Report 2021

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Report of the Swedish Policy Council 2021 (pdf)

Summary and Recommendations

2020 was an unforgettable year. The world was hit by a pandemic that profoundly affected people’s lives across all continents and brought on a deep social and economic crisis. Countries around the world have decided on comprehensive interventions involving huge government spending on initiatives to prevent the spread of the virus and combat the social and economic consequences of the pandemic.

The design of these initiatives will have a significant impact on the chances of achieving climate targets, in both the short and the long term. This impact will be felt in both direct effects on the economy and society as well as indirect effects such as trust in society’s institutions and international cooperation.

This year, in its annual evaluation of the Government’s overall design of policies to achieve Sweden’s climate goals, the Swedish Climate Policy Council has chosen a particular emphasis on the Government’s crisis and recovery policy during 2020 and the impact of that policy on our chances of achieving net-zero emissions by 2045. In addition, this year’s report contains a general overview of emissions trends and an assessment of the Government’s climate policy action plan and the Government’s climate report to the Parliament.

Big temporary reductions in emissions in 2020 – but negligible effects on our chances of achieving our climate goals

The latest official statistics on greenhouse gas emissions in Sweden are for 2019, before the pandemic broke out. The reduction in emissions that year was 2.4 per cent, which is slightly more than previous years but still nowhere near the 6-10 per cent per year needed to reach net-zero emissions by 2045. On the positive side, the 2020 interim goal of reducing emissions outside the EU emissions trading scheme (EU ETS) by 40 per cent has been achieved, independently of the pandemic’s short-term effects on emissions.

Greenhouse gas emissions decreased temporarily in 2020, both globally and in Sweden, mainly due to restrictions and recommendations aimed at reducing the spread of the coronavirus. The reduction in emissions was historically large, but not more than what is required each year for the global temperature increase to be kept below 1.5 degrees. Reduced emissions in individual years do not diminish the greenhouse effect either – the concentration of greenhouse gases in the atmosphere temporarily increases at a slightly lower rate than it would otherwise have done. It is not until net emissions reach zero or are negative that the conditions will be in place to stop global warming. This requires permanent structural changes, which in turn call for further policy reforms.

A window of opportunity for the climate transition…

The coronavirus crisis is taking a heavy toll on society and has hit many families and individuals hard. But a crisis can also present opportunities to reset, rethink and implement major changes. The conditions for society’s transition towards achieving the climate targets will in many ways be better after this crisis than they have been in the wake of previous economic crises.

One reason is the long-term underlying changes that took place prior to the crisis. These include digitalisation and advances in technology, increasingly competitive renewable energy options, industry’s focus on fossil-free competitiveness, well-developed climate policy frameworks, more ambitious policies in more and more countries, and broad public support for the climate transition. This can be termed the establishment and maturity of the climate transition.

Another reason is the breakthrough insight that rapid change and collective action are possible, including extensive climate investment: an insight of momentum. Communities have shown that they can react swiftly and resolutely during times of crisis. This interface between maturity and momentum opens a window of opportunity to accelerate the climate transition.

… underutilised by the Government

In an emergency, it is natural for short-term crisis management to come to the fore. It is thus a positive sign that in 2020 the Swedish Government took few decisions that risked directly undermining its climate goals.

However, when it comes to recovery from the crisis and reforms of a more long-term nature, the bar must be set higher. It is not enough to simply not do the wrong thing. The pace of climate transition remains too slow, and current policy is insufficient for achieving the climate goals.

According to the Climate Policy Council’s analysis, only one-tenth of the Government’s recovery efforts also contribute to achieving Sweden’s climate policy goals. Although the Government has been pushing for tougher climate goals and greater ambitions in the EU, several Member States have linked their recovery efforts more closely to the climate transition than Sweden has.

Government policies play a key role in generating understanding and shaping opinion during a crisis and in bringing together all stakeholders to act in a more unified way. The Government has described its recovery policy as “a powerful green economic restart”, but the message has not been consistent. We lack a clear, cohesive narrative about how to emerge stronger from the crisis towards the vision of Sweden as the world’s first fossil-free welfare state.

