The carbon tax is a cornerstone of the climate policy in Sweden. Historically, it has played a central role in the replacement of fossil fuels in the heating sector. The purpose of this paper was to analyze the policy-making process that led to the formulation and adoption of the carbon tax in the Swedish heating sector, from 1980 to 1991. We used the Advocacy Coalition Framework (ACF), according to which policy actors form coalitions based on shared beliefs. Drawing from both literature and empirical experiences gathered through in-depth interviews, we identified supporting and opposing coalitions that diverged in their views concerning bioenergy development and the potential impact of the carbon tax. This study illustrates the complex conditions for introduction of environmental taxes and expansion of new industries, particularly when established businesses perceive the new activities as a threat. The Swedish experience shows that countries can progress by exploring internal synergies and innovative policy designs, despite potential resistance of established constituencies. The successful adoption of the carbon tax in the Swedish heating sector serves as inspiration for policymakers in other sectors and countries, as they contemplate policies to promote the decarbonization of the energy system.