The green state and industrial decarbonisation

ABSTRACT

The large share of carbon emitted by energy-intensive industries in the extraction and processing of basic materials must be limited to decarbonise society and the economy. Ways in which the state can govern industrial decarbonisation and contributes to green state theory are explored by addressing a largely ignored issue: the green state’s industrial relations and its role in industrial governance. With insights from a Swedish case study, the tension between the state’s economic imperative and ecological concerns in greening industry are shown to persist. However, as the energy-intensive industry’s previously privileged position in the economy is weakening, industry is opened to decarbonisation strategies. While the case exposes a number of governance challenges, it also suggests potential areas where the state can pursue decarbonisation in energy-intensive industry and points the way to an active role of the green state in governing industrial decarbonisation and greening industry.

KEYWORDS:

• Green State
• industrial governance
• climate policy
• sustainability transitions
• decarbonisation
• Sweden

Introduction

In the new politics of climate change, a key challenge for the green state is to decarbonise the economy and achieve deep cuts of carbon emissions in the energy and transport sectors in order to keep global warming well below 2°C. This implies reductions in the large share of carbon emissions by the Energy-intensive Natural Resource-based Industry (ENRI), which extracts and processes basic materials for other industries. Halting production of basic materials is not a likely option as steel, metals, wood pulp, cement, chemicals and plastics will likely be necessary in future decarbonised societies.

ENRI’s share of total carbon emissions is far from negligible if the objective is deep decarbonisation over the longer term (Åhman et al. 2017). Johansson and Nilsson (2017) argue that, although market mechanisms and self-regulation have contributed to reduce carbon emissions through energy efficiency improvements and fuel shifts, this will be insufficient to decarbonise industry (Patt 2015). We suggest that any green state – i.e. a state responsive to ecological values and committed to transforming society in ecologically sustainable directions (Eckersley 2004) – also needs to include industrial sectors in efforts to decarbonise society. Consequently, a green state is also a green decarbonising state (Hildingsson and Khan 2015), and here we discuss how industrial decarbonisation challenges the green state.

Green state theory covers many aspects of state policies and institutions (Eckersley 2004, Christoff 2005, Duit et al. 2016), but has paid little attention to industrial governance (Bäckstrand and Kronsell 2015). To green state theorists the economic imperative of the modern state is problematic because it makes liberal welfare states dependent on economic activities that cause environmental harm. However, advanced welfare states (Meadowcroft 2005) have the institutional legitimacy to intervene in economic relationships and the capacity to negotiate interests between state, industry and society. Such states may be particularly suited to handling the negative impacts of industrial processes and making necessary arrangements to substantially reduce carbon emissions.

In exploring the capacity for the green state to engage in industrial transformation, Sweden, an advanced welfare state and an established environmental state, is an interesting case (Duit 2016). As a progressive welfare state, Sweden has provided a model for intervening in the economy to secure social welfare concerns and redistribute wealth. As an established environmental state, Sweden has successfully addressed environmental management and sustainability (Lundqvist 2004, Hildingsson 2014), including ambitious climate policy. Some scholars view Sweden as an exemplar of climate governance (Zannakis 2009, Mol 2016), while others are less convinced (Koch and Fritz 2015, Tobin 2015). Nevertheless, Sweden scores high on environmental performance, has comparably low carbon intensity and has cut national carbon emissions by over 25% since 1990 (see e.g. SEPA 2017).

Focusing on the Swedish case, our objective is to contribute to green state theory by asking how the state is engaged in industrial governance and by exploring its role in governing decarbonisation in the ENRI sectors. We aim to further conceptualise the understanding of a green decarbonising state (Hildingsson and Khan 2015) by exploring the green state’s industrial relations and its engagement in decarbonisation processes. We begin by presenting the theoretical points of departure for understanding the green state in the area of industrial relations and its role in governing industrial decarbonisation. We theorise the green decarbonising state in terms of its relation to industry by drawing on insights from green state theory, enriched by sustainability transition and innovation studies. Second, in the methods section, we present the original material from which we build the case study. Third, we outline the specific characteristics of the ENRI sectors in relation to climate change and decarbonisation efforts. Fourth, we present the Swedish case analysis, showing how Sweden, while representing key features of a green state, has only recently addressed energy-intensive industry in its efforts to decarbonise. Energy-intensive industry has maintained a privileged position and there is an unresolved tension between the state’s economic imperative and ecological concerns in greening industry. However, the regime is fragmenting and opening up for decarbonisation strategies. Recent developments, including state-industry deliberations on industrial decarbonisation, suggest the emergence of a new policy framework, in which the state more actively intervenes to support industrial transformations. This, we argue, will require a rethinking of the state’s involvement in industrial governance in general and the strategies for industrial decarbonisation in particular.

