Norway’s Fossil Fuel Conundrum

by robert looney

bob looney a regular contributor to the Review, teaches economics at the Naval Postgraduate School in California.

Published February 24, 2024


Last December, the annual UN summit on climate change in Dubai, known as COP28, produced a final communiqué that was hailed by optimists as a breakthrough. The group (finally) acknowledged the goal of moving away from fossil fuels.

While this was a first, it stopped short of the “phase-out/phase down” many delegates wanted — and which scientists say must happen soon to avoid a sharp escalation in climate woes. Add to that another disappointment: The transition from fossil fuels is to be voluntary and not subject to a set timeline or to milestones. 

How likely is it that COP28 will make a difference? While it is too early to say with certainty, Norway offers insights into the height of the mountain that needs to be climbed. For Norway is both a significant fossil fuel producer and a leader in global initiatives to combat greenhouse gas emissions.

The Lure of Oil and Gas

When oil was discovered in offshore waters in the late 1960s, GDP per capita in Norway was 30 percent lower than in the United States and 15 percent lower than in neighboring Sweden. Today, thanks to fossil fuel production, Norway is among the most prosperous nations in the world. In 2022, average per capita income in terms of purchasing power was 33 percent higher than in France, 30 percent higher than in the UK, 18 percent higher than in Sweden and 4 percent higher than in the U.S.

Norwegians are highly productive, but there’s no getting around the reality that the economy’s contemporary success is tied to carbon. In 2019, fossil fuels contributed 48 percent of Norway’s export revenues of around $53 billion. And that number is much, much larger today, thanks to ballooning demand for natural gas in the wake of the Ukraine war.

Norway’s Government Pension Fund Global (previously called the Oil Fund), which was established in the late 1990s, receives most of its income from oil and gas revenues and now sits on $1.5 trillion in assets — three times the nation’s GDP. All told, one-fifth of all government income comes from fossil fuel revenues. 

With this vast financial wealth — and careful management of it — the country seems to be in a good position to significantly reduce greenhouse gas emissions along with oil and gas production and exploration with little domestic hardship. Of the significant hydrocarbon producers, if not Norway, who?

Despite some success in containing emissions elsewhere in the economy — 87 percent of all new cars sold are EVs — the fossil fuel sector produced 37 percent more in 2022 than in 1990, far offsetting other gains.

Yet, despite good intentions, the country is falling far short. Indeed, it seems to be headed in the wrong direction. In 2022, Norway set the ambitious target of reducing domestic GHG emissions to 55 percent the level of 1990 by 2030. Yet in 2022, Norway’s CO2 emissions were 11 percent higher than in 1990. Then there’s the matter of the other (alarmingly potent) GHG, methane: Since 1990, Norway’s emissions have increased by 48 percent.

The explanation for these depressing numbers is the long shadow that the oil and gas industry casts over the Norwegian economy. Despite some success in containing emissions elsewhere in the economy — 87 percent of all new cars sold are EVs — the fossil fuel sector produced 37 percent more in 2022 than in 1990, far offsetting other gains.

The government is pinning its hopes for a long-term fix on a cost-effective method for large-scale carbon capture and storage. However, the technology is in its infancy and the betting now is that it will prove more practical in industrial processes other than fossil fuel production, notably in cement manufacture. So far, the government’s primary tool to facilitate reductions is the electrification of oil and gas production by supplying onshore and offshore petroleum facilities with clean energy. Norway does possess considerable clean energy resources — mainly from hydropower, and increasingly from wind power. The catch: using the clean energy this way is highly inefficient.

That said, the question is whether the government can muster public support for the initiative. Two factors give reasons for doubt. First, diverting clean energy supplies to the oil and gas industry will increase energy prices for other industries and households. And political tolerance of high energy prices is relatively low.

Second, there are indications that Norwegians are less inclined to sacrifice to support the energy transition than one might expect from rich, highly educated people. In a recent survey in six European countries (the UK, Ireland, Norway, Poland, Italy and Germany), fully one-quarter of Norwegian respondents said that climate change did not stem primarily from human activities. This wishful thinking is well out of line with answers from the other five countries.

It’s not surprising, then, that the Norwegian government is looking for other ways to buy its way out of its GHG embarrassment. Among them, aggressively adding domestic forestry stock (its largest carbon sink), purchasing carbon emissions credits through the emissions trading system in other countries, and raising Norway’s carbon tax, first introduced in 1991. 

Consider, too, that the fuel sector is a significant employer, generating the paychecks for around 7 percent of Norway’s workforce. And surprise: There is strong union opposition to any cutbacks in fossil fuel production.

However, a closer look at this end-run raises as many questions as it seeks to answer. The country’s GHG goals include only domestic emissions. And it is disingenuous to detach Norway’s impact on carbon emissions from the fact that it exports vast quantities of oil and gas to be burned elsewhere. Compounding the problem, it counts emissions credits that it buys from other countries toward meeting its own climate goals — yet the cash to pay for the credits largely comes from fossil fuel sales.

Norway’s exploration and expansion of oil and gas paints a similar picture. A recent study found that Norway had awarded 700 new exploration licenses in the past decade. The study also found that the oil and gas within fields already licensed but not yet developed could generate an additional three billion tons of CO2emissions — 60 times Norway’s current annual domestic emissions. 

Over the past several decades, Norway has been tied in knots over what to do about fuel production and consumption. And it is clear where the path of least resistance lies. Rising energy prices and increased supply security concerns in Europe make it very profitable to invest in oil and gas. Consider, too, that the fuel sector is a significant employer, generating the paychecks for around 7 percent of the country’s workforce. And surprise: There is strong union opposition to any cutbacks in fossil fuel production.

Do as I Say…

While Norway’s natural gas production is filling the serious gap in Europe left by the reduction in Russian gas, the situation warns that efforts to wean the global economy off fossil fuels faces multiple challenges. Despite increasing concern over climate change, there is always a good excuse for not stopping exploration or cutting production — even in highly affluent countries.

Alas, other large oil-producing nations reluctant to cut emissions, production and exploration can use Norway to rationalize inaction. And if anything, the record of other fossil fuel producers is even more discouraging. While politicians in Colombia and Brazil have called for cutting production or exploration, neither country has taken tangible steps in this direction.

Stay tuned.

main topic: Region: Europe