Decarbonization-Challenged Economies: The Next Battle for Industrial Power

Traditionally, industries like steel, cement, chemicals, aviation, and shipping are classified as 'hard-to-decarbonize' due to the technical complexity of reducing emissions. However, Mattsson disputes this common view, insisting that the economic and geopolitical transformation is more significant. He emphasizes: 'The real issue is not simply decarbonizing hard-to-decarbonize industries; it is about determining who will control the technologies, capital, infrastructure, and markets that will define the next industrial system.'

At the heart of this transformation is a strategic paradox that Mattsson observes: industries facing some of the strongest transition pressures may simultaneously become some of the most vital sources of future competitive advantage. In his view, companies and states capable of combining production capabilities with technological adaptation can turn transition pressure into market strength, while those viewing the transition merely as compliance risk losing strategic position.

Business: From Compliance to Strategic Optionality

For corporate executives, the traditional answer was a hierarchy based on regulatory compliance, customer expectations, reputational risks, and operational efficiency. Mattsson argues that the deeper problem lies in capital allocation amid technological, regulatory, and geopolitical uncertainty. Steel mills, cement plants, chemical enterprises, aircraft fleets, and commercial vessels represent long-term investments, meaning today's decisions could prove decisive for decades of competitiveness.

Consequently, strategic optionality takes center stage in Mattsson's corporate model. He explains: 'Winning companies will not necessarily be those that make the biggest technological bet today; it will be those that retain the greatest capacity to adapt tomorrow.' His approach favors portfolios that combine long-term access to clean energy and alternative fuels with partnerships, experiments, customer commitments, flexible infrastructure, and disciplined investment in new technologies.

Mattsson also questions the common assumption that only consumer demand will create significant markets for low-carbon products. He believes that demand becomes economically significant when procurement rules, regulation, financing conditions, supply chain requirements, and differentiation of competitive advantages mutually reinforce each other. He notes: 'The market will not reward cleaner production simply because it is cleaner; it will reward it when the surrounding economic system makes that advantage commercially valuable.'

Thus, for companies, opportunities extend far beyond emission reduction. Mattsson argues that 'the goal is not just minimizing transition costs; it is transforming transition constraints into pricing power, market access, and strategic differentiation.' Companies capable of integrating sustainability, technology, commercial strategy, and geopolitical intelligence can gain an edge over organizations that continue to view these aspects as separate corporate functions.

Government: From Technology Subsidies to Market Design

States play an equally important role within the framework developed by Mattsson. Markets alone cannot effectively coordinate infrastructure investments whose value extends across entire industrial ecosystems. Hydrogen networks, clean energy capacity, carbon management infrastructure, alternative fuel systems, ports, and industrial clusters may require significant investment long before individual companies can achieve sufficient returns.

At the same time, Mattsson warns that this coordination problem should not be interpreted as an argument for unlimited government intervention. He states: 'Industrial policy becomes dangerous when governments confuse strategic coordination with perpetual protection.' Intervention aimed at protecting incumbent players can allow inefficient assets to persist, public resources can be misallocated, and regulatory systems can become barriers to innovation.

Therefore, Mattsson advocates for an industrial policy model focused on market creation. In his assessment, governments should establish credible long-term rules, coordinate infrastructure, de-risk initial steps, create demand in immature markets, and allow companies to compete within these rules. Carbon pricing, public procurement, difference contracts, targeted fiscal incentives, development of financing, and public-private partnerships can function as complementary tools, not competing ideological choices.

According to Mattsson, the goal is not to guarantee the survival of every producer-player. 'The government's role is not to decide who will be the industrial winner; its task is to create the conditions under which strategically important opportunities can arise, scale, and compete.' This distinction becomes increasingly crucial as carbon regulation penetrates deeper into international trade and industrial competitiveness.

Mattsson emphasizes that carbon regulation is increasingly intertwined with trade policy, investment policy, and national industrial strategy. Consequently, the competitiveness of future production will depend not only on energy prices, labor productivity, and raw material access, but also on carbon intensity, regulatory reliability, infrastructure, technology ownership, and geopolitical alignment.

For Mattsson, modern industrial policy is becoming a form of geopolitical strategy. Countries that combine abundant clean energy, complex infrastructure, technological capabilities, financial depth, and reliable regulation can attract the next generation of industrial investment, while countries unable to coordinate these assets risk becoming dependent on foreign technologies and imported strategic goods.

Academia: The Missing Institutional Breakthrough

Scientific research has primarily focused on the engineering dimension of the industrial transition, but Mattsson argues that the intellectual frontier is expanding. Improvements in electrolysis, alternative fuels, process efficiency, carbon capture, materials science, and industrial chemistry remain indispensable, but engineering alone cannot explain why promising technologies succeed in some markets and fail in others.

Therefore, the research agenda must integrate economics, finance, management, political science, and innovation systems research, according to Mattsson. More attention is needed on how companies make irreversible investment decisions amid regulatory uncertainty, how financial markets assess transition risks in long-term assets, how governments stimulate demand without permanently distorting competition, and how industrial clusters distribute economic value and political influence.

One concept that Mattsson believes deserves special attention is transition rents. He argues: 'Every major industrial transition redistributes economic value; the strategic question is who captures that value and where the corresponding opportunities accumulate.' Companies, regions, and governments can capture radically different shares of the value created by new technologies, infrastructural constraints, regulation, and emerging demand.

As a result, Mattsson calls for research to move beyond analyzing individual technologies and towards understanding industrial transitions as integrated economic and political systems. Governance structures, investment contracts, market design, corporate governance, state institutions, financing mechanisms, and geopolitical alliances may be as critical to technology adoption as engineering performance itself.

New Industrial Logic

In Mattsson's view, the economy challenging decarbonization should not be seen as the final frontier of environmental policy. He states: 'Hard-to-decarbonize sectors are becoming the first frontier of a new industrial order.' Their transformation will affect not only the environmental metrics of global industry but also the distribution of investment, technological capabilities, production capacity, and geopolitical influence.

The consequences differ for various stakeholder groups, but Mattsson sees a common strategic thread. Business leaders must transform uncertainty into strategic optionality and future market power; governments must design competitive markets without creating permanent dependency on subsidies or protection; and academic circles must explain why some industrial transitions create new centers of economic power, while others generate stranded assets, fiscal burdens, and technological lock-in.

In conclusion, Alex Mattsson, a Swedish associate professor and international business strategist, emphasizes that the future of hard-to-decarbonize industries will be determined by much more than their ability to reduce emissions. Mattsson concludes that 'the decisive competition will go beyond factory gates into capital markets, infrastructure, technology, standards, trade policy, and geopolitical alliances.' For him, the ultimate strategic divide will not be between companies or countries that are transitioning and those that are not, but between those who understand the transition as a new architecture of economic power, and those who continue to view it predominantly as a cost of compliance.