255a challenge. As oil prices declined sharply instead of going up 7% annually, volumes of biogas sold became much smaller than expected. In 2016, production had been reduced to 1.9 million cubic meters, about 25% of the volumes that had been planned for. With a large infrastructure built for much larger volumes, mounting costs, debt, and write-offs started to accumulate. Instead of doubling sales over 5 years, sales had declined substantially. In the Göteborg case in the late 1990s, the publicly owned energy company Göteborg Energi started investing in biogas. A collection of biogas initiatives were gathered under the name Biogas West and were funded by several municipal energy companies including Göteborg Energi. Investments continued despite mounting technological challenges. One important reason for the little attention paid to this is the opportunity to apply for and obtain public funding in the form of various targeted support programs, regarding both agriculture and climate change. Public funds from the European Union were combined with national public grants and provided a continuous ﬂow of funding over the years.

In the Göteborg case of biogas development, losses were progressively accumulated over more than a decade, but were initially hidden through various accounting practices. As the oil price declined sharply in 2014, large write-offs became inevitable. At some point along the way, policymakers considered halting the project, but continued because they had “Klimp funds that should not be wasted.” Klimp funding was part of a national government agency-funded program for climate initiatives such as biogas, and the presence of these and other funds seem to have made it rational to continue, despite a lack of potential.

3.2 Ethanol from Cellulose

In Örnsköldsvik in northern Sweden, the municipality accumulated billions of SEK in debt due to failed investments into the making of ethanol from cellulose, i.e., from the forest. It all started in 1994 when the municipality inaugurated an ethanol gas station. After continued small investments over the years, efforts gained momentum in the early 2000s. In 2004, Prime Minister Göran Persson took part in the formation of an industrial plant aiming to create car fuel from cellulose. The ambition was to C. Sandström and C. Alm

256create an environmentally friendly substitute to gasoline, which in turn would result in new jobs and a resurgence of northern Sweden in terms of competitiveness.

This vision would be driven and developed by Sekab, a ﬁrm owned by three municipal energy companies in northern Sweden. Its CEO, Per Carstedt, would at times be referred to as ethanol-Jesus. His charisma and ability to attract public funds and formulate vision implied that he became a very strong leader. One former Sekab employee describes his leadership in the following way:

Carstedt was surrounded by a group of people who were not inclined to question his

decisions. During long speeches, he would present completely unrealistic plans concerning

how Sekab, a small publicly owned company in northern Sweden, virtually on its own would

address ‘peak-oil’ and climate change. Later on, we would also end poverty in Africa. That

very few questioned him was really a worrying indication.

For many decades, the rural north of Sweden has been subject to deindustrialization, a loss of jobs, depopulation, and declining welfare. Carstedt’s vision of an environmentally friendly reindustrialization, falling unemployment rates, and a widened tax base was hard to resist. The same employee cited above also described the internal culture at Sekab: In Sekab’s distorted reality, Sweden would make use of ethanol made out of trees instead of

gasoline. Internally, people who questioned this idea or raised potential challenges were

often subject to ridicule by their superiors. Such voices were assumed to be bribed by big oil

companies. Sweden’s Energy Agency (SEA), Energimyndigheten, had a special role in the government’s enactment of its industrial policies, in this case with a special emphasis on energy and sustainability. In 2001, SEA provided Sekab with a 112 million SEK grant in order to build a pilot plant to make ethanol out of cellulose. Municipalities also took part in funding the building of this plant, as did several local universities. Considerable efforts were made to build capabilities, doctoral student projects were initiated at universities throughout Sweden, and many subsequently started working at Sekab. A former employee at Energimyndigheten made the following observation: “We used to have cake and celebrate every time we managed to spend money on a project.” This quote may seem strange from an economic perspective; why should authorities celebrate when they hand out money? It should be emphasized here that a government agency has a certain amount of resources that it is assigned to spend. The interviewee explains: “If a credible application was sent to us, it would get funding, if we do not receive anything credible, we would give money to the most credible one that can be found.”

The process of extracting ethanol from cellulose turned out to be much more difﬁcult than expected. A former engineer at Sekab described the situation:

It became increasingly obvious to us how immature the technology was, our results were in

fact very poor. Carstedt made it sound like the technology was ready, but we were nowhere

near the level of technological advances that would have been necessary. Calculations were

unrealistic and plain wishful thinking. Climate change, the peak-oil hype, and dreams of

reindustrialization and new jobs however implied that nobody wanted to question our

forecasts.

257Directionality in Innovation Policy and the Ongoing Failure of Green. . .

As a technological breakthrough appeared distant, Sekab increasingly tried to create ethanol supplies abroad. These operations soon ended up far away from Sweden. Sekab started to import ethanol from Brazil, initiated the building of a plant in Poland, planned for four factories in Hungary, and tried to grow sugar cane in Tanzania. Losses kept increasing and often amounted to hundreds of millions. Toward the end of 2006, the municipalities had to invest an additional 170 million SEK, primarily for international expansion. Land was acquired in Tanzania, consultants were hired in Mozambique, and large sums were spent in Ghana and Togo to build production capabilities. The efforts in Hungary cost 85 million SEK, with no results at all. In September 2007, a meeting was held in Örnsköldsvik at which top municipal politicians formally admitted they are aware of all these activities. In Sweden, it is