from the reduced biofuel mandate (Andersson and Tippman, 2022).
It may seem surprising that a reduction of the biofuel mandate from 7.8 percent to 6 percent has such a significant impact on the pump price in Sweden. However, one needs to account for the indirect effect on the price of biofuel itself from a reduction in its demand. Sweden also reduced its biofuel mandate for diesel, from 30.5 percent to 6 percent, a far more drastic cut. Together, these reductions significantly lowered biofuel demand, likely driving down biofuel prices in the market and amplifying their impact on pump prices.
Conclusion
The cost of driving in Sweden is at a historic low. Over the past two and a half years, tax cuts and reductions in the biofuel mandate have significantly lowered pump prices, with the benefits passed directly to consumers. Compared to a scenario with no policy changes, Swedish households now enjoy drastically reduced costs at the pump. However, these short-term benefits come with a long-term risk that warrant careful consideration.
In our first policy brief in 2022, Celina Tippmann and I cautioned that reducing gasoline tax rates could encourage households to purchase less fuel-efficient vehicles, leaving them more vulnerable to future crude oil price spikes. Previously, excise taxes – comprising more than half of Sweden’s pump price – acted as a buffer against global oil price volatility. Lower fuel taxes now mean crude oil prices make up a larger share of the pump price, increasing price volatility and household exposure to market fluctuations.
Emerging evidence suggests that households are responding to the latest policy changes as anticipated. In 2024, the share of electric vehicles in new car sales dropped for the first time in years, from 38.7 percent to 35 percent, while average carbon emissions from new vehicles increased by 5 percent (Mobility Sweden, 2025), breaking a long-run downwards trend. This reversal of progress in emissions reductions makes achieving Sweden’s 2030 climate target – a 70 percent reduction in transport sector carbon emissions relative to 2010 – significantly more challenging.
While the election campaign promise from the conservative coalition of reducing gasoline prices may have been politically and electorally effective, its consequences on the transport market are becoming clearer. Swedish households have become more vulnerable to crude oil price volatility as they are buying less fuel-efficient vehicles, and progress toward emission reduction goals has stalled. As such, it is time for a more ambitious climate policy in the transport sector. Sweden should consider reintroducing higher gasoline tax rates and strengthening financial support for electric vehicle adoption. These measures would help balance the affordability of driving with the urgent need to meet climate objectives.
References
- Andersson, J. and Tippmann, C. (2022). “Who Benefitted from the Gasoline Tax Cut in Sweden?” FREE Policy Brief.
- CircleK. (2025). ”Drivmedelspriser – bensinpriser & dieselpriser.” Retrieved from: https://www.circlek.se/drivmedel/drivmedelspriser.
- CircleK. (2025). ”Brændstof-, El-, og fyringsoliepriser.” Retrieved from: https://www.circlek.dk/priser.
- Drivkraft Danmark (2025). “Priser Benzin.” Retrieved from: https://www.drivkraftdanmark.dk/priser/benzin-95-oktan/
- Drivkraft Sverige (2025). “Fakta & Statistik.” Retrieved from: https://drivkraftsverige.se/fakta-statistik/priser/
- Mobility Sweden. (2025). “Svagt fordonsår 2024 med ökade utsläpp, men viss ljusning 2025.” Retrieved from: https://mobilitysweden.se/statistik
- Riksbanken. (2025). ”Daily exchange rates SEK-DKK.” Retrieved from: https://www.riksbank.se/sv/statistik/.
- Statistics Sweden. (2025). “Average hourly wage statistics.” http://www.statistikdatabasen.scb.se.
- Trafikverket. (2022). “Vägtrafikens utsläpp 2021.” Tech. rep., Swedish Transport Administration.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Navigating Market Exits: Companies’ Responses to the Russian Invasion of Ukraine
Russia’s invasion of Ukraine on 24 February 2022 led to widespread international condemnation. As governments imposed sanctions on Russian businesses and individuals tied to the war, international companies doing business in Russia came under increasing pressure to withdraw from Russia voluntarily. In the first part of this policy brief, we show what kind of companies decided to leave the Russian market using data collected by the LeaveRussia project. In the second part, we focus on prominent Swedish businesses which announced a withdrawal from Russia, but whose products were later found available in the country by investigative journalists from Dagens Nyheter (DN). We collect the stock prices for these companies when available and show how investors respond to these news.