The green state as a decarbonising state

Our theoretical approach draws on recent work on the role of the state in environmental governance towards climate and sustainability transitions (Bäckstrand and Kronsell 2015) and literature on the green state (Dryzek et al. 2003, Eckersley 2004, Christoff 2005, Meadowcroft 2005, 2012, Duit et al. 2016). This scholarship argues that state institutions and policy-making processes are crucial in providing responses to climate and environmental change. It views the state as one of the most important actors in advancing greener agendas because of its unique legitimacy as well as its capacities and power resources in relation to other actors.

Our approach uses Bäckstrand and Kronsell’s work (2015) which takes a starting point in earlier literatures and develops theories on the green state in tandem with recent research in environmental and climate governance and transition studies. They find that both theoretical insights and empirical research is lacking on how industry and industrial innovation are related to environmental governance and the green state. The green state is a generic concept with different meanings: it can be a normative or an analytical construct, a counterfactual ideal of ecological responsiveness to strive for (see e.g. Eckersley 2004) or an evolving institutionalisation of ecological responsibilities that can be empirically assessed (see e.g. Meadowcroft 2005). In exploring the state’s role in governing decarbonisation, we approach the green state as both a normative ideal and an emerging phenomenon. The green state engages public actors and institutions in processes of governing transformative social change by steering society towards ecologically sustainable ends through political commitments. Furthermore, a green decarbonising state is committed to climate objectives; it emerges ‘through its commitment to prevent climate change and to engage in governing decarbonisation of social structures and practices’ (Hildingsson 2014, p. 37). Decarbonisation is a process of reducing and eliminating fossil fuel use in the economy, a process in which state institutions conduct various policies and political processes to promote economic and social practices that reduce the generation of carbon emissions. Ultimately, the objectives of decarbonisation go beyond relative decoupling of emissions from economic activity towards liberating society and the economy from its high-dependence on fossil energies (Gough and Meadowcroft 2011). While decoupling is achievable through efficiency improvements and technological innovation, deep decarbonisation will require more systemic changes and transformations, including targeting the carbon emissions embedded in late-modern capitalist economies and industrial processes.

Three issues are central to the capacity of green states to instigate and govern industrial transformation.

First, there is a tension between ecological concerns and the economic imperative of the state (Eckersley 2004, Bäckstrand and Kronsell 2015). While economic growth is implicated as a key driver of climate and environmental change, it is an imperative function of the modern state to continuously promote economic progress and industrial development. As pursuing such objectives might imply further resource extraction, material consumption and environmental degradation, the economic imperative of the modern state conflicts with ecological concerns and efforts to green the state. Modern states have responded to such contradictions to the extent that ecological governance nowadays has become established as a key state function (Meadowcroft 2012). Green state theory has not yet resolved the tension between ecological and economic concerns, but it assumes that a green state will develop a more ecologically sustainable approach to economic objectives, for instance through a commitment to reflexive ecological modernisation (Eckersley 2004). In practice, however, state authorities have engaged in weaker forms of ecological modernisation because of their dependency on economic development to generate wealth (Christoff 2005). So far, mitigation strategies aimed at short-term emission reductions and market-based approaches to achieve cost-efficient measures have dominated climate change responses. Yet, empirical evidence suggests that advanced welfare states have more capacity and hold more legitimacy to intervene in the economy than liberal states (Hildingsson 2014, Duit 2016). Still, they remain inherently growth-dependent as advanced welfare states reside in high-consumption societies with large ecological impacts (Koch and Fritz 2015). Thus, a critical question is what type of economic development is possible in a green welfare state and particularly what that means for industrial sectors processing natural resources and basic materials.

Second, early green state theory did not conceptualise the process of transition from the capitalist state to the green state. Besides addressing the need for value changes emanating from civil society and the critical role of deliberative democratic institutions to make states responsive to ecological concerns (Eckersley 2004), it has not sufficiently theorised other processes of change. Hence, it has been necessary to incorporate theories on transition and system change in order to advance green state theory (Bäckstrand and Kronsell 2015). Theories on sustainability transitions assign the state an important role in creating incentives and supporting arenas for the emergence of new low-carbon innovations, technologies and practices (Markard and Truffer 2008). Technological transitions are seen as ‘interactive processes of change at the micro-level of niches and the meso-level of socio-technical regimes both embedded in a broader landscape of factors at the macro-level’ (Markard and Truffer 2008, p. 601; also Geels 2002). Transitions occur when a new regime challenges and replaces a dominant socio-technical regime (rules, accepted norms and established practices). In transition studies, such change is thought to emerge from innovative practices by entrepreneurs and forerunners operating at the niche level and in niche experiments. Niches are protected spaces where radical innovations, technologies and practices emerge, develop and, eventually, grow mature in order to challenge existing regimes. Transition scholars have mainly analysed incumbent regimes in terms of their strategies to resist change or capture innovations with transformative potential (Markard et al. 2012, Geels 2014). There are particular challenges for analysing system change in ENRI: a few companies with long-term investments in large technical systems dominate, casting into doubt how radical technological innovation can materialise into large transformations without the active inclusion of incumbent actors such as large corporations. Some transition scholars have developed a more nuanced view on the role of incumbents showing how they can both obstruct and support sustainability innovations, for example, by capturing transition processes to align them with their own interests (Smink 2015, Späth et al. 2016). Scholars need to consider further the potential of incumbent regime actors to act as change agents and what dilemmas and challenges this entails.

