The transition of Norway’s fossil fuel practices to a cost-efficient greener model

Abstract

Norway is a signatory to the Paris Climate Accords, an agreement that aims to prevent global temperatures from rising higher than 1.5 degrees. Although a small nation, Norway is the world’s 14th biggest oil-producing country and the 8th biggest producer of natural gas. According to experts, Norway will not reach its environmental targets if following its current economic strategy. Norway has outlined in the 2021 ‘White Paper’ that oil drilling will continue until 2050. However, the Norwegian Ministry of Climate and Environment is willing to apply new taxes on oil and gas. The two following cost-efficient policy recommendations will help Norway phase out fossil fuels and replace them with a greener alternative. The two policies (a and b) are interrelated as the first measure will create a direction for the second. a) taxing companies that drill and export oil and gas on the Norwegian continental shelf, either through a direct tax on barrels or with alternative investment opportunities for companies. b) using the Norwegian sovereign wealth fund to subsidise both foreign and domestic companies to accelerate the development of renewable energy projects and improve Norway’s transmission network. These will accelerate the development of the renewable-exportation market and thus provide a sustainable economic alternative to fossil fuel exportation.

Keywords: Norway, oil and gas, policy, tax, green transition

JEL Classification: Q00, Q01, Q28, Q4, Q5