Part 3
Norway’s green transformation process

6 Norwegian businesses: restructuring and green competitiveness

6.1 Restructuring of Norwegian business and industry

The Government will:

• appoint an expert committee to follow up the Storting’s request to consider the overall framework for promoting climate-friendly investment in Norway.

The global benefits of implementing climate action in line with the climate targets will outweigh the costs that the world will incur as a result of climate change in the event of failure to act. However, in the short term the costs may be perceived as high by individual people. For most countries, pricing greenhouse gas emissions in line with the Paris Agreement will mean a considerable increase in price. The transition to a low-emission society will require a transformation process. The relative profitability of sectors and technologies may change. An important part of the restructuring process will be to transfer inputs from one sector to another so that they can be used where they will give the greatest yield. A high international price for greenhouse gas emissions will be a vital basis for the success of the low-emission transition. This will affect every industry, not just those that have traditionally been considered as ‘green’.

In Norway, the business sector is already accustomed to paying for greenhouse gas emissions. The carbon tax was first introduced in 1991. It is estimated that without Norway’s active climate policy, its greenhouse gas emissions in 2020 would have been 21.0–24.8 million tonnes higher than was in fact the case.1 Norwegian businesses that take responsibility at an early stage can gain a competitive advantage in the green transition.

Norway’s competitiveness is determined by its ability to maintain a reasonably stable balance of payments while at the same time making full and effective use of the country’s resources. For a small open economy like Norway, it is vital to make use of technology developed elsewhere in order to maintain its competitiveness.

An individual company or industry is competitive if it can compete successfully in product markets with companies in Norway and abroad, or with industries in Norway and abroad in markets for labour and capital. An industry or a company that receives subsidies to correct for market failures can improve its competitive position. However, this may result in poorer overall use of resources if the level of subsidisation exceeds the market failure it is intended to correct. Using cross-sectoral policy instruments in climate policy, such as taxation of greenhouse gas emissions and emissions trading, means that the market determines where emissions can be reduced most cost effectively.

Norway’s transition to a low-emission society will require everyone to play a part. A well-qualified labour force and incentives that make it attractive to participate in the labour market are two of the factors that will ensure the necessary capacity for change. Effective national markets and the fact that Norway is open to international markets form part of a sound framework for the business sector and for the development and adoption of new technology. Because economic policy is designed to stabilise economic developments over time, the business sector avoids unnecessary loss of production and major restructuring costs when there is an economic downturn. By restructuring the tax system to reduce taxation of income and assets and at the same time increase taxation of activities involving emissions that are harmful to the climate and environment, the Government has laid the basis for a green transition and green growth. Taking action to ensure that the Norwegian economy retains its adaptive capacity is the best possible preparation for the green transition. Through its economic, climate and business policy, the Government has developed a good framework for a business sector that already had considerable adaptive capacity.

The EU has shown through its long-term budget for 2021–2027 and the recovery package for the COVID-19 pandemic (Next Generation EU) that it is taking climate change seriously. At least 30 % of total expenditure from the long-term budget and a large proportion of the recovery package will target climate-related projects. All allocations and loans from the EU must meet sustainability criteria. Major initiatives include those for digitalisation and support to European industry and employees.

In its input to this white paper, the Norwegian business sector has highlighted the importance of a framework that does not hinder the green transition (see for example Chapter 5).

The Government will appoint an expert committee to review the overall framework for promoting climate-friendly investment in Norway. This is a response to a request by the Storting (Norwegian parliament) for the Government to consider issues including the overall framework for climate-friendly investment. This issue is also being considered in several other processes and as part of the work of other committees. The strategic forum Prosess21 is to publish its final report in early 2021, and Norway’s strategy for developing a green, circular economy will also be published in spring 2021. Part of the mandate of a committee appointed to assess the impact of the COVID-19 pandemic on Norway (‘Norway towards 2025’) is to consider the basis for Norway’s business sector in the future, including new digital business opportunities, the green transition and sustainability in business models. The Ministry of Petroleum and Energy is to present a white paper on long-term value creation from Norwegian energy resources in 2021. This will include topics such as future developments in the Norwegian petroleum industry, the interplay between onshore and offshore power generation, and offshore wind power, hydrogen technology, carbon capture and storage (CCS) and seabed minerals. For more about this, see Chapter 1.2.7. It will also be relevant for the expert committee to consider the EU regulation on a taxonomy for sustainable economic activities. The Government will therefore tailor the committee’s mandate to fit with other related processes and committees and avoid unnecessary overlap with other work in the same field. The aim is to facilitate the greatest possible value creation within a sustainable framework.

