Background: a small country sets its targets

After the Paris Agreement, Sweden needed to update its climate targets. A government-initiated commission was launched, formed by representatives for the seven out of the parliament’s eight parties that had shown an interest in climate issues. Their first task was to quantify Sweden’s share of global greenhouse gas emissions.

With 0.15 percent of global emissions, it would be easy to argue that what Sweden does, has little or no impact on the global climate. Even adding the impact of consumption – goods produced elsewhere but used in Sweden – the impact stays at 0.3 percent. However, the seven parties agreed that with such a small part of the global emissions, Sweden’s only way to be truly relevant in combating climate change would be as a role model for others; a permanent exhibition for climate friendly solutions or a global climate helpdesk.

The world’s most stringent climate target were thus approved by the Swedish Parliament in June 2016; net zero by 2045 which means at least an 85 percent emissions reduction in Sweden compared to 1990, with up to 15 percent reductions elsewhere, but financed by Sweden. Until 2030, emissions are to be reduced by 63 percent.

In the process leading up to the legislation, many sectorial targets were discussed; for the agricultural sector, forestry, education, the defense sector and many other part of the Swedish economy. However, the Parliamentarians agreed that sectorial targets reduce the liberty of how to reach the overarching targets, thus increasing the cost or reducing the ambitions. Thus, the Swedish Climate Act only has one sectorial target; a 70 percent emissions reduction between 2010 and 2030 in the transport sector – a “Fossil-independent transport sector”.

Why did the Swedish Parliament agree on a transport target, when no other targets were approved?

• First of all, being a country with few people and long distances, transportation issues are central for policy measures.

• Secondly, Sweden does not have any fossil fuels; a strong climate target for the transport sector was not lobbied against by Big Oil, Old Coal or Gas of the Past. Instead, Sweden has a surplus of electricity from fossil-free sources and a large production of renewable energy for the transport sector.

• Thirdly, Sweden is a country of transport heavyweights, with vehicle manufacturers such as Volvo the truck and bus manufacturer, (separately) Volvo the car maker and Scania, as well as new players such as Polestar and Einride, all seeing market opportunities with a target that makes the small home market a testing ground and a showcase for new solutions

• Finally, the target of a “fossil-independent transport sector” had already been proposed by a government commission in 2013, and a specific organization – the Swedish 2030-Secretariat – was launched to ensure that this target became law.

The transport target: what it means

When climate targets are illustrated, it is often with a new electric car. This is even more so for Sweden’s transport target, often compared to neighboring Norway’s world-leading switch to new electric cars. In a direct comparison, Sweden is only a distant second in Europe – but the comparison is unfair, since the Swedish target is not only about electromobility, not only about cars, and not only about new vehicles. It’s about all ground transport – and the demanding target cannot be met by only going for one solution. Indeed, if you are ready to learn three words of Swedish, reaching the target is to de done roughly through three equal measures, three B’s:

• Bilen: The vehicle – everything from the bicycle and car to bus, truck and train; increased efficiency, better usage of appropriate solutions.

• Bränslet: The fuel and electricity – all sustainable ways to power the vehicle, including electricity, e-fuels, biogas and sustainable renewable biofuels from waste and residues.

• Beteendet: The behavior – all ways to transport people and goods more efficiently, or to avoid transports by remote working and other e-solutions.

These are further explained below.

Bilen: electrification and retrofit

Sweden has a slow uptake of electric vehicles – compared to neighboring Norway. Compared to every other country in the world, Sweden is faster. In 2022, for new car-sales more customers went for chargeable than for petrol and diesel versions combined. And for the first time, fully electric vehicles outsold plug-in hybrids.

