The role of cost-effectiveness in multisector climate investment programs: The Swedish Climate Leap

Abstract

To increase the speed of implementation of carbon mitigation technologies, many countries set up publicly funded investment programs, where private and/or public entities can apply for support. These schemes are often criticized for not being cost-effective. The purpose of this study is to evaluate the Swedish Climate Leap Program, which differs from most other programs through the multisector approach. We examine determinants of project approval and evaluate the heterogeneity in implicit carbon pricing across sectors. Several econometric methods are used to assess equality in carbon pricing. Results show that although the cost-effectiveness ratio plays an important role in project approval, carbon pricing differs significantly across project types. Project guidelines favor charging stations and transport measures that aid in adopting new technology and reaching economies of scale. However, the preference for transport measures is not reflected in the carbon pricing while instead energy conversion measures have a higher probability of being funded given the cost-effectiveness of the investment. Funding decisions favor densely populated municipalities, which could be motivated for investments in public goods, but is questionable for transport and housing.