Business Withdrawal from Russia
The global economy is highly interconnected, and Russia forms an important part. Prior to the invasion, Russia ranked 13th in the world in terms of global goods exports value and 22nd in terms of imports (Schwarzenberg, 2023). In the months following the full-scale invasion of Ukraine, Russia’s imports dropped sharply (about 50 percent according to Sonnenfeld et al., 2022). Before February 24th, Russia’s main trading partners were China, the European Union (in particular, Germany and the Netherlands) and Belarus (as illustrated in Figure 1). While there is some evidence of Russia shifting away from Western countries and towards China following the annexation of Crimea in 2014 and the resulting sanctions, Western democracies still made up about 60 percent of Russia’s trade in 2020 (Schwarzenberg, 2023). In the same year, Sweden’s exports to Russia accounted for 1.4 percent of Sweden’s total goods exports, of which 59 percent were in the machinery, transportation and telecommunications sectors. 1.3 percent of Swedish imports were from Russia (Stockholms Handelskammare, 2022).
Figure 1. Changes in trade with Russia, 2013-2020.
Source: IMF Direction of Trade Statistics, data until 2020. From Lehne (2022).
In response to Russia’s invasion of Ukraine in February 2024, Western governments imposed strict trade and financial sanctions on Russian businesses and individuals involved in the war (see S&P Global, 2024). These sanctions are designed to hamper Russia’s war effort by reducing its ability to fight and finance the war. The sanctions make it illegal for, e.g., European companies to sell certain products to Russia as well as to import select Russian goods (Council of the European Union, 2024). Even though sanctions do not cover all trade with Russia, many foreign businesses have been pressured to pull out of Russia in an act of solidarity. The decision by these businesses to leave is voluntary and could reflect their concerns over possible consumer backlash. It is not uncommon for consumers to put pressure on businesses in times of geopolitical conflict. For instance, Pandya and Venkatesan (2016) find that U.S. consumers were less likely to buy French-sounding products when the relationship between both countries deteriorated.
The LeaveRussia Project
The LeaveRussia project, from the Kyiv School of Economics Institute (KSE Institute), systematically tracks foreign companies’ responses to the Russian invasion. The database covers a selection of companies that have either made statements regarding their operations in Russia, and/or are a large global player (“major companies and world-famous brands”), and/or have been mentioned in relation to leaving/waiting/withdrawing from Russia in major media outlets such as Reuters, Bloomberg, Financial times etc. (LeaveRussia, 2024). As of April 5th, 2024, the list contains 3342 firms, the companies’ decision to leave, exit or remain in the Russian market, the date of their announced action, and company details such as revenue, industry etc. The following chart uses publicly available data from the LeaveRussia project to illustrate patterns in business withdrawals from Russia following the invasion of Ukraine.
Figure 2a shows the number of foreign companies in Russia in the LeaveRussia dataset by their country of headquarters. Figure 2b shows the share of these companies that have announced a withdrawal from Russia by April 2024, by their country of headquarters.
Figure 2a. Total number of companies by country.
Figure 2b. Share of withdrawals, by country.
Source: Authors’ compilation based on data from the LeaveRussia project and global administrative zone boundaries from Runfola et al. (2020).
Some countries (e.g. Canada, the US and the UK) that had a large presence in Russia prior to the war have also seen a large number of withdrawals following the invasion. Other European countries, however, have seen only a modest share of withdrawals (for instance, Italy, Austria, the Netherlands and Slovakia). Companies headquartered in countries that have not imposed any sanctions on Russia following the invasion, such as Belarus, China, India, Iran etc., show no signs of withdrawing from the Russian market. In fact, the share of companies considered by the KSE to be “digging in” (i.e., companies that either declared they’d remain in Russia or who did not announce a withdrawal or downscaling as of 31st of March 2024) is 75 percent for more than 25 countries, including not only the aforementioned, but also countries such as Argentina, Moldova, Serbia and Turkey.
Withdrawal Determinants
The decision for companies to exit the market may range from consumer pressure to act in solidarity with Ukraine, to companies’ perceived risk from operating on the Russian market (Kiesel and Kolaric, 2023). Out of the 3342 companies in the LeaveRussia project’s database, about 42 percent have, as of April 5th, 2024, exited or stated an intention to exit the Russian market. This number increases only slightly to 49 percent when considering only companies headquartered in democratic (an Economist Intelligence Unit Democracy Index score of 7 or higher) countries within the EU. Figure 3 shows the number of companies that announced their exit from the Russian market, by month. A clear majority of companies announce their withdrawal in the first 6 months following the invasion.
Figure 3. Number of foreign companies announcing an exit from the Russian market, 2022-2024.
Source: Authors’ compilation based on data from the LeaveRussia project.
Similarly to the location of companies’ headquarters, the decision to exit the Russian market varies by industry. Figure 4 a depicts the top 15 industries with the highest share of announced withdrawals from the Russian market among industries with at least 10 companies. Most companies with high levels of withdrawals are found in consumer-sensitive industries such as the entertainment sector, tourism and hospitality, advertising etc.
