A common claim holds that investment treaties reduce the willingness of host countries to regulate foreign-owned, environmentally-stranded, investments. A counter-argument is that the treaties can yield incentives for environmentally-friendly replacement investment. This paper examines these claims in a simple formal setting with an initial investment and a potential replacement investment, both of which are protected by an investment agreement. The paper shows how the treaty protection weakens incentives for environmental protection. The paper also shows how the extent of environmental damage depends on the implementation of core legal notions, such as investor legitimate expectations, the full compensation requirement, carve-outs from compensation obligations, and what qualifies as an investment.

This study investigates the interaction between fuel security and climate policy in Sweden, a small economy with no domestic oil production and one of the highest shares of fossil-free alternative fuels in the transport sector within Europe accounting for approximately 20% (by energy content) of total transportation fuel demand in 2019, excluding electricity. Using a Structural Vector Autoregression (SVAR) model estimated on monthly data from 2010 to 2023, the analysis quantifies the elasticity of Swedish GDP to global oil supply shocks and computes the associated fuel security premium. Results indicate that Sweden’s short-run GDP response to oil shocks is modest—approximately one-third the magnitude of the U.S.—but the longer-run response is comparatively stronger, reflecting the importance of international economic spillovers. The estimated fuel security premium reaches up to 0.065 EURO/liter diesel equivalent (or USD 12.6 USD/barrel of oil), underscoring persistent macroeconomic exposure despite high adoption of alternative fuels. A qualitative assessment of Sweden’s fuel market shows that while biodiesels are widely used, their reliance on imported feedstocks, exportability, and high cost limits their contribution to fuel security. Electricity and biomethane offer more promising pathways for enhancing fuel security due to their domestic production potential, barriers to international trade, and price competitiveness. The findings help define the scope to which unilateral fuel security policies can reinforce climate policy goals in small economies, emphasizing the importance of diversified energy systems and international coordination. These insights provide guidance for the strategic planning and implementation of energy policy in small, oil-import-dependent countries seeking to balance energy security and climate objectives in a globally integrated fuel market.

We study how the catastrophic 2011 Thailand flood affected Swedish firms that imported from Thailand, and find large and persistent long-run effects. Thai imports fell by 83 percent in the year following the flood, and the fall continued through to 2019 despite the relatively rapid recovery of Thai production. Thus, Swedish firms permanently switched suppliers. We also find evidence of re-shoring, but the dominant long-run effect is as switch to producers in other Asian countries.

Swedish transportation has a high reliance on biofuels, accounting for approximately 20% of total energy demand in 2019 for transportation, excluding electricity. This makes Sweden an exceptional opportunity to study the interaction between climate policy and fuel security objectives in a small open economy with no domestic oil production. Despite this high reliance, we estimate Sweden's fuel security premium to be upwards of 0.065 EUR per liter diesel equivalence (or 12.6 USD/barrel) of imported oil, which is comparable although lower than similar estimates for the USA. We then discuss fuel security policy related to specific fuels including HVO/FAME, biomethane, and electricity. We conclude that electricity, and to some extent biomethane, are the most promising in terms of their potential to support fuel security objectives and reduce greenhouse gas emission.

We study how the catastrophic 2011 Thailand flood affected Swedish firms that imported from Thailand. Output by the 50th percentile of importers with a higher share of Thai imports in total imports dropped by 8% in 2012. In aggregate, this translates into a 1.08 billion SEK drop in Thai imports for these firms, which translated into over 29.7 billion SEK in lost sales. The magnitude of the amplification effect is striking. The effects of the flood did not go away in spite of the relatively rapid recovery in Thai production, which is consistent with substantial fixed costs in establishing links in supply networks. Another key result is the importance of geographical diversification in a value chain. Our regressions show that firms that import a good from more than one country are almost completely shielded from the flood.

The saying ‘money rules the world’ captures an important truth about how finance and investment flows determine the future of our society. In order to meet the challenges posed by climate change, there is a great need to redirect investments from economic activities that pollute the environment (such as fossil fuel extraction) into more sustainable activities and green projects (such as recycling and renewable energy). This report explores ways in which this can be successfully achieved. More specifically, the report seeks to answer two overarching questions: 1. What role does the financial sector play in achieving society’s climate goals and in financing the climate transition? 2.How can the government of Sweden influence the financial sector so that capital isincreasingly directed towards more sustainable activities?

This commentary lays out four challenges that currently prevent capital markets from contributing to a socially and environmentally sustainable economy. It reflects on how these can be turned into opportunities and the role of transdisciplinary research and action in promoting such change.