6.2 The role of research and innovation in achieving the climate targets

The Government will:

• Encourage the research and innovation sector to play a leading role in Norway’s transition to a low-emission society, in line with the white paper Long-term Plan for Research and Higher Education 2019–2028 (Meld. St. 4 (2018–2019)).

• Encourage public funding agencies to compile an overview of funding and report, in a way that is as comparable as possible, on how funding for research and innovation promotes the transition to a low-emission society. The overview should be based on the reporting work begun under the Green Platform initiative.

• Use the Green Platform initiative as one of the main tools for promoting the transition to a low-emission society.

• Increase Norwegian participation in international research and innovation cooperation, and use cooperation on climate action with the EU as one of the main tools for the green transition.

6.2.1 Building on existing initiatives

Norway’s climate policy is research-based. Researchers discovered that the climate was changing and documented the links between human activity and rising temperatures. And it is through education, research and innovation that solutions for the future will be developed.

To achieve Norway’s climate targets, it is essential to invest in research and innovation. The Government is doing this through allocations for Norwegian research, participation in international cooperation, and incentives for the business sector to give priority to research and innovation.

These efforts will provide part of the basis for creating jobs and new business and industry in Norway, while at the same time reducing greenhouse gas emissions.

Raising carbon tax rates provides a strong incentive for the business sector to give priority to research and innovation and will expand markets for low-emission solutions. Norwegian companies and research groups can take a leading international role in enhancing green competitiveness.

The Government has a high level of ambition for Norwegian research and higher education. The white paper Long-term plan for research and higher education 2019–2028 (Meld. St. 4 (2018–2019)) sets out policy guidelines for government initiatives in this area. ‘Climate, the environment and clean energy’ is one of the plan’s long-term priorities. The Government will therefore continue to invest in research and innovation to promote the transition to a low-emission society.

Research plays a part in ensuring a strong, broad-based knowledge base for a green transition. Knowledge makes it possible to develop solutions that both reduce greenhouse gas emissions and safeguard nature. More knowledge is needed about climate risk and about measures that can strengthen society’s resilience. Future public- and private-sector decisions on investments and the siting and development of businesses, infrastructure and buildings must not conflict with achieving the necessary long-term emission cuts.

Both the Intergovernmental Panel on Climate Change (IPCC) and the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) communicate knowledge about the green transition, and it is therefore important to consider their messages together. Low-emission and nature-based solutions should be given priority. Information in global reports must be supplemented with a national knowledge base so that it can be translated into national policy and action. An integrated approach to each issue is needed so that different interests can be weighed up against each other and it is possible to find the right priorities. There is a need for systematic reviews dealing with disputed topics across sectors. More research impact studies are also needed, since they provide knowledge about the benefits to society of the research that has been carried out. As regards the measures discussed in the mitigation analysis for Norway 2021–2030, further knowledge is particularly needed about measures in the agriculture and forestry sectors, the energy sector and fisheries and aquaculture.

Research and innovation is also needed on the development of legislation, international agreements and financial instruments. To ensure that people accept climate mitigation measures and changes, an understanding of why people act the way they do and values, interests and motives is essential. This will require research in the fields of law, social sciences and the humanities in addition to more interdisciplinary research.

6.2.2 Statistics and reporting on research and innovation

In 2017, spending by Norwegian research groups and companies on research and development (R&D) in the thematic areas climate, environmentally friendly energy, environmental technology, land use and land-use change, and the circular economy totalled about NOK 10 billion.2 This corresponded to 14 % of all R&D expenditure in 2017. The corresponding figure for 2015 was NOK 8 billion, which was 13 % of total R&D expenditure that year.

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Source Research Council of Norway.

In 2019, grant allocations by the Research Council of Norway under the priority area ‘climate, the environment and clean energy’ totalled NOK 3.1 billion. This corresponded to 30.4 % of the NOK 10.2 billion in grant allocations by the Research Council, and was 47 % higher than in 2014. The funding allocated in 2019 was mainly for projects on clean energy and low-emission solutions, the bioeconomy and climate research. In recent years, the number of projects focusing on the circular economy and low-emission solutions has been rising.