How the Government can better leverage the window of opportunity

Although 2020 was a tumultuous year, the Climate Policy Council’s analyses show that to date the coronavirus crisis itself has not decisively changed the conditions for the climate transition in the long term. Some investments may have been postponed in the industry and energy sectors, but major new fossil-free initiatives have also been announced. The transport sector, which was already undergoing a major shift, has been most affected by the crisis. However, it is still too early to say what long-term impact this will have on our chances of achieving the climate goals. Current policy priorities and plans remain relevant, despite the crisis. New strategies are not required. Instead, it should use the window of opportunity that now exists to turn plans into action and increase the pace of the climate transition.

Create stronger ties between recovery policy and climate transition

The Government’s climate policy action plan is in place, as are numerous strategies and initiatives in areas that are central to the climate transition. A range of business sectors have developed roadmaps for fossil-free competitiveness. The Government is set to present its national recovery plan under the EU-wide recovery and resilience facility. It is paramount for the Government to use its recovery policy to implement the climate policy action plan and link all these different strategies and roadmaps together, so that it can work in a more coherent way. This would also permit the formation of a meaningful and strong narrative about the way out of the coronavirus crisis, a narrative that at the same time boosts efforts to achieve the climate goals.
In June 2020, the Government established a Ministerial Working Group on Climate Policy, led by the Prime Minister, to coordinate the Government’s implementation of its climate policy action plan. The working group was also to play a central role in “climate proofing” the recovery policy. Stakeholders outside the Government, however, still struggle to understand if and how the working group will make a difference in the Government’s work. Nonetheless, the working group has great potential to promote broader responsibility and ownership around the implementation of the Government’s climate policy action plan and its overall policy for achieving the climate goals. At the same time, the working group can ensure that strategies adopted, and decisions made by the Government are consistent.

Recommendations

• Use the recovery policy to implement the climate policy action plan and existing strategies that give concrete expression to the desire to be “the world’s first fossil-free welfare state”.
• Strengthen the role of the ministerial working group on climate policy in accordance with its mandate, and utilise it as a driving force in the Government’s efforts to achieve the climate goals.

Funding the window of opportunity

Extensive investment is needed in areas such as fossil-free energy systems, transport and infrastructure for the climate goals to be achievable. Policy has an essential role to play in creating favourable conditions for other stakeholders to invest sustainably. But there are also compelling reasons why the state sometimes needs to be involved in (co-)financing climate initiatives, which is most evident when it comes to public infrastructure. In addition to the EU, international economic cooperation organisations such as the IMF, the World Bank and the OECD are encouraging their member states to support green investments as they emerge from the coronavirus crisis.

Fiscal stimulus for economic recovery, together with an increased openness to public-funded support for business, can contribute strongly to a momentum that can intensify and accelerate the climate transition. Together with an understanding of the maturity of the climate transition – for example, the business community’s own transition strategies – a window of opportunity is created for more effective policy to achieve the goals.

In the aftermath of the 1990s crisis, a fiscal policy framework was created that helped Sweden achieve a more transparent budget process and more robust public finances. In an emergency requiring urgent action, the framework ought to be applied in ways that do not risk closing the window of opportunity for economically viable climate investments. The flexibility in the fiscal policy framework should be leveraged so that savings to reach the surplus target are not increased too rapidly.

The fiscal policy framework, which focuses on the long-term robustness of public finances, lacks an analysis of the climate change risks to this robustness. The review of the framework planned to begin in 2025 and end in 2027 therefore ought to be brought forward to ensure that the risk analysis includes relevant risks for future generations. The debt anchor of 35 per cent of GDP has been set to provide a significant margin to the EU debt ceiling and to debt levels identified as problematic. However, an overly low debt anchor may mean that Sweden is investing insufficiently for future generations. A risk that, based on the need for a climate transition, may prove to be at least as large or greater than the risk of insufficient savings.

Monetary policy, which is controlled by the Riksbank, also needs to address the requirements and opportunities of the climate transition and the risks posed by climate change. On the one hand, climate change can make it more difficult for the Riksbank to reach its inflation target and therefore threaten financial stability. And on the other hand, the Riksbank’s monetary policy governing the purchase of corporate bonds, for example, can affect the chances of achieving the climate goals.

The Climate Policy Council believes that the new Riksbank Act, which is being drafted at the time of publication of this report, should be developed on the basis of a clear climate perspective. The Council recommends that the new Riksbank Act requires the Riksbank to address the impact of climate change on monetary policy and to contribute to the achievement of the climate goals.

