Current Policy Projections
Current policies overview
Since 1990, GHG emissions in Norway have slightly increased, reaching 53 MtCO2eq in 2016 (excluding LULUCF). This level was above the Kyoto Target in 2012, and Norway purchased 21.5 million carbon credits to offset its surplus (IETA 2013).
Under current policy projections, Norway will not be able to reach either its 2020 or its 2030 targets, as GHG emissions are projected to stabilise only slightly below current emissions levels and reach 48 MtCO2eq by 2030. This illustrates the need for further policy reforms. Even though Norway’s 2030 target is to be achieved through a mix of efforts domestically and abroad, Climate and Environment Minister Vidar Helgesen recognised "that the 2030 goal of reducing emissions by 40% can be reached with the main emphasis on domestic emissions reductions" (Ministry of Climate and Environment, 2017b).
Yet a big share of the country’s reduction requirements could still rely on international climate action and purchase of emissions quotas under the European regulatory framework. Such investments and purchases abroad are grounded on the cost-efficiency argument, considering that reductions in other countries are overall cheaper than more aggressive national policies. This approach has gathered further momentum, with reports of Norway seeking to purchase credits to offset its fossil fuel emissions more than a decade ahead of its requirements for the 2030 target (Carr, Starn, & Hodges, 2018).
Electricity generation in Norway is almost exclusively renewable. In 2017 almost 96% of electricity was generated by hydro power plants - Norway has over 1000 storage reservoirs that correspond to 70% of annual Norwegian electricity consumption (Norwegian Ministry of Petroleum and Energy., 2019). A further 1.9% of electricity generation was from wind farms. Only 2.3% of generation came from thermal power plants mostly from industrial installations (Statistics Norway, 2019).
Norway is home to the biggest hydrocarbon reserves in Europe, making it the 5th largest exporter of crude oil in the world. The oil and gas sector constitutes around 22% of Norwegian GDP (Statistik sentralbyrå., 2017).
Historically, Norway’s most important instrument to tackle GHG emissions has been the carbon tax on petroleum activities levied on offshore drilling activities since 1991. In 1999, under the White Paper on energy policy, the government adopted additional energy and CO2 taxes. The taxation level is not the same for all sectors, with higher rates for oil-related activities. Since the introduction of the EU ETS in 2005, in which Norway takes part despite not being an EU member state, the rate levels have been subject to revisions to embed changes in the price of allowances in the framework of the mechanism. Overall, in 2018 around 80% of greenhouse gas emissions were taxed, with the highest tax charged on domestic aviation and oil (NOK 500 or USD 57 per tonne of CO2)(Norwegian Ministry of Petroleum and Energy, 2019).
Due to the low price of carbon traded in the framework of the EU ETS until 2018, the Norwegian government increased the offshore carbon tax, which was set at around €50 per tonne CO2 in 2015, being charged in addition to the EU-ETS. This led the Norwegian oil and gas extraction sector to decrease its emissions intensity to about 55 kgCO2 per tonne oil equivalent (toe) extracted in 2012, against a world average of 130 kgCO2 (Gavenas, Rosendahl, & Skjerpen, 2015).
It is expected that the petroleum industry will remain an important sector for the Norwegian economy for decades to come (Royal Ministry of Finance, 2015). However, higher emissions intensity due to the shrinking of existing fields and new exploration in marginal and less accessible ones, as well as increased explorations in sensitive regions such as the Barents Sea, could lead Norway to miss its 2030 carbon neutrality target (Gavenas et al., 2015; Ministry of Petroleum and Energy., 2016).
The Norwegian Government set aside NOK 80 million (USD 9.6 million) in 2018 to fund Front End Engineering and Design (FEED) studies aiming at carbon capture and storage projects (Ministry of Petroleum and Energy., 2018). This signals the government’s continued commitment in supporting the development of demonstration projects for CCS. Continued funding at the FEED stage depends on the projects’ ability to showcase significant learning potential, at low cost and implementation risk. Norcem, a cement plant, has been deemed as meeting these criteria and received funding for the last stage (FEED study) before final construction. The study is a detailed review which is anticipated to be published in summer 2019, after which a third party review will be carried out. Only after this will the Norwegian Government decide about a possible realisation of the project (Norcem, 2018).
Some of the carbon may be stored near Troll, Norway’s largest oil and gas field in the North Sea. In January 2019 Norway’s Ministry of Oil granted a license to the country’s major petroleum and wind energy company, Equinor (formerly Statoil) to develop carbon storage, aiming to receive around 1.5 MtCO2 annually from onshore installations (Reuters, 2019).
