Norway’s ambition to be an international leader in climate change is at odds with its status as one of the largest oil and gas exporters in the world.
In 2019, the country occupied the 15th place in the list of the world’s largest oil producers, according to provisional data from the International Energy Agency, and the eighth place in the world ranking of natural gas production, behind Australia, but ahead of Saudi Arabia .
Most of Norway’s oil and gas production revenue is kept in a sovereign wealth fund, which was created to keep money for the Norwegian people and future generations. The fund, which has accumulated $ 1 trillion since its inception in the 1990s, is a source of stability for the country in times of economic instability, such as the coronavirus pandemic.
In December, the Norwegian Supreme Court ruled against environmental activists who sued the government because they felt that oil licensing licenses granted in the Arctic threatened their right to a clean environment under the country’s constitution. The decision will now pave the way for more drilling in the Arctic.
Experts refer to this as Norway’s “paradox”: Norway wants to be at the forefront of international efforts to tackle climate change, but continues to depend on extracting highly polluting fossil fuel for continued economic prosperity.
To get a better sense of this paradox and how Norway can finally get out of it, I spoke with Bård Lahn, a researcher at the Norwegian Center for International Climate Research (CICERO) in Oslo. Lahn is an expert on the country’s oil policy and how Norway is doing trying to align its ambitions regarding climate change with its role as a major oil and gas producer.
Our conversation, edited for clarity and length, is below.
Jariel Arvin
Let’s start at the beginning: when was oil discovered in Norway and what was the economy like at the time?
Bård Lahn
The first major oil discovery was made on Christmas Eve 1969. Beginning in the early 1970s, Norway began to develop its oil and gas production. At the time, the Norwegian economy was in almost the same place as its other Nordic neighbors and much of Western Europe. I think it’s an important point: Norway was not really a poor society before it discovered oil.
Jariel Arvin
But the discovery of oil ended up making the country much richer, right? How did this happen?
Bard Lahn
If you go back and read the policy papers at the time when oil was discovered, it is surprising how politicians were careful to ensure that oil money went to society as a whole.
There was a lot of fear that countries with big oil industries – like the United States – would invade and take all the country’s gains, so many policies were put in place to ensure that the benefits of oil production would remain in Norway.
Jariel Arvin
And the sovereign wealth fund?
Bård Lahn
Since the mid-1990s, the sovereign wealth fund has captured all the revenue that comes to the state from oil and gas production. It is currently the largest sovereign wealth fund in the world, worth more than a trillion dollars. Divide this by a population of approximately 5 million, and you will see that each generation has considerable wealth through the fund.
The general idea of the fund is that it will not be spent. It is a way to save revenue for the future, so that what is being spent is always just the return.
Jariel Arvin
How does the wealth fund affect everyday Norwegian society?
Bård Lahn
The money that is constantly being transferred to the economy has given Norwegian politicians plenty of room to increase spending without having to make some difficult budget decisions that are a reality in other countries. There is certainly an awareness that Norway has savings and a lot of money to give us comfort in difficult times.
Take the pandemic, for example. We always know that we have this money available that can be used to ease the scam.
Jariel Arvin
Okay, so clearly the oil-driven wealth fund is of vital importance to Norway, both economically and politically. But at the same time, the country wants to be a prominent player in solving climate change. How can Norway continue to depend so much on oil and gas extraction and claim to be an environmentally progressive nation?
Bård Lahn
Since climate change gained importance, there has been broad political agreement in Norway that the country should resolve the problem. But at the same time, we are still one of the world’s largest exporters of fossil fuels – we are exacerbating the problem we want to solve.
In Norwegian politics, there has been a very successful attempt to separate the discussion of oil policy from the discussion of climate policy. The two were never closely linked [in the country] until about the last decade, and that division has become increasingly difficult to maintain.
Jariel Arvin
Would you say that Norway was intentionally dishonest in separating its oil policy from its climate policy?
Bård Lahn
I wouldn’t say “dishonest” because the people who helped design this way of separating climate policy from oil policy were really convinced that they were doing the right thing.
Norwegian politicians were also not the only ones to create the conditions that made this division possible. They were immensely helped by the international climate regime. Take the Kyoto Protocol, for example, which very clearly assigns responsibility for greenhouse gases to the country where fossil fuels are consumed, not the country where they are produced.
