Green Industrial Megaprojects: A Welfare Economics Perspective

The growing popularity of large-scale, state-supported investments, especially those that are connected to the green transition, raises difficult normative and analytical questions. In this essay we address the welfare dimension of these initiatives by revisiting the foundations of cost–benefit analysis (CBA) in public decision-making. We begin by outlining the normative rationale for CBA, including the implications of Hume’s Law and the necessity of explicit value judgments. We then turn to the main problems associated with megaprojects, such as optimism bias and a lack of transparent analysis of the pros and cons. As an illustration, we examine the case of a major hydrogen-based steel plant by the Stegra company (formerly H2 Green Steel) in Boden in northern Sweden. We suggest a blueprint to evaluate such investments using contemporary economic theory (general equilibrium CBA). We find that the investment in Boden—a municipality with a total population of 28,000 inhabitants and 17,000 in the urban area—is not likely to be socially beneficial, partly because existing EU policy already internalizes most of the climate impact that largely motivates the subsidies the project has received. The project may be privately profitable, although this requires a very particular set of favorable conditions. It is important to stress that we do not argue against climate action or industrial policy per se. Rather, we call for rigorous evaluation.