The decarbonisation of Norway’s transport system is one of the three main goals of its National Transport Plan 2018–2029 (Ministry of Transport., 2016). Contrary to this plan, the majority of the NOK 67.5 billion (USD 8.1 billion) allocated to the transport budget in 2018 went into the construction and improvement of roads and highways. The railway sector budget was increased by 5.7% to NOK 23.1 billion (USD 2.6 billion). The largest increase was in the allocation for public transport: by 23% to NOK 2.5 billion (USD 280 million) (Ministry of Transport and Communications., 2017). The 2019 budget see an acceleration in the shift from investment in road to railways and public transport, with the former increasing by NOK 2 billion (or USD 227 million) and the latter almost doubling resources for co-funding of key public transport projects (Royal Ministry of Finance, 2019).
In 2018 battery electric vehicles (BEVs) reached a 31 % market share. Plug-in hybrids (PHEVs) have a market share of almost 18 % (ACEA, 2019b). The increasing share of electric cars in new sales has an impact on the overall share of zero emissions vehicles: by the end of March over 7.9% of all passenger cars in Norway were zero emissions vehicles, an increase from 7.2% at the end of 2018 (OFV, 2019). In the first quarter of 2019 the share of newly sold electric vehicles reached 61%, more than three quarter of which were battery electric vehicles (ACEA, 2019a).
With its legislation, Norway expects that all new passenger cars and light vans will be zero-emissions vehicles by 2025, and new city buses will be zero-emission or run on biogas by the same year. Electric car incentives are expected to continue at least until 2020, including differentiated taxes and tolls, VAT exemption for new zero-emission units, creation of low-emission zones in cities and access to bus lanes. Electrification is also planned for railways, substituting old diesel-fuelled lines to achieve emission reductions, but also higher train speeds and cost competitiveness against road transport, given the country’s low electricity costs. Other policies involve the development of urban and public transport, and a goal of at least 1% sustainable biofuel in aviation from 2019, increasing to 30% by 2030 (Ministry of Climate and Environment, 2016b).
Norway is also a pioneer in electric ferries. The Norwegian parliament has passed a resolution which calls on the government to transform its fjords into a zero-emissions control area by 2026 (Brown, 2018).
Norwegian building regulations have tightened over the last two decades. The building code limits on energy consumption for individual homes decreased from 173 kWh/m2 in 1997 to 125 kWh/m2in the regulations adopted ten years later. For new and refurbished apartments, the maximum energy consumption decreased from 149 kWh/m2 in 1997 to 120 kWh/m2 in 2007. In November 2015, new Building Codes called TEK17 were adopted, introducing stricter limits for different categories of new and refurbished builds that became binding for all homeowners in 2017: 100 kWh/m2 for single houses, 95 kWh/m2 for apartments and 115 kWh/m2 for offices (Buildup, 2015; Direkoratet for Byggkvalitet, 2017; Faschevsky, 2016).
Homeowners are also encouraged to increase the share of renewables produced domestically. Should an equivalent of more than 20 kWh/m2 be produced on the property, the respective limit on energy consumption can be exceeded by 10 kWh/m2 (Buildup, 2015).
Norway has also introduced a ban on fossil fuel (oil and paraffin) heating systems. This ban has been phased in since 2016 and will be in full force from 2020 onwards. The ban will apply to both old and new buildings and both private homes and public spaces of businesses and state-owned facilities (Reuters, 2017).
Norway has a substantial carbon sink in its forests which equals approximately half of Norway’s annual emissions. Since 2005 the forest area in this country has been increasing and in 2016 reached 33.2% of the land surface – around 0.1% more than a decade earlier (The World Bank, 2019). The volume of growing wood stock increased between 2008-2017 by over 23% (SSB, 2019). According to the national forestry accounting plan, between 2021-2025 Norway’s average removal from this sector will amount to slightly over 24 MtCO2eq (Norwegian Ministry of Climate and Environment., 2019).
In addition, Norway has pledged up to NOK 3 billion ($343 million) a year in the framework of the Norway’s International Climate and Forest Initiative (NICFI) to reduce deforestation in other countries (Norwegian Ministry of Climate and Environment, 2018).
In March 2019 Norway’s government decided to follow on the advice of Norwegian Central Bank and phase-out investment of its Government Pension Fund Global (GPFG) worth around $1 trillion in companies dealing with oil and gas exploration and production (Royal Ministry of Finance, 2018). This will result in gradually selling shares of 134 companies worth $8 billion (NewScientist, 2019). While a belated step in the right direction, this decision will still allow the GPFG to invest in companies providing oil and gas services, such as BP or Shell, which currently constitute a significant share of the Fund’s investment amounting to $2.9 billion and $5.9 billion respectively (Norges Bank, 2019).
The Norwegian government also now allows its Pension Fund to invest in renewable energy projects not listed at the stock exchange (Ministry of Finance., 2019). Such projects are estimated to represent 71% of all renewable energy investments, but due to the perceived higher risk, have not been part of the Pension Fund portfolio (McKinsey&Company, 2018). However, the Government has also introduced a cap on such investment at 2% of the Fund, amounting to around $20 billion (Ministry of Finance., 2019).