Current Policy Projections
Since 1990, GHG emissions in Norway have decreased only slightly – by around 3% - reaching 51 MtCO2eq in 2019 (excluding LULUCF). Under current policy projections, Norway will not be able to reach its 2030 target, as GHG emissions are projected to reach 41-44 MtCO2eq by 2030 or around 14-21% below 1990 levels. This illustrates the need for further policies and measures to reduce emissions.
However, a share of the country’s reduction requirements could 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).
In response to the COVID-19 pandemic, the Norwegian government presented an economic recovery package of USD 2.8 billion (NOK 27 billion). Only a small share (NOK 3.6 billion) is reserved for green measures (Sfrintzeris, Mangelrød, & Myrhvold Simensen, 2020). At the same time, the oil and gas industry and the aviation sector have received substantial support. This includes an amendment of the Petroleum Taxation Act to temporarily allow oil and gas companies to deduct investments from the tax base. Companies may also claim the tax value of losses incurred in 2020 and 2021 from the State (Storting, 2020). Economists have advised against this measure, warning it is likely to lead to prolonged oil extraction at a time when the country should move away from fossil fuels (Bjørnestad, 2020; Losnegård, Befring, & Lydersen, 2020). The Norwegian government also supports the aviation industry including with state-guaranteed loans for Norwegian Air, SAS Wideroe (Dunn, 2020).
Electricity generation in Norway is almost exclusively renewable. In 2018, 95% 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 2.6% of electricity generation was from wind farms. Only 2.4% of generation came from thermal power plants mostly from industrial installations (Statistics Norway, 2019). As a result, the emissions intensity of Norwegian electricity is very low – around 8gCO2/kWh in 2016, in comparison to over 300gCO2/kWh for the EU (Climate Action Tracker, 2019).
Electricity emissions intensity
Emissions from the industry sector play a much more important role in Norway than in many other countries, as a result of Norway’s large oil and gas extraction sector. Norway is home to the biggest hydrocarbon reserves in Europe, making it the fifth largest exporter of crude oil in the world. The oil and gas sector constitutes around 22% of Norwegian GDP (Statistik sentralbyrå., 2017). In 2018, oil and gas extraction contributed 27% of the country’s emissions (Statistics Norway, 2020).
Historically, Norway’s most important instrument to tackle GHG emissions has been the carbon tax on petroleum activities levied on offshore drilling 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 extraction-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 emissions trading. 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).
The emission intensity of Norwegian oil and gas extraction is with 55 kgCO2 per tonne oil equivalent (toe) lower the world average of 130 kgCO2 (Gavenas, Rosendahl, & Skjerpen, 2015). The Norwegian carbon tax, which was introduced in 1991, is one of the factors that explains the relatively low emissions intensity (Gavenas et al., 2015). In 2015 Norway was ranked sixth out of 50 countries in terms of the lowest emissions intensity of crude oil extraction (Masnadi et al., 2018). In April 2019 the leader of the opposition Labour Party called for setting a deadline for oil extraction to become fully emissions free (Holter, 2019).
Oil and gas emissions intensity
The Norwegian Government supported investment in carbon capture and storage (CCS) projects by setting aside NOK 80 million (USD 9.6 million) in 2018 to fund Front End Engineering and Design (FEED) studies aiming at (Ministry of Petroleum and Energy., 2018). In January 2019 Norway’s Ministry of Oil granted a license to the country’s major, state-owned, energy company, Equinor (formerly Statoil) to develop carbon storage, aiming to receive around 1.5 MtCO2 annually from onshore installations (Reuters, 2019). In September 2019 Equinor signed preliminary agreements with potential customers, including cement and steel companies, to develop a subsea storage for up to 5 MtCO2 in the framework of the Northern Lights project (Adomaitis, 2019).Equinor is currently also investigating whether CO2 from a cement factory Brevik and/or a waste incineration plant in Oslo can be stored in a reservoir in the North Sea (Government of Norway, 2020b).