Third, the role of the state in supporting green innovation, technology development and industrial renewal is crucial but has attracted little attention in green state literature. Technological innovation systems studies highlight the different phases of technological development and how structural and contextual factors can support innovation and the emergence of new technologies (Bergek et al. 2015). There is potential for innovative industries that embrace ecological concerns to establish lead markets and encourage decarbonisation globally through such markets. States have historically played a leading role in innovation processes and the development of industrial champions through public actors’ capacity to provide long-term policy support that encourage entrepreneurs and reduce risks for investors, for instance in the development of green technologies (Mazzucato 2013, p. 136). This indicates untapped potential of the green decarbonising state to address more interventionist approaches that go beyond innovation and research policy towards a strategic industrial policy aimed at green industrial transformation.

Material and methods

Our Swedish case study consists of two complementary studies: an integrated analysis of the Swedish ENRI sectors since the 1970s, in order to understand the preconditions for decarbonisation (published in Johansson and Nilsson 2017); and an interview-based study of current climate governance of ENRIs (Hildingsson et al. 2017).

In a collaborative effort, a multidisciplinary team of researchers analysed ENRI in relation to macroeconomic and political developments as well as to environmental, energy, innovation and industrial governance, conducted the integrated analysis. The analysis evolved through a series of workshops with the research team. The study was historical, based on archival policy documents and secondary literature, supplemented with observations of interactions with policymakers and stakeholders in industry sector organisations, participation in public seminars, and by closely following the public debate on climate policy in Sweden.

We conducted the interviews in autumn 2016 with 30 representatives from: ENRI companies (7), ENRI sector organisations (6), public agencies (7), national politicians (4) and civil society organisations (6). Interviews were semi-structured around themes such as the importance of ENRI for Sweden, the characteristics of climate governance, actor relations, possibilities to decarbonise the industry and the need for industrial decarbonisation strategies. We transcribed the interviews, coded and analysed using the qualitative software NVivo. In autumn 2017 we invited respondents to a workshop at which we presented and discussed preliminary results in a focus group format, which we summarised in a report (Hildingsson et al. 2017).

Energy-intensive natural resource-based industry and climate objectives

In this section, we briefly outline the characteristics of ENRI that present particular challenges to ENRIs’ potential to decarbonise. ENRIs are process-based industries engaged in the extraction of natural resources and the production of basic materials for industrial manufacturing and infrastructure construction. This includes mining, metallurgic, forest, cement and chemical industries. While there is much divergence across ENRIs, they share a number of structural characteristics that make it challenging for these industries to phase out carbon emissions. First, their large energy demand, often supplied by fossil fuels, generates substantial emissions. Carbon emissions come from heat and electricity demand and from production processes, e.g. of steel or cement. ENRI sectors account for as much as a fourth of global carbon emissions (Åhman et al. 2017). In relation to value added, ENRI sectors generate substantially higher carbon emissions than manufacturing or service sectors (Johansson and Nilsson 2017). Second, ENRIs are generally large, highly capital-intensive companies with long-term investment cycles, competing through economies of scale (Lempert et al. 2002, Wesseling et al. 2017). In such industrial systems, technological change is generally based on incremental in-house process innovation; transitions are seldom quick. Large-scale capital investments in process technologies generate high sunk costs and lock-ins to the operating systems, which implies that the capacity for industries to shift technology is limited to a few instances of reinvestment. Third, ENRIs are located early in the value chain, distant from end-consumers. Their customers are other businesses such as construction or manufacturing industries using basic materials to produce cars, machinery and consumer goods. Market incentives for ecologically responsive management and for reducing emissions are limited, and consumer pressure only indirect. Business-to-business markets face difficulties in pushing forward higher costs generated by improved environmental performance. Fourth, ENRIs are highly integrated in the global economy, dependent on international markets and, thus, sensitive to international competition and fluctuations in global demand. ENRIs either directly export a large share of their production or provide basic input materials to manufacturing industries competing on global markets (Åhman et al. 2017). To maintain international competitiveness, governments have protected ENRIs, for example, through subsidised energy provisions or tax exemptions (Åhman and Nilsson 2015, Åhman et al. 2017).

