This article examines the role of central government in enhancing local capacity for promoting sustainable development. Building upon a series of evaluation studies, it examines a major central government funding initiative in Sweden, called the Local Investment Programme for Ecological Sustainability (LIP). The Programme formed part of a new governance approach towards the promotion of sustainable development. It was designed to promote both ecological sustainable development and create new 'green jobs', while at the same time stimulating innovative ways of thinking among local actors about the relationship between economy, ecology and society. Substantial material environmental effects were achieved and 'green jobs' created by LIP. However, allocation was skewed towards environmental leader municipalities and LIP was never fully integrated into other sustainable development initiatives. Further, few public/private partnerships were developed. Hence, despite the magnitude of the Programme, we question whether it produced lasting capacity-building effects at the local level.