The decarbonisation of Norway’s transport system is one of the three main goals of its National Transport Plan (NTP) 2018–2029 (Ministry of Transport, 2016). Emissions from road transport decreased by 16% between 2015 and 2019 (from 10Mt in 2015 to 88.4 Mt in 2019). Indeed the transport sector has shown the largest drop in emissions in recent year (Statistics Norway, 2020).
The Government allocated NOK 69.3 billion to realise initiatives in the NTP, including reduced road tolls, increased grants for public transport in cities, development of road projects throughout Norway and improved rail services (Royal Ministry of Finance, 2019).
In 2019 zero emission passenger vehicles reached a 42% market share, compared to 31% in 2018 (OFV, 2020). The market share of non-zero emission vehicles and plug-in hybrid vehicles combined increased from 49% in 2018 to 56% in 2019 (OFV, 2019, 2020) As of February 2020, non-zero emission vehicles make up 10% of the total Norwegian fleet (Norsk elbilforening, 2020a).
Historical and projected future battery electric and plug-in hybrid vehicles market share in Norway, the EU and the US
The increase in the share of electric vehicles has had an impact on the average CO2 emissions of new passenger cars, which decreased from 71 gCO2/km in 2018 to 60 gCO2/km in 2019 (OFV, 2020). The electrification of transport has also had an impact on the emissions from this sector: after a continuous increase between 1990 and 2014, emissions from passenger vehicles declined by 12% between 2015 and 2017 (Statistics Norway, 2020). Likely as a result of the increased market share of electric vehicles, total sales of diesel and petrol have fallen for three years in a row with 336 million litres in total. This is a larger decrease than the overall decline from the 1974 oil crisis, after the 1987 stock market crash and after the 2008 financial crisis (Norsk elbilforening, 2020b).
Norway has established a number of electric vehicle incentives, including an exemption from 25% VAT on purchases and no annual road tax, which has been extended to the end of 2020. Other incentives are extended until the end of 2021 (Norsk elbilforening, 2019). With its legislation, Norway expects that all new passenger cars and light vans will be zero-emissions vehicles by 2025, and that new city buses will be zero-emissions or run on biogas by the same target year. 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, 2016).
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). Avinor, which operates most civil airports in Norway and is fully owned by the state, aims to electrify all domestic aviation by 2040 (Avinor, 2018).
Norway has tightened building regulations over the last two decades, resulting in emissions from the heating in the buildings sector decreasing by 67% between 1990 and 2017 (Norwegian Ministry of Climate and Environment, 2018b). The building code limits on energy consumption for individual homes decreased from 173 kWh/m2 in 1997 to 125 kWh/m2 in 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). According to Norway’s Seventh National Communication this ban will reduce emissions in the country by 400 ktCO2 in comparison to business-as-usual (Norwegian Ministry of Climate and Environment, 2018b).
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 (USD 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, 2018a). A total of USD 56 million will be provided to Indonesia in 2020 for their efforts to reduce their rate of deforestation in 2017, marking the beginning of the final phase of their already decade long cooperation on reducing deforestation (Jong, 2020).
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 USD 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 USD 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 USD 2.9 billion and USD 5.9 billion respectively (Norges Bank, 2019a).
In June 2019, Norway’s Parliament voted to divest from eight coal companies and around 150 oil producers (Ambrose, 2019). As a result, stocks worth more than USD 10 billion will be divested. The Fund can no longer invest in any company generating more than 10 GW of electricity from coal or mining more than 20 million tonnes of coal annually (Nikel, 2019).
In May, Norges Bank – the Norwegian Central Bank – which manages the state-owned oil fund divested from five companies for their coal activities (Norges Bank, 2020). The fund was a major shareholder in all companies and its decision to divest sends a strong signal and may be followed by others (Milne, 2020).
Since 2019, the Oil Fund can invest in renewable energy projects that are not listed at the stock exchange (Ministry of Finance, 2019) and which represent 71% of the investable market (McKinsey&Company, 2018). Since these projects come at a higher risks, the Government has introduced a cap on investments in unlisted renewable energy projects at 2% of the Fund, amounting to around USD 20 billion (Ministry of Finance, 2019). The 2020-2022 strategy document provides that renewable energy investment should make up 1% of the Fund towards the end of 2022 (Norges Bank, 2019b).