Sweden is rich in natural resources, and the ENRI sectors are important to the economy (Johansson and Nilsson 2017). Forest, mining and iron and steel industries are particularly vital, but the chemical and cement industries are also important. These sectors are comprised by mostly large, multinational companies but include state-owned companies, particularly in mining and forestry (and previously in iron and steel). In Sweden, the energy used by ENRIs amounts to approximately 30% of total final energy use, and carbon emissions amount to 30% of national emissions (Johansson and Nilsson 2017, SEPA 2017). Thus, it is puzzling that Sweden lacks strategies for long-term reduction of carbon emissions in ENRIs.

ENRIs located in Sweden have some advantages, as Sweden has abundant renewable energy resources and capacities for low-carbon power generation such as hydropower, biomass energy and, more recently, wind power. Historically, the Swedish energy system and industry has co-evolved supplying ENRIs with low-cost electricity and today the Swedish power sector is essentially decarbonised. Emissions from industrial combustion have decreased over the last two decades mainly as a result of emission reductions in the pulp and paper sector due to renewable energy use (SEPA 2017). Other industrial process emissions have not decreased over time, but have fluctuated with financial cycles (Johansson and Nilsson 2017). In Sweden, ENRIs export around 45% of their production directly to the international market while their production also is used as basic input materials for domestic manufacturing industries (Johansson and Nilsson 2017). To maintain competitiveness and profitability, many industries have specialised in more advanced product categories and applications. An example is the Swedish steel industry, which has switched to produce more specialised steel qualities. This implies that the transition capacity and dynamics of the Swedish steel industry are different from those of steel industries in other countries that concentrate on bulk production; in the context of the global market, we could view the Swedish steel industry as a niche industry concentrating on high-quality steel.

Climate governance of ENRI in Sweden

In this section, we present the Swedish case and explore how the state is engaged in industrial governance by asking how it is governing decarbonisation in ENRIs. In particular, we pay attention to three important challenges for the green decarbonising state: how the state deals with the economic imperative; the position of ENRI in the state; and the role of the state in furthering ENRI transition and innovation processes.

Dominance of the economic imperative in climate governance of ENRIs

The specific characteristics of ENRI create challenges for governments to pursue decarbonisation strategies, and the tension between economic and ecological concerns is pronounced. For the industry, decarbonisation is challenging because it is not associated with any direct co-benefits for either producers or their manufacturing customers. Rather, decarbonised production processes produce the same kind of output but at higher costs. This is seldom sufficient to spur technological shifts or to motivate investment in new technologies (Patt 2015). The corporate and market incentives for taking environmental concerns into serious consideration and for making the low-carbon investments required are weak (Åhman et al. 2017). For governments, the policy dilemma is how to create conditions for change while avoiding harm to ENRIs’ global competitiveness.

Climate governance of ENRIs in Sweden and the EU is pursued mainly through market-based policies which have given priority to economic concerns over ecological ones. Carbon pricing, through the European Emissions Trading System (EU ETS), is the main policy targeting ENRIs today. In the EU ETS, introduced in 2005, industries receive emission permits that they can use or trade as credits. In a cap-and-trade system the total amount of emissions is politically decided and gradually lowered over time. While being costly for certain industries, Swedish ENRIs have in general benefitted from the EU ETS allocation as their emissions were lower than the European average in comparable sectors, in particular for the pulp and paper industry (Gullbrandsen and Stenqvist 2013).

Two distinctions are relevant regarding the effects of climate governance of ENRIs in Sweden. First, there is a difference between ENRI sectors. The pulp and paper industry has gone through a transition and is almost fully decarbonised, while other sectors (e.g. iron and steel, minerals and chemicals) remain largely dependent on fossil fuels. The transition from fossil fuels to bioenergy in the pulp and paper industry has been a long process starting with the 1970s oil crisis. A combination of higher energy prices and government policies (e.g. regulations, carbon taxes and renewable energy certificates) has spurred the industry to look for new sources of energy (Growth Analysis 2014). Second, industrial emissions from combustion (burning of fossil or bio-based fuels) have decreased over the last decades, while emissions from industrial processes (e.g. production of steel and cement) have remained on the same level as in the early 1990s. Emissions from combustion decreased due to increased use of bioenergy and advances in energy performance. On the national level, the Programme for improving energy efficiency (PFE), which ran from 2005–2014, targeted energy efficiency in the ENRIs. Companies agreed to implement energy efficiency schemes in exchange for exemption from the energy tax on electricity. The PFE proved effective in incentivising industries to prioritise energy performance, improve energy efficiency and thus reduce emissions (Stenqvist and Nilsson 2012). However, the PFE focused mainly on gradual improvements and did not spur more radical innovation. For industrial process emissions, reductions are marginal and carbon emissions correlate closely with the business cycle. While new low-carbon technologies are necessary to replace process technologies dependent on fossil fuels, the policy framework has proved insufficient to support this kind of transformation.

