Norway’s ambition to be an international leader in climate change is at odds with its status as one of the world’s largest oil and gas exporters.
In 2019, the country was 15th on the list of the world’s leading oil-producing countries, according to preliminary data from the International Energy Agency, and eighth in the world for natural gas production, behind Australia but ahead of Saudi Arabia.
Most of the income from Norway’s oil and gas production is kept in a sovereign wealth fund, created to preserve the money for the Norwegian people and future generations. The fund, which has earned $ 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 Supreme Court of Norway ruled against environmental activists who have sued the government for believing that oil licensing permits granted in the Arctic threaten 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 call it Norway’s “paradox”: Norway wants to be at the forefront of international efforts to address climate change, but still relies on the pollution of fossil fuels that are heavily polluted for continued economic prosperity.
To get a better idea of this paradox and how Norway may eventually break out of it, I spoke to 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 trying to align its ambitions on 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 a day before Christmas Eve in 1969. From the early 1970s, Norway began to develop its oil and gas production. At the time, the Norwegian economy was about the same as its other Nordic neighbors and much of Western Europe. I think this is an important point: Norway really was not a poor society before he discovered oil.
Jariel Arvin
But the discovery of oil ultimately made the country richer, right? How did it happen?
Bård Lahn
If you go back and read the policy documents when oil was discovered, it’s amazing how considerate politicians were to make sure the money from oil went to society as a whole.
There was a lot of fear that countries with large oil industries – such as the United States – would recover and take all the earnings out of the country, and so many policies were put in place to ensure that the benefits of oil production remain Norway.
Jariel Arvin
And what about the sovereign wealth fund?
Bård Lahn
Since the mid-1990s, the sovereign wealth fund has captured all the revenue that comes from oil and gas production to the state. It is currently the largest sovereign wealth fund in the world, worth more than a trillion dollars. Divide it by a population of about 5 million, and you can see that each generation has significant wealth through the fund.
The idea of the fund is that it is not going to be spent. It’s a way to save revenue for the future, so spending is always just the returns.
Jariel Arvin
How does the Welfare Fund affect everyday Norwegian society?
Bård Lahn
The money that is constantly being transferred into the economy has given Norwegian politicians plenty of room to increase spending without having to make 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 comfort us during difficult times.
Take the pandemic, for example. We always know we have this money available that can be used to mitigate the blow.
Jariel Arvin
Well, so clearly the oil – driven prosperity fund is of great importance to Norway, both economically and politically. But at the same time, the country wants to play an important role in solving climate change. How can Norway continue to rely so heavily on oil and gas extraction and claim to be an environmentally friendly progress?
Bård Lahn
Since climate change became more important, there is broad political agreement in Norway that the country needs to address the problem. But at the same time, we are still one of the largest exporters of fossil fuels in the world – 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 are never really close now [in the country] until about the last decade, and this division has become increasingly difficult to maintain.
Jariel Arvin
Would you say that Norway was deliberately dishonest by separating its oil policy from its climate policy?
Bård Lahn
I would not say ‘dishonest’ because the people who help separate climate policy and oil policy this way were actually convinced that they were doing the right thing.
Nor have Norwegian politicians been alone in creating the conditions that made this division possible. They have been greatly helped by the international climate regime. Take, for example, the Kyoto Protocol, which very clearly places the responsibility for greenhouse gases on the country where fossil fuels are consumed, and not the country where they are produced.
From the beginning of international climate policy, there was the agreement that countries had to account for the emissions they cause when they burn fossil fuels. All the responsibility was placed on the demand side, not on the supply side, which was very comfortable for Norway.
Jariel Arvin
Where is the oil from Norway going? Have any important studies been done on the environmental impact of oil production abroad?
Bård Lahn
Europe is the primary market for oil and gas in Norway. But determining the climatic effects of Norwegian production is not straightforward. One study has estimated a clear climate benefit from reducing oil production, but the market is complicated and the result really depends on your assumptions about how other actors will behave and how the market will develop over time.
Bård Arvin
What does consumption in Norway look like compared to other countries?
Bård Lahn
The big irony here is that Norway is a fairly large producer of fossil fuels, but we use relatively few fossil fuels directly in our energy consumption. Almost all of our electricity has long come from hydropower. In most years, we even export a lot of renewable electricity to our neighbors.
The only place where fossil fuels are used to produce energy directly is to manage the platforms abroad. They use gas to run the turbines to get the energy they need oil and gas production.
Jariel Arvin
I saw a recent report that the Norwegian government is increasing the carbon tax on its oil sector. Is this the way the government should force the industry to make up for the pollution?
Bård Lahn
The government’s new climate plan, launched just a few days ago, does contain a number of new and more aggressive measures to reduce Norway’s domestic emissions. The proposal to increase the already high CO2 tax on foreign emissions was surprising, and it is likely to succeed, even if it is currently being challenged by the industry.
However, it is important to keep in mind that this proposal is only aimed at the production-related emissions of Norwegian oil, not at the level of oil extracted and exported. As such, it is in line with the historical separation between climate and oil policy, which tends to focus only on emissions occurring within Norway, and does not exclude any concerns about the climate impact of exported oil and gas.
Jariel Arvin
So: can Norway actually be a climate-changing leader while this paradox still exists?
Bård Lahn
The Norwegian paradox has worked out quite well until the last few years because there has been little focus on fossil fuel production, and because Norway is small enough to avoid the scrutiny facing some larger countries. But that is rapidly changing, both in local and international political discourse.
There is now much more attention on the supply side of fossil fuels than ten years ago, with several countries such as Denmark announcing the end of drilling and new research showing a mismatch between the planned production of fossil fuels and ideas such as a ‘non- distribution’. treaty ”for fossil fuels that are powered. The treaty would bring the world together by agreeing to end the use of fossil fuels, just as the UN agreed to limit the proliferation of nuclear weapons.
This will make it increasingly difficult for Norway to hold on to a leadership claim as long as oil production continues to expand in new areas.
Jariel Arvin
What is likely to end Norway’s oil and gas production? Economic worries? International climate concerns? Political pressure?
Bård Lahn
Economic concerns are likely to be crucial, which is why much of the national political debate about the future of oil is precisely on the economic side: how risky it will be to bet on new oil exploration in potentially high-cost areas such as the Arctic if climate policy reduces demand and keeps prices low?
But political pressure and a concern over Norway’s international reputation could also play a role, especially in determining how far politicians are likely to go to keep oil activity artificially high. The high number of jobs in the sector gives the industry a lot of political leverage – which we saw recently during the price drop fueled by pandemics last year.
The oil companies achieved a major victory in parliament, with very favorable tax conditions to avoid job losses and reduced investment. These types of political power games may well occur more frequently if the industry continues to decline, and in that situation international pressure and climate problems may play a role in counteracting the lobbying power of the industry.
Jariel Arvin
Do you think the country will ever face its history and the reality of what oil and gas production has already done to the environment?
Bård Lahn
I’m sure it’s going to be a very controversial part of Norway’s oil history for decades to come. There is a very strong established story of the Norwegian “exception” in the oil sector – that we were able to control the oil industry and avoid the “resource curse” due to the strong social democratic system. [the paradox of resource-rich countries often doing less well economically than countries with few natural resources] and to ensure that the country’s oil wealth is to the benefit of the whole society.
There is a lot of truth in this. But the environmental side of the story is increasing challenging the established historical narrative and even our national identity, and we are already seeing this as a source of tension in the national debate on oil and climate policy.