The main incentive has been the bonus-malus taxation system, in place since 2013. Inspired by the French system with the same name, the vehicles with emissions below a certain threshold, lowered at regular intervals, receive a bonus, while vehicles with high CO2 emissions pay a malus, with a second step for gas-guzzlers paying a “supermalus”. Vehicles with emissions around the neutral point neither receive bonus nor pay malus. The bonus is paid in full after six months of ownership, while the malus functions as an added tax during the first three years. After that, the annual vehicle tax is still CO2-based, giving an additional boost for low-emission vehicles.

The system was intended to be self-sustained, with the cost for bonuses being balanced by the added income from malus-taxation. In practice, this never happened since uptake of bonus-vehicles increased rapidly while sales of cars generating large malus-income quickly dwindled – the system became a victim of its own success. As of 1st January, 2023, the buyer of a passenger car, minivan or light truck considered to have zero emissions (fully electric and hydrogen) receive a € 5000 bonus, while vehicles powered by biogas and plug-in-hybrids with emissions of below 30 g CO2/km receive €1000. Vehicles with emissions of 75-125 g CO2/km pay a malus fee of €10/g of CO2, while emissions above 125 g are taxed with €12.5/g, and diesel-powered vehicles pay an additional €1.3 per gram of CO2/km. As examples, a Volvo XC90 with a petrol engine is taxed about €1500 annually, while the plug-in-hybrid version of the same car only pays the annual registration fee of €35, and the buyer of fully electric XC40 receives a €5000 bonus. The malus taxation is paid the first three years of the car’s life, whereafter the tax is still CO2-based but significantly lower. The bonus is only given to cars costing less than €65 000.

The taxation is a main reason why plug-in-cars represented 56 percent of all new car sales in 2022, with one third of all new cars being fully electric. That was way more than petrol cars (22 percent) or diesel (11.5 percent). The share of electric cars is lower than in neighboring Norway, but higher than anywhere else.

For light duty transport vehicles such as small trucks, minivans and pick-ups, the same rules apply and the same effect is seen on the market even though with a delay compared to the passenger cars. In 2022, the share of fully electric doubled, to 15 percent of the market. For heavy trucks, the market has only just started, with up to 60 ton trucks for long haul being launched by both established Swedish truck makers Scania and Volvo, and upstarts Einride and Volta. But both for “big” trucks and buses, in the near future, there is more of a market for vehicles powered by sustainable biofuels, particularly HVO biodiesel as well as both compressed and liquified biogas. The common denominator for these fuels is that they are made from waste, with a very low carbon footprint and no possibility of competing with the production of food or fodder

At the other end of the market, Sweden for a while had a bonus for e-bikes and electric mopeds, covering up to 25 percent of the purchase price. After two years and 89,346 users of the bonus, it was no longer deemed necessary, the market was established.

But remember that the Swedish target is for the whole transport sector, not just new vehicles. Since in Sweden, an average car is used about 18 years before it is scrapped, many gas guzzlers will still be around in 2030, putting the target in jeopardy if nothing is done – and a premium for scrapping them may not be cost-effective since many of these cars are not old clunkers. Thus the government in the 2021 state budget launched a bonus for retrofitting petrol cars so that they can instead run on ethanol or biogas. First due to a reshuffle of the government and then due to elections, this incentive has not materialized as yet, and meanwhile a movement converting classic combustion cars to electric drive has started, meaning that the final incentive may have a different design when and if launched.

In terms of vehicles (Bilen), when in doubt whether the sector can make the contribution necessary to meet the 2030-target, the shining example and inspiration is public transport. Its buses, trains and trams are now 95 percent fossil free – only a very few old buses still use fossil fuels. It can be done!

Bränslet: the fuel

When the Swedish Environmental Protection Agency, EPA, and the Swedish Energy Agency in early 2022 evaluated the government’s policies and financial incentives, they both independently came to the conclusion that the 2030 target could be met with existing instruments. The key reason for this was the fuel switch from fossil to renewable fuels, and the main instrument here is the reduction quota. This is an annual obligation to reduce the climate impact of petrol and diesel by a certain, increasing percentage compared to fully fossil fuels. By 2030, diesel is to have a 66 percent lower climate impact than fossil diesel, while the footprint of petrol is to be reduced by just above 30 percent.