The EU ETS has the potential to be an effective policy instrument but its steering capacity regarding emission reductions and particularly low-carbon innovation has been low due to over-allocation of emission allowances and a low carbon price (Gullbrandsen and Stenqvist 2013, Bel and Joseph 2014). As a result, individual member states have started to implement national policies to make up for the deficiencies of the EU ETS (Marcu et al. 2016). Our interviewees agree that the EU ETS has serious problems, although for different reasons. The different critiques of the EU ETS shed light on the limitations of the current policy framework. Informants from Swedish authorities, politicians and environmental organisations argue that the EU ETS lacks a steering effect on ENRIs’ emissions reductions or innovation in cleaner technologies (Hildingsson et al. 2017). In their opinion, the EU must decrease the emissions cap and cease the free allocation of emission permits to raise the price on emission credits. In contrast, informants from industry and industrial associations (iron and steel, mining, chemicals) argue that the current design of the EU ETS risks very negative impacts on their international competitiveness (Hildingsson et al. 2017), which along with carbon leakage is the key issue for EU ETS discussions (Marcu et al. 2016). The core of the critique from industry informants is that the price signal in itself is not enough to develop new low-carbon process technologies, while increased prices can be detrimental to companies in the short term. The risk, according to our informants, is that the industry might get radically lower emission allocations in the next (fourth) phase of the EU ETS (from 2021 to 2028), while there are no available technologies to reduce emissions to a corresponding extent. In such a situation, the only options for industries are to either buy allocation permits or reduce their output. This might lower emissions over the short-term but will reduce the scope for long-term investments in new technologies (Hildingsson et al. 2017).

The current market-liberal policy framework in Sweden and the EU has succeeded in supporting decarbonisation in some respects. Most notable is a low-carbon transition of the Swedish pulp and paper sector, largely based on its shift from fossil energy sources to biomass, as well as improved energy performance in all ENRI sectors. However, it has not been effective in spurring innovation in the low-carbon technologies in industrial processes necessary for deep decarbonisation. Hence, policymakers face a critical dilemma, which they are unable to handle within the current policy framework. While weak market-based policies are insufficient to incentivise technological change beyond efficiency improvements, industrial actors perceive more stringent market-based policies as detrimental to the international competiveness of ENRIs and many politicians therefore hesitate to pursue and implement such measures. Here the recurrent problems with the EU ETS are a case in point. While struggling to provide a sufficiently high price on carbon, the EU ETS currently has a very low steering effect on the industry’s development of low-carbon process technologies.

Swedish industrial governance has been incapable of supporting innovation in low-carbon technologies, and Sweden’s national innovation policy has not engaged with industrial process technologies to any extent. To date there are few policies in place to handle the specific challenges for decarbonising ENRIs, such as the tension between global economic pressures and the need for investments, or the lack of incentives for long-term investments in technology innovation. There is a need for an active engagement of the green state to support industrial decarbonisation in a way that goes beyond market mechanisms and efficiency measures. Recent developments in Sweden, however, suggest that a new policy framework is emerging, something we will return to later.

From an incumbent to a fragmenting regime

To analyse climate governance of Swedish ENRIs it is necessary to understand how the privileged position of ENRI in the Swedish economy has shaped their relationship to the state. ENRIs are often of strategic importance to national economies, and this is particularly accentuated in the natural resource-based Swedish economy. The common name, ‘basic industry’, in public discourse captures its significance; the name affirms the conception of ENRI sectors as the foundation for the Swedish economy and the backbone of the welfare state. Our historical study (Johansson and Nilsson 2017) demonstrates very strong relations between state and industry over time, a relationship contingent on economic imperatives and issues about growth, employment and industrial competitiveness.

Relations between the state and industry have reflected the significance of ENRIs to the Swedish welfare state, particularly strong when ENRIs were tied to the state through public ownership, motivated by the strategic importance of the resources these industries processed. The state owned many ENRIs in whole or in parts, for instance the mining company LKAB (still state-owned) and the steel company SSAB (from 1978 to 1992). Economic liberalisation, which peaked in the 1990s, changed these relations significantly. Many industries became privatised and are today multinational companies (Johansson and Nilsson 2017). The changes in ownership structures have significant impacts on the relationship between the state and industry, yet most ENRIs also have strong ties to local and regional sites – where the basic materials are produced. They are embedded in local political and economic contexts while simultaneously part of global markets.