Figure 4a. Top 15 industries in terms of withdrawal shares.
Figure 4b. Bottom 15 industries in terms of withdrawal shares.
Source: Authors’ compilation based on data from the LeaveRussia project.
In contrast, Figure 4b details the industries with the lowest share of companies opting to withdraw from the Russian market. Only around 10 percent of firms in the “Defense” and “Marine Transportation” industries chose to withdraw. Two-thirds of firms within the “Energy, oil and gas” and “Metals and Mining” sectors have chosen to remain in business in Russia following the war in Ukraine.
Several sectors have been identified as crucial in supplying the Russian military with necessary components to sustain their military aggression against Ukraine, mainly electronics, communications, automotives and related categories. We find that many of these sectors are among those with the lowest share of companies withdrawing from Russia. Companies for which Russia constitute a large market share have more to lose from exiting than others. Another reason for not exiting the market relates to the current legal hurdles of corporate withdrawal from Russia (Doherty, 2023). Others may simply not have made public announcements or operate within an industry dominated by smaller companies that are not on the radar of the LeaveRussia project. Nonetheless, Bilousova et al. (2024) detail that products from companies within the sanction’s coalition continue to be found in Russian military equipment destroyed in Ukraine. This is due to insufficient due diligence by companies as well as loopholes in the sanctions regime such as re-exporting via neighboring countries, tampering with declaration forms or challenges in jurisdictional enforcement due to lengthy supply chains, among others. (Olofsgård and Smitt Meyer, 2023).
And Those Who Didn’t Leave After All
The data from the LeaveRussia project details if and when foreign businesses announce that they will leave Russia. However, products from companies that have announced a departure from the Russian market continue to be found in the country, including in military components (Bilousova, 2024). In autumn 2023, investigative journalists from the Swedish newspaper Dagens Nyheter exposed 14 Swedish companies whose goods were found entering Russia, in most cases contrary to the companies’ public claims (Dagens Nyheter, 2023; Tidningen Näringslivet, 2023). For this series of articles, the journalists used data from Russian customs and verified it with information from numerous Swedish companies, covering the time period up until December 2022. This entailed reviewing thousands of export records from Swedish companies either directly to Russia or via neighboring countries such as Armenia, Kazakhstan, and Uzbekistan. All transactions mentioned in the article series have been confirmed with the respective companies, who were also contacted by DN prior to publication (Dagens Nyheter, 2023b). DNs journalists also acted as businessmen, interacting with intermediaries in Kazakhstan and Uzbekistan, exposing re-routing of Swedish goods from a company stated to have cut all exports to Russia in the wake of the invasion (Dagens Nyheter, 2023d).
For Sweden headquartered companies exposed in DN and that are traded on the Swedish Stock Exchange, we collect their stock prices and trading volume. Our data includes information on each stock’s average price, turnover, number of trades by date from around the date of the DN publications as well as the date of each company’s prior public announcement of exiting Russia. Table 1 details the companies who were exposed of doing direct or indirect business with Russia by DN and who had announced an exit from the Russian market previously. In their article series, DN also shows that goods from the following companies entered Russia; AriVislanda, Assa Abloy, Atlas Copco, Getinge, Scania, Securitas Tetra Pak, and Väderstad. Most of the companies exposed by DN operate within industries displaying low withdrawal shares.
Table 1. Select Swedish companies’, time of exit announcement and exposure in Dagens Nyheter and stock names.
Source: The LeaveRussia project, 2023; Dagens Nyheter, 2023b, 2023c, 2023d. Note: The exit statements have been verified through companies’ press statements and/or reports when available. For Epiroc, the claim has been verified via a previous Dagens Nyheter article (Dagens Nyheter, 2023a).
In Figure 5, we show the average stock price and trades-weighted average stock price of the Swedish companies in Table 1 around the time when the companies announced that they are leaving Russia.
Figure 5. Average stock price of companies in Table 1 around Russian exit announcements.
Source: Author’s compilation based on data from Nasdaq Nordic.
There appears to be an immediate increase in stock prices after firms announced their exit from the Russian market. Stock prices, however, reverse their gains over the next couple of days. In general, stock prices are volatile, and we also see similar-sized movements immediately before the announcement. Due to this volatility and the fact that we cannot rule out other shocks impacting these stock prices at the same time, it is difficult to attribute any movements in the stock prices to the firms’ decisions to leave Russia.