The retailers can meet the quotas in any way they please, but in practice it is done by blending HVO (hydrated vegetable oils) and FAME (fatty-acid methyl ester) into the diesel, and ethanol into petrol. Since the quota is only to be met on a national basis, the companies can save money by not blending in renewable fuels in remote parts of the country and instead blending in more in the Stockholm region or around Gothenburg, a principal port for fuel imports. Since it only has to be met on an annual basis, companies can choose to blend more in the summer and not have to blend as much (or at all) during the coldest months. Especially HVO can be blended in any proportions, with no noticeable effect for the vehicle or the user.

Furthermore, Sweden for some years has the world’s quickest uptake of Flexifuel-passenger cars, able to use E85 with 85 percent ethanol and 15 percent petrol, or 100 percent petrol or anything in between. Still, more than a quarter of a million cars can use E85. Sweden also has the world’s largest fleet of biogas-powered cars; more than 50,000 run on 100 percent renewable CNG. Thousands of diesel cars, buses and trucks use HVO100, 100 percent renewable HVO diesel, or RME100 from rapeseed. The biofuels are tax exempt until 2027, recently prolonged four years by the EU-commission, meaning that while fossil fuel prices may be all over the place due to Russia’s war on Ukraine, biofuels have the possibility to offer more stable, predictable and competitive prices.

Approaching 2030, electricity will be the leading “fuel” of the vehicle sector. Already today, more than 5 percent of all vehicle usage is done with electricity, and for both passenger and goods trains, it is more than 95 percent. A commission has developed roadmaps that together with co-funding for charging infrastructure to ensure that there will be no white spots on the map; everywhere in Sweden one is to be able to charge electric cars, buses and trucks. The focal areas of government interventions are now in the Northern hinterlands, in residential areas, particularly for apartment dwellers, and for charging during loading and off-loading of goods. Furthermore, strategies are being developed to strengthen the business case for electric boats, ferries and ships as well as airplanes, with Swedish Heart Aerospace being at the forefront of developing an e-plane with 30 seats and the capacity to travel 200 km on electricity alone or more than double that in a plug-in-hybrid mode.

Beteendet: the behavior switch

Sweden is a frontrunner of digital solutions, with companies such as Ericsson and its own Silicon valley, Kista, just north of Stockholm. This paired with long distances and perhaps a factor of unpleasant weather, means that there has early on been a strong uptake for “distance working”, with a large share of the workforce now working from home – or indeed anywhere but the office – one or two days a week, and more and more generation Z or “Generation Greta” demanding such solutions from their employees. For the 2030-target, this has a tremendously positive impact; the daily commute is the brunt of passenger car usage and the rush hour usage sees the highest emissions and fuel consumption.

The behavior switch runs deeper than just working from home. Long distances and a high degree of connectivity also means that e-commerce has taken on very strongly – but the immediate effect on the 2030-target was not as positive as it could be, since much goods delivery was done with little ride sharing, and much goods was offered with “free returns” as a sales pitch, increasing transports. Now, several initiatives between key actors in e-commerce mean that this is being addressed and e-commerce replacing everyone taking their own transport to the supermarket or malls can become a sustainable part of reaching the 2030-target.

Behavior changes also include shared mobility really picking up after several false starts. The Volvo on Demand is beyond traditional car sharing, while the Volvo-affiliated Lynk&Co lets people subscribe to a car and sublet it to others when not using it, significantly reducing the total need for cars and the cost of having access to cars. Micro-mobility has also taken off, with Swedish Voi alongside Tier being amongst the first and now globally leading in electric scooters for last mile-solutions. At first heavily criticized, with geofencing and other solutions, they now are more responsible partners of the cityscape. Especially in the north of Sweden, specific municipal initiatives to support winter biking have taken off, while in the very north the “kick” is used as a personalized mobility tool.

