As the world begins to wean itself off oil and gas, what should Norway do next?

I recently found myself in a North Atlantic, Russo-sceptic, sea-faring constitutional monarchy that loves football and beer, has dreary weather and whose people have a confused relationship with the EU. Yes, dear readers, I was in Norway. Of course, the UK’s key relationships in Europe are with France and Germany but there is so much that the UK is doing with our Scandinavian and Baltic friends, especially on defence, and we should do even more. Never forget that the UK is a very North Atlantic nation  – the Shetland Islands are less than 400 miles south of the Arctic Circle and the UK is an observer on the Arctic Council.

There’s also one other similarity: oil is the biggest export for both countries. But while Norway has carefully husbanded its oil wealth for the benefit of its 5.4 million people through its sovereign wealth fund, the UK spent the wealth as fast as it came in. With our far larger population and the parlous state of the UK economy in the 1970s and 80s, this is hardly a surprise nor was it an unreasonable decision. But as the world begins to wean itself off oil and gas, what should our friends in the North do next?

First of all, there’s no hurry. The Norwegian sovereign wealth fund is currently worth $1.4 trillion which goes a long way when divided by 5.4 million. The fund owns 1.5% of global equities and has stakes in 9,200 companies. It may have made a record loss last year but in the first quarter of 2023, it recorded $83 billion in profit. Norway is well able to look after itself and its people for many, many years to come. Anyone who has been to Oslo can but marvel at Norwegian efficiency, cleanliness and friendliness albeit while hoping that someone else picks up the tab for dinner.

One reason for continued prosperity is Norway’s ability to generate power. It is an astonishing renewable energy success with around 90% of its power coming from 1690 hydropower plants and 10% coming from 53 wind farms. In terms of domestic energy production, this makes Norway the world’s cleanest economy. That said, Norway is not immune from the climate crisis with a very dry 2022 leading to very high prices for hydropower both in Norway and into its export markets. In early 2023, the Norwegian Government, having been stung by public criticism over high domestic energy prices, announced plans to restrict power exports in the future should reservoir levels drop again. Norway First – or something like that. Norway had a wet autumn and winter and gas prices have fallen across Europe well below pre-Ukraine crisis levels so there won’t be a crisis this year but if it’s happened once, in a world that’s warming it must surely happen again.

This brings us neatly to the central contradiction that Norway must face. For all its record as a country with an incredible track record in renewable power, Norway is one of the world’s great polluters. For decades now, Norway’s oil and gas industry has created emissions on a per capita basis that can compete with anywhere else in the world. Like its fellow Scandinavian nations, Norway is a progressive democracy, which prides itself on its moral standing and sense of national self-worth. The pay differential in Norwegian companies between CEOs and junior colleagues is far lower than in the UK or France. Norway has a proud record in international aid and peacekeeping contributions. But there’s more to it than that: Norwegian workers congregate together for meals; to eat at one’s desk would be desperately non–collegiate. Norwegians work hard, but they’re productive – they go home in the late afternoon and rarely work late. Norwegians will tell you that the Danish word “hygge” can also be used in Norwegian to mean that same Scandinavian sense of comfortable conviviality and togetherness.

But the Norwegians are not fools either: they are more than aware of the need to square their progressive mindset with their partial responsibility for the climate crisis that we all face and this where, again, the UK Government could learn from the Norwegians. The Norwegian approach to the climate crisis is reality-based, not the Johnsonian broad brush approach that defines UK policy (yet another reason that Johnson’s position as the great hope for the right of the Tory party is so baffling). Norway takes the view that oil demand is still climbing and will continue to climb and that demand is inevitably going to be met. Best then, in their view, that a best-in-class producer like Norway meets that demand.

So the Norwegians have turned their oil industry into the most eco-friendly oil & gas industry in the world. This has required intense regulation: as the Norwegian Department of Energy says, “Emissions from Norwegian petroleum activities are regulated through several acts, including the Petroleum Act, the CO2 Tax Act on Petroleum Activities, the Sales Tax Act, the Greenhouse Gas Emission Trading Act and the Pollution Control Act”. And all this legislation has had the desired effect: greenhouse gas emissions from the Norwegian oil & sector is almost a third lower than it was in 2008. By 2026, Sulphur dioxide emissions will be close to half their 2006 high. Non-methane volatile organic compounds emissions (compounds that evaporate from oil) are around 12% what they were 20 years ago. At the same time, taxation within the sector is eye-wateringly high but the difference is that exploration costs can be offset by 78% which is a very significant carrot indeed. In virtually all other jurisdictions, if you drill unsuccessfully, your shareholders carry the can.

The Norwegians have also been pragmatic about the Ukraine-Russia war and the effect on energy security. For all the very many fine words, both the Tories and Labour have barely responded in energy security terms to the threat that Russia provides. Not so in Norway with new licences and new developments to offset the threat from Putin – having a border with Russia focuses the mind, it seems. It’s this pragmatism both in how best to produce oil and gas and who should produce it that makes Norway so attractive and there’s no reason that UK governments over decades could not have been equally pragmatic.

So far, so good. And so far, as far as Norway is concerned, so convenient. The money will just keep rolling in. There is a kicker, however. If you have designated yourselves as the global oil and gas producer of choice and you have made money for decades and are going to continue to do so, surely Norway should be looking at countries that are starting their oil and gas journeys and telling them that Norway will pay them not to produce. It’s too late for Guyana – to whom Norway paid $250 million in the 2010s to avoid deforestation – but it’s not too late for the world’s next oil hot spot – Namibia. Watch this space.

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