Since the beginning of international climate policy, there was this agreement that countries should account for the emissions they create when they burn fossil fuels. All responsibility was placed on the demand side, not the supply side, which was very convenient for Norway.
Jariel Arvin
Where does Norway’s oil go? Are there any significant studies on the environmental impact of your oil production abroad?
Bård Lahn
Europe is the main Norwegian oil and gas market. But determining the climatic effects of Norwegian production is not a simple matter. One study estimated a clear climate benefit from reduced oil production, but the market is complex and the outcome really depends on your assumptions about how other players will behave and how the market will evolve over time.
Bård Arvin
What is energy consumption in Norway compared to other countries?
Bård Lahn
The big irony here is that Norway is a major producer of fossil fuels, but we use relatively few fossil fuels directly in our energy use. Long ago, almost all of our electricity comes from hydroelectric plants. In most years, we export a lot of renewable electricity to our neighbors.
The only place where fossil fuels are used to produce energy directly is on offshore platforms. They use gas to move the turbines to obtain the energy needed to oil and gas production.
Jariel Arvin
I saw a recent report that the Norwegian government is raising carbon taxes in its oil sector. Is it a way for the government to compel the industry to compensate for pollution?
Bård Lahn
The government’s new climate plan, which was released a few days ago, includes a series of new and more aggressive measures to reduce Norway’s domestic emissions. The proposal to increase the already very high CO2 tax on offshore emissions was a surprise, and is likely to be approved, even if it is being contested by the industry.
However, it is important to keep in mind that this proposal only targets emissions related to Norwegian oil production, not the level of oil being extracted and exported. As such, it is in line with the historical separation between the formulation of climate and oil policies, which tends to focus only on emissions that occur in Norway and exclude any concern about the climatic impact of exported oil and gas.
Jariel Arvin
So the bottom line: can Norway really be a leader in climate change while that paradox still exists?
Bård Lahn
The Norwegian paradox has worked quite well until the past few years because there has been little focus on fossil fuel production and because Norway is small enough to avoid the scrutiny that some larger nations face. But that is changing rapidly, both in domestic and international political discussions.
There is now much more focus on the fossil fuel supply side than 10 years ago, with several countries like Denmark announcing the end of drilling and new research showing a mismatch between planned fossil fuel production and ideas like a “non-proliferation treated ”For fossil fuels being launched. The treaty would unite the world by agreeing to end the use of fossil fuels, just as the UN came together to contain the spread of nuclear weapons.
This will make it increasingly difficult for Norway to maintain a leadership position as oil production continues to expand into new areas.
Jariel Arvin
What is most likely to cause Norway to end its oil and gas production? Economic concerns? International climate concerns? Political pressure?
Bård Lahn
Economic concerns are likely to be decisive, which is why much of the national political debate over the future of oil is precisely on the economic side: how risky it will be to bet on new oil extraction in potentially high-cost areas like the Arctic if the climate policy reduces demand and keeps prices low?
But political pressure and concern for Norway’s international reputation can also play a role, especially in determining how far politicians can go to keep oil activity artificially high. The large number of jobs in the sector gives the sector a great deal of political influence – which we saw recently during the price drop fueled by the pandemic last year.
The oil companies won a big victory in Parliament, with very favorable tax conditions to avoid job losses and reduced investments. This type of political power game may well become more frequent if the industry continues to decline, and in this situation, international pressure and climate concerns may play a role in neutralizing the industry’s lobbying power.
Jariel Arvin
Do you think that one day the country will face its history and the reality of what its oil and gas production has already done to the environment?
Bård Lahn
I am sure that this will be a strongly contested part of Norway’s oil history in the coming decades. There is a very strong narrative of Norwegian “exceptionalism” in the oil sector – that because of our strong social democratic system we were able to control the oil industry, avoiding the “resource curse” [the paradox of resource-rich countries often doing less well economically than countries with few natural resources] and ensuring that the country’s oil wealth benefits the entire society.
There is a lot of truth in that. But the environmental side of the story is increasingly challenge the established historical narrative and even our national identity, and we already see that this is a source of tension in the national debate about oil and climate policy.