What is significant for climate governance is that ENRIs in Sweden have had preferential treatment in relation to energy use, the state protecting them with subsidies (Swe. Gov. 1982, p. 35) and exemptions from energy taxes (Johansson and Nilsson 2017). Figures from 2003 to 2013 show that industrial tax reductions on energy use, although hampered somewhat by EU energy tax regulation, have remained substantial (Directive 2003/96/EC) (Johansson and Nilsson 2017). Industry representatives argue that increased taxes lead to higher costs and carbon leakage as ENRIs have to restructure to retain their international competitiveness – an argument that policymakers have taken seriously.

We conceptualise ENRI–state relations as a regime. A regime consists of resources and institutions and is ‘the (network of) actors that exercise constitutive power’ (Avelino and Rotmans 2009, p. 560), i.e. regimes have power to establish a social order tied to a certain distribution of resources. The Swedish welfare state’s reliance on ‘basic industry’ to create jobs and wealth indicates that the power of regimes is exercised through practices that distribute privilege and resources. Being a network of actors, a regime typically consists of alliances between policymakers and industrial actors in a sector, which was the case in the Swedish ENRI sectors historically (Johansson and Nilsson 2017). Indeed, the Swedish policy model has been based on close relationships between industrial and state interests (Svensson 2016). Incumbent regimes resist change through varied uses of power (Geels 2014), but, according to transition theory, system transformation is possible as regimes change in interaction with niches, which scholars see as crucial spaces for the development of new innovations and practices that need government protection to nurture and develop. By contrast, they generally view incumbent regimes as blocking transitions (Markard and Truffer 2008). However, the characteristics of ENRI imply that it will be well-nigh impossible to transform and decarbonise currently unsustainable systems of production without engaging vested interests operating these systems.

Swedish ENRIs have historically been able to resist change and transformation towards environmental objectives, indirectly by their privileged position in Sweden’s economy as well as their standing in the political system. Our interviews confirmed the privileged position of ENRIs (Hildingsson et al. 2017); there was a near-consensus among informants on the historic importance of ENRIs for the Swedish economy and welfare state. Thus the kind of power that regimes exert relates not only to economic relevance and strength but also with values and ideational components such as the perceived role of industry in society, as well as ideas that set expectations about what the state should do. Historically, ENRIs constitute incumbent regimes, but this is changing.

In our interviews, opinions diverged as to the significance of ENRIs today and in the future (Hildingsson et al. 2017). Industry representatives and industrial associations expected ENRIs to continue to have strategic importance in a carbon-constrained world, but they were concerned about politicians or society at large not fully recognising this role. Informants explained that basic industry is no longer considered an unwavering part of the Swedish economy, and, with a diminishing share of the labour market, fewer people have a direct relationship to ENRIs. Furthermore, as industrial informants argued, because these industries are localised in rural regions, they find no place on a prioritised urban agenda. Consequently, it is mainly rural politicians and local actors in the vicinity of ENRI production sites who have an insight into these industries and take an interest in them. This is an indication that the regime’s constitutive power – its ability to influence the social order, or ‘the privileged position of the basic industry’ tied to a certain distribution of resources – is weakening. We found several signs of the weakening of the regime: the lack of consensually shared ideas on the place of ENRIs in Sweden, a weaker alliance between policymakers and industrial actors, and the general lack of expertise on the conditions and operations of ENRIs in government and public administration (Hildingsson et al. 2017).

What we are observing is a change in what was previously an incumbent regime able to successfully resist decarbonisation, towards a regime that has lost some of its constitutive power and become fragmented, allowing for the emergence of niche activities that address climate objectives. ENRIs’ changed position towards decarbonisation occurs within the existing regime as it is fragmenting, rather than within distinct new niches. This is particularly evident in the pulp and paper sector but we can see this also in other sectors. Yet, this change in position is clearly politically driven and depends on the state’s capacity to set stringent climate objectives. The regime perspective adds a dynamic element as it opens up for problematisation of the green state as a unitary actor. It demonstrates how alliances often bridge institutions across politics and industry and also how regimes can weaken, for example, in relation to niche activities. When it comes to industrial decarbonisation we need to understand the role of niche actors and niche experiments in the context of incumbent regimes and actors.