Recommendations

• Utilise the flexibility of the fiscal policy framework and allow a longer period to restore savings to the surplus target to create scope for investments that contributes to the climate transition.
• Bring forward the review of the fiscal policy framework and include the climate perspective in the risk analysis of the robustness of public finances.
• Include a climate perspective in the ongoing re-drafting of the Riksbank Act.

Prerequisites for climate investments

Protracted permit procedures are a known obstacle to the timely implementation of vital climate investments. Paradoxically, the rules that are supposed to ensure environmental considerations in town and country planning risk slowing down the climate transition. In addition to the review of relevant legislation and rules previously recommended by the Climate Policy Council and initiated by the Government, it is important to ensure that licensing authorities are equipped with the necessary resources, sufficient skilled staff and clear guidelines in order to process a large number of applications more quickly.

The climate transition requires new knowledge and improved skillsets across all industries and areas, both in the civil and the private sector. For Sweden to strengthen its competitiveness, the Government should therefore seize the opportunity present in its ongoing recovery policy to invest in targeted and in-demand upskilling for the climate transition. Moreover, broader efforts to raise public awareness and mobilise civil society can facilitate the implementation of policies that will achieve the climate goals.

Like many other government agencies and research reports, the Climate Policy Council has highlighted the importance of ensuring that investments in transport infrastructure contributes to a more transport-efficient society. However, the orientation document that is now on the Government’s table, which is intended to govern investments in transport infrastructure for at least half the period leading up to net-zero emissions in 2045, does not point to any major change. The Government needs to bring together the relevant authorities to jointly develop a basis for transport investments within the framework of the climate policy goals.

Recommendations

• Implement a faster, more transparent permit procedure for investments that contribute to the climate transition.
• Invest in knowledge and skills for boosting climate transition efforts as part of the ongoing recovery policy.
• Ensure that the national transport infrastructure plan contributes to a more transport-efficient society within the framework of the climate goals.

The European Green Deal and recovery plan

The Government should be inspired by how the EU has conflated recovery policy and the climate transition, as well as how the climate agenda has been tied to a broader sustainability agenda for promoting resource efficiency and the circular economy, biodiversity and a fair transition. The ongoing climate transition in Sweden will be strongly influenced by all the new and amended rules and regulations now being developed at the EU level that are linked to the European Green Deal and its comprehensive recovery plan. There is reason to revisit whether the Government Offices of Sweden possess sufficient resources to be able to both influence and capitalise on the European wave of green reform, which has only just begun.

Recommendation

• Strengthen Sweden’s engagement and influence in the EU by participating in a strategic, coordinated and active manner in the European Green Deal and recovery plan as well as related political processes.

Openings for changed behaviours

In several areas, the coronavirus crisis has brought about rapid and extensive behavioural changes. Policy ought to strive to support behavioural changes that can make a positive contribution to the climate goals and hinder behaviours with negative impacts. For example, this might include supporting more sustainable travel patterns and online meetings, developing rules and regulations that facilitate more efficient premises utilisation or more efficient logistics for e-commerce, and stimulating nature, outdoor life and sustainable tourism locally. When the pandemic is over, those who chose to drive their car during the pandemic need to return to using public transport and other more climate-efficient means of transport.

Recommendation

• Promote behavioural changes that aid our chances of reaching Sweden’s climate goals.

Follow up and report on the implementation of the climate policy action plan

In accordance with the Climate Act, in December 2019 the Government decided on a climate policy action plan which was to guide efforts over the subsequent four years to achieve the climate goals. However, the Government has not reported on how the plan’s implementation is progressing in its climate report to parliament, either for 2020 or in any other context. This follow-up is important for the Government’s own work and for delivering on the aim of clarity and transparency behind the climate policy framework.

For almost three years, the Government has been announcing that an assessment of the impact of all relevant proposals in official government inquiries and official policy input on the climate goals will be carried out. This has not yet happened.

Recommendation

• Report on how the implementation of the climate policy action plan is progressing in the annual climate report to parliament.
• Present the climate report at the same overarching appropriations level as the budget statement.
• Decide that an assessment of the impact on our chances of achieving the climate goals is to be included in all official government inquiries and inputs to Government decisions.