Sweden fumbles its green transition
Sweden’s ambitious, once-celebrated green transition has collapsed under technological, political and economic pressures.
In a nutshell
- Major ventures in fossil-free steel and EV batteries have failed dramatically
- Energy strategy faltered as wind power failed to replace nuclear plants
- Political gridlock stalls decisions on mining, power and stranded assets
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Inspired by its very own teenage climate change activist Greta Thunberg, in the past decade Sweden decided to place a major wager on promoting the green transition. In contrast to fluffy proclamations about lifestyle changes, Stockholm’s strategy was to be based on the solid application of state-of-the-art technology. The early stages included the creation of three new industrial groupings: Hybrit (a company built to produce fossil-free steel), Northvolt (a company founded to produce batteries for electric vehicles, or EVs) and Stegra (a second venture to produce fossil-free steel). Given the huge amounts of electricity that would be needed to realize those ventures, the plan for reliable power supplies went all-in on a massive expansion of wind farms.
Above all, Sweden’s green transition was designed to be a model for the world to emulate, providing a picture-perfect illustration of what a well-designed public-private partnership can achieve.
During the early years, the media was captivated by an abundance of optimistic politicians and entrepreneurs, touting their close cooperation. In June 2022, then Prime Minister Magdalena Andersson, a Social Democrat now in the opposition, smilingly informed members of parliament about “the wave of investment that is currently sweeping across Sweden, with battery factories in the north and the west, with fossil-free steel production and with green mining. It is fantastic!” She concluded by lauding the Green Party for driving the country in the direction of sustainability. Sweden was now leading the way into a green future. Or so it seemed.
Entering into green transition dreamland
It kicked off in 2016, with the creation of Hybrit Development AB, a joint venture formed by state-owned behemoths SSAB (steelmaking), LKAB (mining) and Vattenfall (power generation). Aiming to fundamentally transform the iron and steel industry, a unique technology was developed that would allow the production of fossil-free steel. By using hydrogen instead of coal in the ore reduction process, emissions would be clean water instead of dirty carbon. The company envisioned itself being able to reduce Sweden’s total carbon dioxide emissions by at least 10 percent. Realizing that the use of fossil-free steel would greatly improve their own customer relations, makers of cars, trucks and other heavy equipment happily jumped on the bandwagon.
A second step was taken in 2020, with the formation of H2 Green Steel, later to be renamed Stegra. The business proposal was the same as that of Hybrit, namely, to produce fossil-free steel by using hydrogen instead of coal. Production was to begin in 2024, with an initial capacity of 2.5 million tons per year. The plan envisioned that by 2030, production would rise to double the 2024 volume. Based in the city of Boden, an old military bastion just 80 kilometers south of the Arctic Circle, the venture was to create 1,500 jobs.
Another critical step was taken in 2021, when the company Northvolt AB commissioned its first manufacturing plant in Skelleftea, a bygone industrial and mining town located on the Swedish coast of the Gulf of Bothnia. Founded in 2015 by two former Tesla executives, the company would use lithium-ion technology to produce batteries for electric vehicles. The vision was that its booming output of batteries would greatly reduce European dependence on China. In support of this vision, the company also announced plans for five other plants to be built in Europe and North America.
As all three ventures were revving up their respective publicity campaigns, the previously stagnant north of Sweden was transformed into a veritable Klondike for green investment. Recruitment campaigns were launched to attract workers, both from Sweden and from abroad. The city of Skelleftea in particular became a boomtown, where housing could not be built soon enough to accommodate all the incoming workers.
Calls for prudence drowned out
There had been numerous warning voices in recent years, raising questions both about the relevance of the proposed technologies (which had not yet been proven as viable at an industrial scale) and about the generation sources for the exponential boost in consumption of electricity that was to come. Those voices were drowned out.
Facts & figures
The media preferred to go with the hype around the proposed transformation of the thinly populated north of Sweden into the promised land for green technologies and sustainability. Those who had raised concerns were, however, soon to be proven right. In October 2024, Hybrit was “placed on pause.”
Sweden wakes up from its green revolution dream
On March 12, 2025, it all came to a screeching halt. Following a long period of attempted rescues that included seeking Chapter 11 protection in a United States court, Northvolt finally declared bankruptcy. It was the biggest bankruptcy in Swedish corporate history, involving numerous outside investors and creditors, most notably major auto manufacturers like Volkswagen that had banked nearly $1 billion on Swedish deliveries of batteries for their own made-in-Europe EVs. Many believe that Stegra is likely next.
The scandal not only provided a sordid illustration of how the public-private partnership had allowed venture capitalists to get poorly monitored access to taxpayer money via lavish loan guarantees. Even worse was that Swedish laws had been changed to enable state pension funds to invest in new ventures that are not listed on the stock exchange, a high-risk bet with funds requiring conservative management.
Meanwhile, it has also come to light that the various windfarm projects associated with the overall green-transition strategy have been huge loss-makers.
Implications of the green transition going bust
The losses that have been inflicted on the pension funds alone constitute a huge scandal. Foreign auto makers like Volkswagen and BMW have wound down investment activities, casting doubt on the chosen technology and commercial strategy. Foreign investors and sources of green lending have had an equally negative experience. The city of Skelleftea is in a major crisis, and nobody seems to know what to do with all the foreign workers who were attracted to settle in the barren north of Sweden, where their newly bought houses can now only be sold at huge losses.
Attention is turning to what will be done to clean up the mess. Instead of showing the world a glorious path into a fossil-free future, Sweden now stands as a cautioning example, warning others of how unchecked green activism can produce huge speculative bubbles that cause widespread damage when they burst.