Emerging strategies on industrial decarbonisation

While climate governance arrangements in Sweden have not hitherto addressed industrial process emissions beyond those included in the EU ETS, our study indicates that new initiatives to address the challenges of decarbonising ENRIs are emerging. Many informants, industry representatives as well as public and civil actors, call for more comprehensive strategies on industrial decarbonisation, including more proactive government involvement, if deep cuts of process emissions are to materialise (Hildingsson et al. 2017). For instance, there is agreement that the price signal (via EU ETS) is insufficient to spur the technology development required and that more specific policy measures are necessary to support industrial renewal and transformation.

Two recent developments indicate shifts in positions that might open up for the emergence of broader policies for green innovation in the ENRI sectors. First, the cross-parliamentary Environmental Objectives Committee (EOC), in their inquiry of a new national climate policy strategy (adopted by the Swedish Parliament in June 2017), addressed the need to develop strategies on industrial decarbonisation. EOC proposed sectoral roadmaps and long-term strategies for the decarbonisation of industrial sectors of key economic importance and called for intensified collaboration between state authorities and industrial actors in developing new technological solutions (Swe. Gov. 2016). Several of our informants participated in the EOC and referred to it as a successful example of deliberation between different actors establishing a joint view on industrial decarbonisation as possible to achieve without compromising the economic viability of industries. The deliberations in the EOC made it clear that all major industry partners viewed decarbonisation as both possible and legitimate goals, which they were about to incorporate into their own business strategies. This marked a shift in the position of many ENRI companies and sector organisations, which until recently questioned the viability of decarbonisation. The dialogue also reassured industry partners that the government viewed the economic viability of the ENRIs as crucial and that this recognition should be considered in the design of new decarbonisation strategies and policies. Informants were, however, not equally optimistic, some emphasising the problem that industry representatives had too strong an influence and could act as veto players in the EOC (Hildingsson et al. 2017). One policy outcome, so far, is the Industrial Leap (Industriklivet), a government programme aimed at supporting radical innovation and long-term investments in low-carbon technologies running from 2018 until 2040.

Second, there are ongoing experiments and explorations of new process technologies by the industry, with co-operation and support from the state, for instance in steel and petrochemicals. A key initiative is the HYBRIT (Hydrogen Breakthrough Ironmaking Technology) project that the leading Swedish steel company SSAB, the mining company LKAB and the energy company Vattenfall jointly launched in April 2016 (Jernkontoret 2017). The state publicly owns the latter two, and they recently formed a joint venture company with SSAB to develop hydrogen technology for carbon-free steel production by substituting hydrogen for coal in iron ore reduction. The HYBRIT project represents the first phase in a longer-term industrial development which would include feasibility studies, pilot and demonstration plants. The new process technology might be ready for application in full industrial scale sometime after 2030 and, if successful, holds the potential to replace existing blast furnaces plants by the time SSAB needs to reinvest in new industrial plants. According to industry representatives, this has the potential to reduce carbon emissions by 10% in Sweden and 7% in Finland (Jernkontoret 2017).

It is too early to draw firm conclusions from ongoing policy developments but we can offer a few observations. First, there is close cooperation between state and industry, for instance in terms of dialogues in the policy process, state funding of pilot projects and corporative joint ventures between state-owned and private companies. This implies a more interventionist approach by state authorities to engage in technology policy and strategic industrial policy efforts, which largely resonates with recent literature on green industrial policy (e.g. Aiginger 2015, Rodrik 2014, Patt 2015, Mazzucato 2013). Second, it is noticeable that innovation policies clearly target incumbent actors, such as large companies and sectoral organisations, while niche actors are absent. Whether this is due to characteristics of the sector making it difficult for new actors to enter, or reflects the traditional strong ties between state actors and established industries, is unclear. From a global market perspective, however, we might view Swedish ENRIs such as the steel industry concentrating on specialised high-quality steels as a national niche, where innovations in low-carbon process technologies can develop with strategic support from the state. In such a perspective, the HYBRIT case is an interesting niche experiment by actors operating in the incumbent regime which, if successful, might challenge existing process technologies in steel-making but as a niche actor on the global steel market.

Green state theory emphasises the role of the state in advancing ecological concerns and environmental policies. Our study of ENRIs in Sweden shows that a green decarbonising state also needs to engage in industrial policy and dialogue with industrial actors, in order to establish a shared vision on industrial decarbonisation and create the right conditions for companies to engage in transition processes. In doing this, however, there is always the risk that state-industry relations maintain the status quo instead of developing new low-carbon pathways; to stay on the track to decarbonisation, stringent and clear climate objectives can provide direction.

Concluding discussion

We advance an understanding of the green state’s industrial relations and engagement in governing decarbonisation by exploring the Swedish case of industrial governance in the ENRI sectors. Decarbonisation of ENRI is a key aspect that any green state serious about climate change needs to address. However, it entails significant governance challenges.

