Report: Trade Policy for Electrification: How trade policy can contributeto the electrification of Sweden’s economy

Electrification is a key strategy for achieving Sweden’s climate goals, driving competitiveness, and reducing dependency on imported fossil fuels. Replacing fossil fuel driven technologies and processes in transport and industry with electrified alternatives is expected to lead to a large increase in electricity use, potentially more than doubling today’s needs. This report looks at the contribution trade policy can make to electrification.

What is this report about?

The report examines how trade and trade policy can contribute to the electrification of Sweden’s economy. We focus on electrification of transport and industry and on increasing the supply of fossil-free electricity from wind and nuclear sources.

Electrification entails the adoption of new technologies and a large expansion of fossil-free electricity generation and grid and charging infrastructures. This will require skilled workers, and huge volumes of imported materials, inputs and products. We identify trade policy priorities that can have direct and indirect effects on electrification.

What trade policy topics have a direct effect on electrification?

We identify four priorities that can secure the supply of the goods and services needed for electrification and help lower the cost of the transition to an electrified economy. These are diversifying trade to secure supplies of critical raw materials, improving cross-border transportation for a circular economy, standardisation of important technologies, and lowering barriers to trade in goods and services for electrification.

What about trade policies with an indirect effect on electrification?

This is about getting the incentives right. The subsidisation of fossil fuels makes it harder for electric technologies to compete with fossil fuel driven alternatives, and green subsidies have been repeatedly challenged in the WTO. The reform of fossil fuel and green subsidies are thus priorities. In addition, maintaining a predictable and stable policy environment for carbon pricing and the EU’s Carbon Border Adjustment Mechanism is necessary for investments in near-zero steel making and industrial decarbonisation.

What can trade policymakers do to promote electrification?

A point raised by various interviewees was the importance of functioning international markets. An overarching recommendation in all sectors is thus to follow and defend the multilateral trade rules and work for an integrated single market.

To secure supplies of critical raw materials, policy makers should prioritise the conclusion and ratification of trade agreements with resource-rich partners. They should also map and remove non-tariff measures in existing and new trade agreements. Synergies with development aid should be sought out for sustainable and mutually beneficial trade partnerships with resource-rich regions.

Trade barriers to goods and services raise the cost of electrification and should be removed. Our recommendations include harmonising requirements for wind turbines on the single market, removing most favoured nation tariffs on electric vehicles and trucks, and promoting international standardisation to avoid diverging standards for charging infrastructure, small modular reactors and near-zero steel.

To incentivise electrification, policy makers should press for fossil fuel subsidy reform and investigate possibilities for cooperation on rules for justifiable green subsidies. This could minimise trade distortions and avoid reversion to trade defence measures which raise the prices of electric vehicles.