The academic evidence on investors’ reactions to firms divesting from Russia is mixed. Using a sample of less than 300 high-profile firms with operations in Russia compiled by researchers at the Yale Chief Executive Leadership Institute, Glambosky and Peterburgsky (2022) find that firms that divest within 10 days after the invasion experience negative returns, but then recover within a two-week period. Companies announcing divesting at a later stage do not experience initial stock price declines. In contrast, Kiesel and Kolaric (2023) use data from the LeaveRussia project to find positive stock price returns to firms’ announcements of leaving Russia, while there appears to be no significant investor reaction to firms’ decisions to stay in Russia.
When considering the effect from DN’s publications, the picture is almost mirrored, with the simple and trades-weighted average stock prices dipping in the days following the negative media exposure before not only recovering, but actually increasing. Similar caveats apply to the interpretation of this chart. In addition, the DN publication occurred shortly after the Hamas attacks on Israel on October 7 and Israel’s subsequent war on Gaza. While conflict and uncertainty typically dampen the stock market, the events in the Middle East initially caused little reaction on the stock market (Sharma, 2023).
Figure 6. Average stock price for companies listed in Table 1 around the time of DN exposure.
Source: Author’s compilation based on data from Nasdaq Nordic.
Discussion
As discussed in Becker et al. (2024), creating incentives and ensuring companies follow suit with the current sanctions’ regime should be a priority if we want to end Russia’s war on Ukraine and undermine its wider geopolitical ambitions. Nevertheless, Bilousova et al. (2024), and Olofsgård and Smitt Meyer (2023), highlight that there is ample evidence of sanctions evasions, including for products that are directly contributing to Russia’s military capacity. Even in countries that have a strong political commitment to the sanctions’ regime, enforcement is weak. For instance, in Sweden, it is not illegal to try and evade sanctions according to the Swedish Chamber of Commerce (2024). There is little coordination between the numerous law enforcement agencies that are responsible for sanction enforcement and there have been very few investigations into sanctions violations.
Absent effective sanctions enforcement and for the many industries not covered by sanctions, can we rely on businesses to put profits second and voluntarily withdraw from Russia? Immediately after the start of Russia’s invasion of Ukraine, as news stories about the brutality of the war proliferated, many international companies did announce that they will be leaving Russia. However, a more systematic look at data collected by the LeaveRussia project and KSE Institute reveals that more than two years into the war, less than half of companies based in Western democracies intend to distance themselves from the Russian market. A closer look at companies who are continuing operations in Russia reveals that they tend to be in sectors that are crucial for the Russian economy and war effort, such as energy, mining, electronics and industrial equipment. Many of these companies are probably seeing the war as a business opportunity and are reluctant to put human lives before their bottom line (Sonnenfeld and Tian, 2022).
Whether companies who announce that they are leaving Russia actually do leave is difficult to independently verify. A series of articles published in a prominent Swedish newspaper (Dagens Nyheter) last autumn revealed that goods from 14 major Swedish firms continue to be available in Russia, despite most of these firms publicly announcing their withdrawal from the country. The companies’ reactions to the exposé were mixed. A few companies, such as Scania and SSAB, have decided to cut all exports to the intermediaries exposed by the undercover journalists (for instance, in Kazakhstan, Uzbekistan and Kyrgyzstan). Other companies stated that they are currently investigating DN’s claims or that the exports exposed in the DN articles were final or delayed orders that were accepted before the company decided to withdraw from Russia. Another company, Trelleborg – a leading company within polymer solutions for a variety of industry purposes – reacted to the DN exposure by backtracking from its earlier commitment to exit the Russian market (Dagens Nyheter 2023b, 2023d). Wider reaction to these revelations was muted. Looking at changes in stock prices for the exposed companies, we find little evidence that investors are punishing companies for not honoring their public commitment to withdraw from Russia.
In an environment, where businesses themselves withdraw at low rates and investors do not shy away from companies contradicting their own claims, the need for stronger enforcement of sanctions seems more pressing than ever.
References
- Becker, T., Fredheim, K., Gars, J., Hilgenstock, B., Katinas, P., Le Coq, C., Mylovanov, T., Olofsgård, A., Perrotta Berlin, M., Pavytska, Y., Ribakova, E., Shapoval, N., Spiro, D. and Wachtmeister, H. (2024). Sanctions on Russia: Getting the Facts Right. FREE Policy Brief. https://freepolicybriefs.org/2024/03/14/sanctions-russia-war-ukraine/
- Bilousova, O., Hilgenstock, B., Ribakova, E., Shapoval, N., Vlasyuk, A. and Vlasiuk, V. (2024). CHALLENGES OF EXPORT CONTROLS ENFORCEMENT HOW RUSSIA CONTINUES TO IMPORT COMPONENTS FOR ITS MILITARY PRODUCTION. Yermak-McFaul International Working Group on Russian Sanctions & KSE Institute. https://kse.ua/wp-content/uploads/2024/01/Challenges-of-Export-Controls-Enforcement.pdf
- Council of the European Union. (2023). Sanctions against Russia explained. European Council. https://www.consilium.europa.eu/en/policies/sanctions-against-russia/sanctions-against-russia-explained/#services
- Dagens Nyheter. (2023a). DN avslöjar: Wallenbergs gruvjätte gjorde affärer med ryskgrundat bolag – efter krigsutbrottet.
