Lessons from Sweden’s energy crisis: shaping equitable low-carbon policies

How can the social aspects of the current energy crisis inform fair low-carbon transitions going forward? Drawing on SEI research in Sweden, we identify three crucial lessons to consider.

1. Past decisions and inherited inequalities shape today’s energy challenges.

The severity of the energy crisis could have been mitigated had greater progress been made in expanding energy efficiency and renewable energy in the past decade. Sweden’s heating sector exemplifies how increased energy efficiency and renewable energy shares can bolster both climate mitigation – with greenhouse gas (GHG) emissions per capita for heating over 20 times lower than the EU average in 2020 – and energy security. Moreover, Sweden is less vulnerable to the energy crisis compared to other EU countries; only 2.3% of the population struggled to keep their homes warm in 2018, in contrast to the EU average of 7.3%. This resilience can be attributed to factors such as high thermal insulation standards, widespread district heating and a substantial share of renewable energy in heat generation (68%), particularly biomass, which is more cost-efficient than alternative fuels. Additionally, the country’s social welfare and the inclusion of heating as a fixed cost within the rent in multifamily housing both contribute to this outcome.  

However, it is important to recognize that underlying social inequalities and structural factors, including access to services and infrastructure, influence households’ ability to cope with rising energy prices. These factors will also determine how different societal groups can adapt to low-carbon policies and manage their consequences.  

2. Limitations of a compensatory-only approach must be considered. 

As the crisis unfolded, various EU countries implemented compensation measures for households facing increased energy prices. Among other responses, the Swedish government reduced fuel taxes as early as Spring 2022. From 2023 onwards and for three years, diesel and petrol tax will be lowered by 0.9 EUR per litre (including VAT).  

In practice, this approach has several drawbacks. Firstly, the welfare effects are minimal due to the marginal tax reduction. Implementing a larger tax decrease would require a significant budget. SEI research reveals that the welfare impact difference from increased energy prices last year was a mere 0.2% between a reference scenario representing all price increases and measures (including fuel tax reduction) in 2022, and a scenario without tax reductions.  

Secondly, such measures fail to address the root causes of inequalities. A tax reduction aimed at the entire country provides insufficient support for more vulnerable sociodemographic groups, such as lower-income households or rural residents. A notable 1.7% welfare impact difference exists between rural and densely populated areas.  

Thirdly, this approach risks reinforcing long-term carbon-intensive behaviours. Measures like fossil fuel tax reductions could sway attitudes towards emission-saving policies and demand reduction measures, leading to lasting impacts on consumer behaviours and public acceptance of decarbonization policy. Although fuel prices increased by 70% in 2022 compared to 2019, transport volumes largely remained unchanged, with minor decreases only observed in two of Sweden’s largest cities, Stockholm and Gothenburg, where public transport and cycling alternatives are available. 

Lastly, compensation measures raise crucial equity concerns, questioning who benefits and whether the distribution is fair. In Sweden, the measure was not targeted towards the most vulnerable, allowing high-income urban households to also benefit and experience reduced transport fuel expenditures. Moreover, fuel companies also claimed their share, with a mere 62% of the tax rate reduction being passed on to fuel consumers. The loss in government revenue due to decreased taxation – approximately SEK 6.2 billion in 2022 or around EUR 54 per person – cannot be overlooked, as it could result in welfare expenditure cuts. 

3. Policy should focus on improving well-being, not maintaining current lifestyles.

The energy crisis has driven many – and motivated some – to alter their behaviour and decrease energy consumption. Adapting lifestyles and consumer behaviours is also vital for the low-carbon transition.  

There are notable disparities in carbon footprints between affluent and less affluent groups in society. Globally, the Carbon Inequality Era report by SEI and Oxfam reveals that the wealthiest 1% generate twice as many carbon emissions as the poorest half of the world’s population. In Sweden, SEI research uncovers substantial differences as well, with carbon footprints ranging from 3 to 20 tons per person per year across several postcode areas. When this data is compared with income levels and the risk of poverty and social exclusion, it becomes clear that households and postcodes with lower footprints are more likely to face poverty and social exclusion, and vice versa. This implies that by making immediate consumption changes, high emitters can significantly affect energy demand and GHG emissions.  

Importantly, even if every Swede’s carbon footprint were equivalent to that of the least polluting residents, it would not suffice. Science suggests that emissions should be reduced to less than 1 tonne per person, necessitating changes in consumption habits and lifestyles. Yet, this does not mean that responsibility should lie exclusively with consumers. Structural limitations to lifestyle changes exist, and policy and infrastructure investments play a crucial role in enabling these transformations.

What should we do going forward?

Firstly, it is essential to prioritize addressing the root causes of social inequalities and other structural factors that constrain people’s ability to cope with rising fuel prices and potentially the repercussions of future climate policies.  

Secondly, combining short-term, targeted measures with long-term structural adjustment and adaptive strategies is crucial. These include energy efficiency and energy demand reduction initiatives, subsidized low-carbon goods, improved access to services via public transportation and place-based investments in local public goods that have social, cultural or environmental value. 

Thirdly, we must move beyond mere awareness-raising and broad carbon pricing policy measures to shift consumption patterns, especially among high-income households, who have the largest carbon footprints and the greatest ability to cope with decarbonization measures. For instance, in relation to aviation-related household footprints, policies could explore levies on frequent flyers and premium classes, or the establishment of allowances or maximum flight quotas. Another example can be found in France, where short-haul domestic flights were banned in favour of train travel. 

The reality is that climate policy can either worsen or help address social inequalities. The current energy crisis has underscored some of the risks that accompany the low-carbon transition. However, the fact that vulnerable groups are at greater risk from transition policies does not mean we should delay the transition, as these groups are also the most susceptible to climate change impacts. Instead, our focus should be on tackling the long-term, structural crises that both Sweden and the world face, such as climate change and social inequity.