The country now finds itself at a crossroads and will have to decide on three highly contentious issues, all of which have implications for the broader European outlook.
Energy generation
The first issue concerns cleaner power generation, which is critical to all visions of the green transition. When Sweden’s nuclear power program reached its peak in the 1980s and 1990s, with 12 operating reactors, the country had a completely fossil-free power generation system. Half was nuclear and half was hydro. A small oil-fired plant was kept in reserve, as a hedge against sudden spikes in demand. Most importantly, the system was balanced, with hydro catering to demand in the north and nuclear to demand in the south.
Driven by a red-green coalition (three center-left to left-wing political parties), the country proceeded to shut down six of its nuclear reactors and to place a massive wager on expansion of wind power that has already markedly destabilized the electricity distribution system. When it is windy, the country exports electricity. When it is calm, electricity prices go through the roof.
More importantly, when demand in the denuclearized and heavily populated south is high, transmission capacity from the distant north is woefully insufficient. This not only leads to huge differences in prices that are set according to geographic criteria. It also creates technical problems, as the system is not built to handle large fluctuations combined with the implied needs for long-distance transmission.
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The wager on a green transition in the north shone an unforgiving light on these problems. Given the implied longer-term increase in electricity demand, and the inability to expand hydropower, the only way out – short of acknowledging the utility of nuclear power or returning to fossil fuels − was a formidable wager on wind power, mainly in the form of huge offshore windfarms that would require additional government support. The outlook for the latter to materialize is currently shrouded in great uncertainty.
As the current center-right government has campaigned on a return to nuclear power, it has taken a decidedly cold attitude to further taxpayer subsidies for the expansion of wind power. The government has raised the bar for entry into such ventures by announcing that the state will not foot the bill for connector cables from offshore wind farms to the land-based grid. And it has announced a blanket ban of any offshore windfarms in the central part of the Baltic Sea, citing military-security concerns that such installations might make it hard to detect incoming Russian cruise missiles.
Given that the envisioned return to nuclear power will not materialize in the short term, Sweden’s green transition is in jeopardy. If it falters for reasons of inadequate technology, then the problems relating to spikes in demand for electricity will be alleviated. But if political priorities result in more public support so the green transition continues, it begs the question of how to boost power generation effectively and sustainably.
Mining: Not in my backyard!
The second strategic issue Stockholm faces concerns mining. Although Sweden has long been an operator of nuclear power plants and it has substantial deposits of uranium, the fuel for reactors, environmentalists have refused to allow mining of those domestic deposits. Instead, they prefer that uranium be imported from Russia.
The refusal to allow mining concessions becomes even more contentious with respect to the rare earth minerals that are so badly needed for the green transition. While Sweden does have substantial deposits of such minerals, green lobbies have successfully barred their exploration. This NIMBY (“not in my backyard”) mentality ensures that mining for rare earths, like uranium mining, takes place far afield, in this case in China or in poor countries in Africa. The political left’s intransigence prolongs Sweden being beholden to adversarial powers while stymieing the country’s economic development and security.
Stranded production assets
The third issue concerns what to do with production facilities that have been built at huge public expense and are currently idle. Fossil-free steel sounds like a great idea – but is the technology sufficiently viable?
The Northvolt factory is still standing and there is hope that outside investors may still be found. But if Beijing turns out to be the only willing party, then the hope of producing sufficient batteries for Europe to reduce its dependence on China will be defeated. Stockholm is also likely to cite security as a rationale to prevent a Chinese takeover of stranded assets.
Scenarios
Sweden is currently run by a center-right minority coalition with confidence and supply backing from the nationalist right-wing Sweden Democrats. Parliamentary elections are slated for September 2026 and will mark a decision point with long-term consequences. Polls currently show today’s ruling coalition running neck and neck with left-leaning opposition.
Less likely: Right-leaning coalition wins, nuclear and mining activities proceed
If the current government prevails, it is likely that the wager on nuclear power will proceed apace, with a vision of building an additional four large reactors. The production of small modular reactors is also likely to expand but will not have a major impact.
In this scenario, plans for additional large offshore windfarms will not be realized, and no further taxpayer money will be provided as life support for green ventures in the north. The story of a remarkable green transition will come to an end, leaving huge debts and an embarrassing legacy of public-private partnership gone awry.
On the positive side for Europe more broadly, if the current government finds sufficient electoral support, legislation to allow domestic mining of uranium and rare earth minerals will likely be introduced.
More likely: Left takes power and the energy conundrum is left unresolved
If the Social Democrats return to power, which according to current polls seems likely, they will be unable to form a government without participation by the Green Party. The Greens have made it clear that they prefer further expansion of wind farms over expansion of nuclear power and the party remains hostile to mining.
Although it is impossible to predict the outcome of political horse trading, it is likely that a new Social Democrat-led government will prevaricate on government support for nuclear power, remain hostile to mining operations and allocate additional public funds to bail out failing green ventures in the north.
The likelihood of major bailouts for green projects increases due to multiple senior Social Democrat politicians’ involvement in networks supporting those ventures. Whether a leftist coalition can also adequately assuage the military’s concerns about security risks from offshore windfarms is debatable but possible.
The runup to the elections will be marked by the Social Democrats hedging their bets. By refusing to make a clear commitment to nuclear power, the party will keep a door open for a coalition with the Green Party. This, however, creates uncertainty for business about very long-term investments, adding to the confusion and failing to resolve issues related to energy and mineral security.
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