- Dagens Nyheter. (2023b). DN avslöjar: Svenska storbolagen i affärer med Rvssland – trots löftena.
- Dagens Nyheter. (2023c). Svenska miljardbolaget svek löftet – sålde till ryska hamnprojekt.
- Dagens Nyheter (2023d). Mellanhanden avslöjar: Så levereras stålet från SSAB till Ryssland.
- Doherty, B. (2023). Business in Russia: Why some firms haven’t left. BBC. https://www.bbc.com/worklife/article/20230918-business-in-russia-why-some-firms-havent-left
- Glambosky, M. and Peterburgsky, S. (2022). Corporate activism during the 2022 Russian invasion of Ukraine, Economics Letters, 217, 110650. https://doi.org/10.1016/j.econlet.2022.110650
- Kiesel, F. and Kolaric, S. (2023) Should I stay or should I go? Stock market reactions to companies’ decisions in the wake of the Russia-Ukraine conflict. Journal of International Financial Markets, Institutions and Money, Forthcoming. http://dx.doi.org/10.2139/ssrn.4088159
- LeaveRussia Project. (2024). https://leave-russia.org/our-methodology
- Lehne, J. (2022). https://www.youtube.com/watch?v=I1EFcZdj2Gw
- Olofsgård, A. and Smitt Meyer, C. (2024) How to Undermine Russia’s War Capacity: Insights from Development Day 2023. FREE Policy Brief. https://freepolicybriefs.org/2024/01/15/undermine-russias-war-capacity/
- Pandya, S. S., and Venkatesan, R. (2016) French roast: consumer response to international conflict—evidence from supermarket scanner data. Review of Economics and Statistics, 98(1), 42-56.
- Runfola, D., Rogers, L., Habib, J., Horn, S., Murphy, S., Miller, D., Day, H., Troup, L., Fornatora, D., Spage, N., Pupkiewicz, K., Roth, M., Rivera, C., Altman, C., Schruer, I., McLaughlin, T., Biddle, R., Ritchey, R., Topness, E., Turner, J., Updike, S., Buckman, H., Simpson, N., Lin, J., Anderson, A., Baier, H., Crittenden, M., Dowker, E., Fuhrig, S., Goodman, S., Grimsley, G., Layko, R., Melville, G., Mulder, M., Oberman, R., Panganiban, J., Peck, A., Seitz, L., Shea, S., Slevin, H., Yougerman, R. and Hobbs, L. (2020). geoBoundaries: A global database of political administrative boundaries. Plos One, 15(4), e0231866.
- Schwarzenberg. A. (2023). Russia’s Trade and Investment Role in the Global Economy. Congressional Research Services, Report IF12066. https://crsreports.congress.gov/product/pdf/IF/IF12066
- Sharma, R. (2023). Why markets are relatively calm in the geopolitical storm. Financial Times. https://www.ft.com/content/d194a8a2-60c1-4afe-83bf-44e529e16d40
- Sonnenfeld, J. and Tian, S. (2022). Some of the Biggest Companies Are Leaving Russia. Others Just Can’t Quit Putin. Here’s a List. The New York Times. https://www.nytimes.com/interactive/2022/04/07/opinion/companies-ukraine-boycott.html
- Sonnenfeld, J., Tian, S., Sokolowski, F., Wyrebkowski, M., and Kasprowicz, M. (2022). Business Retreats and Sanctions Are Crippling the Russian Economy. http://dx.doi.org/10.2139/ssrn.4167193
- Stockholms Handelskammare. (2022). Regionala handelsmönster med Ryssland. https://www.mynewsdesk.com/se/stockholmshandelskammare/documents/siffror-se-ru-punkt-pdf-420259
- Swedish Chamber of Commerce. (2024). Förslag på åtgärder mot kringgående av sanktioner. https://www.kommerskollegium.se/globalassets/publikationer/rapporter/2024/forslag-pa-atgarder-mot-kringgaenden-av-sanktioner.pdf
- S&P Global. (2024). Sanctions against Russia – a timeline. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/sanctions-against-russia-8211-a-timeline-69602559
- Tidningen Näringslivet (2023). Svensk export till Rysslands grannar rusar. https://www.tn.se/naringsliv/30641/svensk-export-till-rysslands-grannar-rusar/
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Nuclear Energy Renaissance: Powering Sweden’s Climate Policy
Sweden’s Nuclear Energy Expansion: Is It the Key to Net-Zero Emissions by 2045?