In June 2022, the parliament decided to support the switch to sustainable mobility by replacing the old travel deduction system, where one gets €1.7 per 10 km of car travel between the home and the workplace, with a system where you can deduct the same amount no matter which mode of travel you choose, of course meaning that you will pocket substantial amounts if you commute long distances by bike for work.

The new government: target stands, measures deleted

On September 11th, Sweden held national elections and after intense negotiations a three-party, conservative minority government was installed, supported by the nationalistic Sweden Democrat which is the largest party in the coalition and the only of them to gain seats in the election.

Whilst the government parties adhere to the Swedish climate targets, the Sweden Democrats do not, and the coalition agreement and first budget mostly contain policy changes that make reaching the climate targets increasingly doubtful. In fact, the Swedish EPA states that with the new government’s policies, the 2030-target will not be met.

The most visible step in the wrong direction compared to the targets has been the promise to reduce the price of petrol and diesel for end-consumers, and the main way to do this according to the government is to reduce the reduction quota to EU’s minimum level, with a higher share of fossil fuels and very large emissions increases as a direct result. How this would reduce prices is far from clear; recently, prices of petrol and diesel in Sweden have mainly risen due to Russia’s war limiting oil supply, OPEC agreements further reducing it, and the Swedish currency losing in value.

Exactly how the reduction quota is to be reduced is as yet unknown; it is to take place from 2024-2026 and details have not yet been presented, including what is meant by the EU minimum level. The government previously quoted the 6 percent renewables from the EU Fuel Quality Directive, but this is no longer an active piece of EU legislation and the third Renewable Energy Directive (RED) which is being negotiated instead seems to demand 13-16 percent, though only from 2030 and potentially with no interim targets. The government also scrapped the bonus for new electric cars; only those that were bought before November 8th will get their bonus, though due to long waiting lists this will stretch all through 2023 and beyond. Furthermore, the government backtracked on the subsidies for work-related travel, so that the system now once again favors car usage over any other kind of transport.

For the 2030-secretariat, this means hard work. Whilst the secretariat emphasizes the aforementioned Bilen, Bränslet, Beteendet, it also acknowledges that the mix between the three can change over time. What cannot happen, however, is that ambitions are lowered across the board; if, for instance, subsidies for electric cars are abolished, more needs to be done in another area, such as improving incentives for cycling. The secretariat is now busy rewriting its plan to reach the target, based on the new government’s priorities, as part of the climate roadmap to be presented by the government in the autumn of 2023.

The industry reply

Being a small and export-oriented country, Sweden’s business community is very important for the welfare of the country and politicians will typically ensure that policies are aligned with corporate needs. Indeed, an old saying is that “What is good for Volvo, is good for Sweden”. Historically, this has meant that environmental legislation has been more lenient for the industry, for instance while Sweden has the world’s highest carbon tax, the industry has by and large been exempted from it.

In recent years, and especially around the last election, there has been a paramount change in the industry message to politics. Far from demanding more lenient rules and regulations, the industry has rallied around more than 20 sector-specific roadmaps to become fossil free, as part of the government initiative Fossil free Sweden. A wide industry coalition is now calling for the reduction quota not to be reduced, for subsidies to be given directly to suffering households and companies rather than through the lowering of fuel prices and more generally for the long-term decisions previously decided upon to be kept and delivered upon.

All of this is helped by Sweden not having any fossil fuel production; every liter of oil, petrol or diesel and every cubic meter of natural gas is imported. Thus, every effort to reduce this dependency is an opportunity for a better trade balance, for more money to stay within the national economy and for green jobs to be created in Sweden. It is in this context that the Swedish 2030-target and the seven party-agreement behind it is to be seen; it is an unique opportunity to create jobs and strengthen the industry, and it is this tiny country’s one opportunity to be of global relevance in the issue that matters the most for our common future.

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