First, for green industrial governance to further decarbonisation, the green state has to find ways to prioritise climate objectives over economic ones. As the Swedish case showed, there is a continued tension between economic and ecological concerns. The privileged position of ENRIs has allowed them to resist stringent climate policies, mainly being subject to market-based policies. Although corporate incentives can be drivers of industrial decarbonisation, market dynamic are far from sufficient to initiate the necessary transition. Rather, it is likely to require strong incentives generated by regulatory interventions and long-term policy support. Thus, the green state cannot shy away from engaging more closely with economic strategies in relation to industrial governance as transformations aimed at decarbonisation are unlikely to occur spontaneously. While industrial representatives express readiness to embrace the goal of decarbonisation and to explore alternative, low-carbon technologies, as long as this does not violate their international competiveness, industrial decarbonisation will require policies that imply active state involvement by supporting technologically feasible and economically viable options to decarbonise industrial processes. This requires a rethinking of the state’s role in industrial governance in general and a shift in strategy for industrial decarbonisation in particular. It may include re-visioning the economic aspect of ENRIs. The emerging discussions in Swedish ENRIs about a circular economy that allows for comprehensive analysis of the product-cycle has potential as a venue to appreciate and value the carbon emissions of basic materials of the whole value chain from iron ore and cement to products such as roads, houses and vehicles.

Second, our analysis demonstrates that transition theory can inform green state theory in a productive way by addressing the state not as one entity but rather as part of the different power constellations constituting incumbent regimes. Regimes can be dominant and powerful, and resist change. Resource dependency and historic reliance on natural resource-based industry for the prosperity of the welfare state granted ENRIs a privileged position in the Swedish economy, expressed through state ownership of strategically important industries and preferential treatment with regard to climate regulations and energy prices. However, as our case shows, regimes can weaken, lose their constitutive power and become fragmented. This dynamic creates openings for change as we saw with the fragmentation of the Swedish ENRI regime, the low-carbon transition in the pulp and paper industry and the experiments with low-carbon process technologies in the steel industry. However, this is unlikely to happen without green state commitments and policies that provide direction in the dynamic context of regimes and niche activities. Our case suggests that, in the context of ENRIs, there is need to pay attention to how incumbent actors can become agents of change and engage in niche activities. While scholars have addressed the role of incumbents in their capacity to hinder or capture transition processes, our finding motivates further exploration of the dual role of incumbents, as maintainers of the status quo and as possible change agents.

Third, we find some support for the proposition that advanced welfare states may be equipped to handle industrial decarbonisation particularly in terms of dialogue and cooperation, which has characterised the relationship between state and industry in Sweden. While historically it served the status quo and led to exemptions for industry in relation to climate policies, recent state-industry deliberations have focused on building common visions and developing strategies for industrial decarbonisation. This, in turn, has led to an overarching consensus on the long-term direction among policymakers and industry representatives. A decade ago, ENRIs’ position was that deep decarbonisation was impossible, while today ENRIs develop their own decarbonisation strategies and call for more active state intervention and policy support. This shift was made possible through dialogues between state and industry actors that succeeded in establishing mutual understanding and recognition. However, it is too early to tell to what extent the challenges of industrial decarbonisation will be addressed, and we should not paint a too rosy picture of recent developments. In practical policy, industry still resists stringent measures to cut emissions and the state is still reluctant to put much pressure on industry or to make large public investments in new technologies. Yet, the Swedish case points to the possibility that the policymaking model of an advanced welfare state, with its relatively close relationship to industry, can be conducive to governing industrial decarbonisation and greening industry.

There are various paths for future research. Comparative studies on welfare states with similar conditions, such as Finland, would likely tell us more about how Sweden compares to other states aiming for decarbonisation, and whether Sweden is an outlier or typical for how states interact with industry. The three areas analysed in this study suggest several venues for future research on the green decarbonising state: the role of economic policy strategies to decouple economic growth from carbon emissions; the drivers of innovation and industrial transformation in this sector, including the role of incumbent actors; and the strategic options available to govern industrial decarbonisation, which strategies are viable and under what conditions. Such research would shed light on the potential for the green state to decarbonise through industrial governance and thus considerably help in developing green state theory in this area.

Acknowledgments

We are indebted to participants at ECPR Prague 2016, ESG Nairobi 2016, and IST Gothenburg 2017, as well as to Josefin S Bohlin who assisted with material for the integrated report. A Visiting Fellowship Award from the University of Melbourne EU Center in Shared Complex Challenges, February and March, 2017 significantly furthered Annica Kronsell’s work. We thank two anonymous reviewers who contributed valuable comments that helped immensely to sharpen our arguments and analysis.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

The Swedish Energy Agency supported this work through funding for the Green Industrial Transition (GIST2050) project [project no. 38271-1].