The Swedish government has placed nuclear energy at the forefront of its climate policies, aiming for two new reactors to be operational by 2035 and a total of ten new reactors by 2045. This policy brief explores whether the large-scale expansion of nuclear energy in Sweden is an environmentally and economically viable solution to achieve the nation’s goal of net-zero emissions by 2045. To assess this, we examine three critical factors: potential emission reductions, the cost-effectiveness of nuclear power, and the feasibility of the proposed construction timelines.
As a case study, we compare Sweden’s approach to nuclear energy with the successful nuclear build-out in France during the 1970s. France significantly reduced its carbon dioxide (CO2) emissions while reaping economic benefits, with an average reactor construction time of about six years. However, the situation in Sweden’s nuclear energy sector today differs from France in the 1970s. Sweden already has a low-carbon electricity grid, and the costs of alternative zero-carbon energy sources, such as wind and solar, have dropped considerably. Additionally, the construction costs and timelines for nuclear reactors in Sweden have increased compared to historical norms.
Thus, while nuclear energy in Sweden may contribute to modest emission reductions, the abatement costs are high, and reactor construction is expected to take much longer—up to two or three times longer than France’s build-out. This raises questions about whether Sweden’s nuclear expansion can effectively support the country’s ambitious climate goals.
A Renewed Focus on Nuclear Energy
When the current government in Sweden, led by Prime Minister Ulf Kristersson, came into power in 2022, they swiftly made changes to Sweden’s environment and climate policies. The Ministry of Environment was abolished, transport fuel taxes were reduced, and the energy policy objective was changed from “100 percent renewable” to “100 percent fossil free”, emphasizing that nuclear energy was now the cornerstone in the government’s goal of reaching net zero emissions (Government Office 2023, Swedish Government 2023). This marked a new turn in Sweden’s relationship with nuclear energy: from the construction of four different nuclear power plants in the 1970s – of which three remain operational today – to the national referendum on nuclear energy in 1980, where it was decided that no new nuclear reactors should be built and that existing reactors were to be phased-out by 2010 (Jasper 1990).
Today’s renewed focus on nuclear energy, especially as a climate mitigation policy tool is, however, not unique to Sweden. As of 2022, the European Commission labels nuclear reactor construction as a “green investment”, the US has included production tax credits for nuclear energy in their 2023 climate bill the Inflation Reduction Act, and France’s President Macron is pushing for a “nuclear renaissance” in his vision of a low-carbon future for Europe (Gröndahl 2022; Bistline, Mehrotra, and Wolfram 2023; Alderman 2022).
France As a Case Study
In the 1970s, France conducted an unprecedented expansion of nuclear energy, which offers valuable insights for Sweden’s contemporary nuclear ambitions. Relying heavily on imported oil for their energy needs, France enacted a drastic shift in energy policy following the 1973 oil crisis. In the subsequent decade, France ordered and began the construction of 51 new nuclear reactors. The new energy policy – dubbed the Messmer Plan – was summarized by the slogan: “All electric, all nuclear” (Hecht 2009).
To support the expansion of new reactors, the French government made use of loan guarantees and public financing (Jasper 1990). A similar strategy has recently been proposed by the Swedish government, with suggested loan guarantees of up to 400 billion kronor (around $40 billion) to support the construction of new reactors (Persson 2022).
France’s Emissions Reductions and Abatement Costs
To make causal estimates of the environmental and economic effects of France’s large-scale expansion of nuclear energy, we need a counterfactual to compare with. In a recent working paper – titled Industrial Policy and Decarbonization: The Case of Nuclear Energy in France – I, together with Jared Finnegan from University College London, construct this counterfactual as a weighted combination of suitable control countries. These countries resemble France’s economy and energy profile in the 1960s and early 1970s, however, they did not push for nuclear energy following the first oil crisis. Our weighted average comprises five European countries: Belgium, Austria, Switzerland, Portugal, and Germany, with falling weights in that same order.
Figure 1 depicts per capita emissions of CO2 from electricity and heat production in France and its counterfactual – ‘synthetic France’ – from 1960 to 2005. The large push for nuclear energy led to substantial emission reductions, an average reduction of 62 percent, or close to 1 metric ton of CO2 per capita, in the years after 1980.
Figure 1. CO2 emissions from electricity and heat in France and synthetic France, 1960-2005.
Andersson and Finnegan (2024).
Moreover, Figure 1 shows that six years elapsed from the energy policy change until emission reductions began. This time delay matches the average construction time of around six years (75 months on average) for the more than 50 reactors that were constructed in France following the announcement of the Messmer Plan in 1974.
Table 1. Data for abatement cost estimates.
Andersson and Finnegan (2024).
Lastly, these large and relatively swift emission reductions in France were achieved at a net economic gain. Table 1 lists the data used to compute the average abatement cost (AAC): the total expenses incurred for the new policy (relative to the counterfactual scenario), divided by the CO2 emissions reduction.
The net average abatement cost of -$20 per ton of CO2 is a result of the lower cost of electricity production (here represented by the levelized cost of electricity (LCOE)) of new nuclear energy during the time-period, compared to the main alternative, namely coal, – the primary energy source in counterfactual synthetic France. LCOE encompasses the complete range of expenses incurred over a power plant’s life cycle, from initial construction and operation to maintenance, fuel, decommissioning, and waste handling. Accurately calculated, LCOE provides a standardized metric for comparing the costs of energy production across different technologies, countries, and time periods (IEA 2015).
Abatement Costs and Timelines Today
Today, more than 50 years after the first oil crisis, many factors that made France’s expansion of nuclear energy a success are markedly different. For example, the cost of wind and solar energy – the other two prominent zero-carbon technologies – has plummeted (IEA 2020). Further, construction costs and timelines for new nuclear reactors in Europe have steadily increased since the 1970s (Lévêque 2015).
Figure 2 depicts the LCOE for the main electricity generating technologies between 2009 and 2023 (Bilicic and Scroggins 2023). The data is for the US, but the magnitudes and differences between technologies are similar in Europe. There are two important aspects of this figure. First, after having by far the highest levelized cost in 2009, the price of solar has dropped by more than 80 percent and is today, together with wind energy, the least-cost option. Second, the cost of nuclear has steadily increased, contrary to how technology cost typically evolves over time, meriting nuclear power the “a very strange beast” label (Lévêque, 2015, p. 44). By 2023, new nuclear power had the highest levelized cost of all energy technologies.
Regarding the construction time of nuclear reactors, these have steadily increased in both Europe and the US. The reactor Okiluoto 3 in Finland went into commercial operation last year but took 18 years to construct. Similarly, the reactor Flamanville 3 in France is still not finished, despite construction beginning 17 years ago. The reactors Hinkley Point C in the UK were initiated in 2016 and, after repeated delays, are projected to be ready for operation in 2027 at the earliest (Lawson 2022). Similarly, in the US, construction times have at least doubled since the first round of reactors were built. These lengthened constructions times are a consequence of stricter safety regulations and larger and more complex reactor designs (Lévêque, 2015). If these average construction times of 12-18 years are the new norm, Sweden will, in fact, not have two new reactors in place by 2035. Further, it would need to begin construction rather soon if the goal of having ten new reactors by 2045 is to be achieved.
Figure 2. Levelized Cost of Electricity, 2009-2023.
Source: Bilicic and Scroggins (2023).
Sweden’s Potential Emission Reductions
The rising costs and extended construction times for new reactors are notable concerns, yet the crucial measure of Sweden’s new climate policy is its capacity to reach net zero emissions across all sectors. Figure 3 depicts per capita emissions of CO2 from electricity and heat production in Sweden and OECD countries between 1960 and 2018.
Figure 3. Sweden vs. the OECD average.
Source: IEA (2022).
In 2018, the OECD’s per capita CO2 emissions from electricity and heat averaged slightly over 2 metric tons. In comparison, Sweden’s per capita emissions at 0.7 metric tons are low and represent only 20 percent of total per capita emissions. Hence, the potential for substantial emission cuts through nuclear expansion is limited. By contrast, Sweden’s transport sector, with CO2 emissions more than two times larger than the emissions from electricity and heat, presents a greater chance for impactful reductions. Yet, current policies of reduced transport fuel taxes are likely to increase emissions. The electrification of transportation could leverage the benefits of nuclear energy for climate mitigation, but broader policies are then needed to accelerate the adoption of electric vehicles.
Conclusion: Sweden’s Nuclear Energy Renaissance and Its Impact on Climate Policy
As Sweden rewrites its energy and climate policies, nuclear energy is placed front and center – a position it has not held since the 1970s. Yet, while nuclear energy may experience a renaissance in Sweden, it will not be the panacea for reaching net zero emissions the current government is hoping for. Expected emission reductions will be modest, abatement costs will be relatively high and, if recent European experiences are to be considered an indicator, the aspirational timelines are likely to be missed.
Considering these aspects, it’s imperative for Sweden to adopt a broader mix of climate policies to address sectors such as transportation – responsible for most of the country’s emissions. Pairing the nuclear ambitions with incentives for an accelerated electrification of transportation could enhance the prospects of achieving net zero emissions by 2045.
References
- Alderman, L. (2022). France Announces Major Nuclear Power Buildup. The New York Times. February 10, 2022.
- Andersson, J. and Finnegan, J. (2024). Industrial Policy and Decarbonization: The Case of Nuclear Energy in France. Working Paper.
- Bilicic, G. and Scroggins, S. (2023). 2023 Levelized Cost of Energy+. Lazard.
- Bistline, J., Mehrotra, N. and Wolfram, C. (2023). Economic Implications of the Climate Provisions of the Inflation Reduction Act. Tech. rep., National Bureau of Economic Research.
- Government Office. (2023). De första 100 dagarna: Samarbetsprojekt klimat och energi. Stockholm, January 25, 2023.
- Gröndahl, M-P. (2022). Thierry Breton: ’Il faudra investir 500 milliards d’euros dans les centrales nucléaires de nouvelle génération’. Le Journal du Dimanche January 09, 2022.
- Hecht, G. (2009). The Radiance of France: Nuclear Power and National Identity after World War II. MIT Press.
- IEA. (2015). Projected Costs of Generating Electricity: 2015 Edition. International Energy Agency. Paris.
- IEA. (2020). Projected Costs of Generating Electricity: 2020 Edition. International Energy Agency. Paris.
- IEA. (2022). Greenhouse Gas Emissions from Energy (2022 Edition). International Energy Agency. Paris.
- Jasper, J. M. (1990). Nuclear politics: Energy and the state in the United States, Sweden, and France, vol 1126. Princeton University Press.
- Lawson, A. (2022). Boss of Hinkley Point C blames pandemic disruption for 3bn delay. The Guardian. May 20, 2022.
- Lévêque, F. (2015). The economics and uncertainties of nuclear power. Cambridge University Press.
- Persson, I. (2022). Allt du behöver veta om ’Tidöavtalet. SVT Nyheter. 14 October, 2022.
- Swedish Government. (2023). Regeringens proposition 2023/24:28 Sänkning av reduktionsplikten för bensin och diesel. State Documents, Sweden. Stockholm, October 12, 2023.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Greening Politics – Navigating Environmental Policy Consistency Amidst Political Change
The Stockholm Institute of Transition Economics (SITE) and the Forum for Research on Eastern Europe: Climate and Environment (FREECE) would like to invite you to its 2024 SITE Energy Talk. This edition will address the complexities of upholding environmental policies amidst a changing political landscape.
In the ongoing battle against climate change, maintaining our environmental commitments is more crucial than ever. However, the evolving landscape of global politics, marked by shifting international relations and significant concerns regarding democratic regression, presents escalating challenges to the continuity of our environmental objectives and obligations. This year’s SITE Energy Talk will prioritize the identification of risks posed by political transitions to our environmental aspirations and explore strategies for maintaining the credibility of environmental policies in the face of political flux.
Speakers
Michaël Aklin
Michaël Aklin, Associate Professor of Economics and holder of the Chair of Policy & Sustainability (PASU) at the Swiss Federal Institute of Technology Lausanne, who will offer a broader European perspective.
Thomas Tangerås
Thomas Tangerås, Associate Professor, Program Director at the Research Institute of Industrial Economics (IFN), who will address the Swedish perspective on the issue.
Paweł Wróbel
Paweł Wróbel, Energy and climate regulatory affairs professional. Founder of GateBrussels and Managing Director of BalticWind.EU, who will present Polish perspective on green transition in the face of European and regional challenges.
Registration
The event will take place in room Torsten, Sveavägen 65, 113 50 Stockholm (the main building of SSE) and the registration opens at 11.45 near room Torsten.
The event will also be streamed online via Zoom for those who cannot join the event in person. Please register via the Trippus platform:
NOTE: A light lunch will be provided for those who pre-register for in-person participation.
Please contact site@hhs.se if you have any questions regarding the event.
Highlights from Previous SITE Energy Talk Events
SITE Energy Talk is an annual event. The purpose is to bring together scholars and practitioners to discuss recent developments in the energy markets and regulation, such as:
- Energy infrastructure resilience and sustainable future (2023)
- Energy storage: Opportunities and challenges (2021)
- Energy demand management from a behavioral perspective (2018)
- Technological development, geopolitical and environmental issues in our energy future (2017)
- The impact of the technology changes on the energy market (2016)
- Economic impacts of oil price fluctuations (2015)