The Government is further increasing research funding under ‘climate, the environment and clean energy’ in the 2021 National Budget.

It is vital to have a good overview of the overall use of resources on research and innovation designed to promote the transition to a low-emission society. At present, no overall statistics are available on allocations for this purpose by the Research Council of Norway, Innovation Norway, SIVA (the Industrial Development Corporation of Norway) and Enova. The statistics should be compiled, even though funding agencies may use different statistical categories and tagging systems. Norwegian terminology and statistics should as far as possible be comparable with international systems, and particularly with EU statistics.

Both the Government’s strategy for green competitiveness (2017)3 and its Long-term Plan for Research and Higher Education 2019–2028 state that there will be a special focus on climate and environment in publicly funded research, innovation and technology development wherever relevant.

Industry-oriented funding instruments must be consistent with the transition to a low-emission society. Funding must be well coordinated, and the funding agencies should, as far as possible, report in a way that is as directly comparable as possible on how funding promotes the transition to a low-emission society. The new EU taxonomy for sustainable economic activities is relevant here, see Chapter 6.4.2 for more details.

6.2.3 The Green Platform initiative – joint action with a clear direction

It is vital for the funding agencies to play their part in Norway’s transition to a low-emission society by 2050. Substantial funding is currently being granted for the development of climate-related and environmental solutions through industry-oriented funding instruments. This is being done both by making sustainability an important consideration in general grant schemes and through grant schemes specifically for climate- and environment-friendly solutions. The Research Council of Norway, Innovation Norway and SIVA also have a joint action plan for the bioeconomy as part of the follow-up of the Government’s bioeconomy strategy.

In the past few years, the PILOT-E scheme, administered by the Research Council, Innovation Norway and Enova, has been successfully fast-tracking new energy solutions from research to deployment.

Green Platform is the Government’s most recent initiative, intended to support coordinated, enhanced and targeted efforts to promote a green transition. In 2020, the Storting allocated NOK 333 million for the initiative. The Research Council, Innovation Norway and SIVA are jointly responsible for managing and allocating the funding. The Government intends to propose funding totalling NOK 1 billion over the three-year period 2020–2022. The Green Platform initiative will build further on the already established cooperation on green growth with Enova, and will develop this further as a model for cooperation on targeted initiatives.

6.2.4 The EU is the driving force for a green transition in research and innovation

The EU’s Horizon 2020 (2014–2020) has been the world’s largest research and innovation programme. At least 35 % of Horizon 2020’s total budget was expected to be allocated to research and innovation addressing climate action. By July 2019, a level of 29 % had been reached.

Horizon 2020 has enhanced the quality of Norwegian research and Norwegian innovation capacity and competitiveness. According to a study4 on Norwegian participation, there have been substantial learning and network effects. Norwegian companies that have participated actively in Horizon 2020 projects have been able to access research, partners, funding and international markets.

Norwegian participants have been awarded a total of NOK 2.6 billion of Horizon 2020 funding for programmes on climate, environment and energy. This amounts to just over one-fifth of all Horizon 2020 funding awarded to Norwegian participants. About 37 % of this funding has gone to research institutes, roughly 34 % to the business sector, 18 % to the university and university college sector, 4 % to the Research Council of Norway and 7 % to others.

The EU’s next research and innovation programme, Horizon Europe, runs from 2021 to 2027. Its objectives include helping to deliver on the targets of the European Green Deal, addressing major societal challenges and strengthening European competitiveness in line with the aims of the UN Sustainable Development Goals and the Paris Agreement. It has been proposed that at least 35 % of Horizon Europe’s total budget should support climate action, and that all parts of the programme will contribute to this.

Horizon Europe will involve cross-sectoral cooperation to find sustainable solutions. Climate, Energy and Mobility is one of the joint research and innovation clusters that will boost climate research and play a part in establishing a renewable energy sector and a zero-emission transport sector by 2050. Another cluster is Food, Bioeconomy, Natural Resources, Agriculture and Environment, which aims to ensure sustainable, circular use of natural resources and food and nutrition security.

Norwegian participation in Horizon Europe is a very important way of strengthening Norwegian research and restructuring the business sector for the transition to a low-emission society by 2050. Norway is participating in the planning of Horizon Europe, and the Government is focusing on making use of opportunities to give the Norwegian business sector, public sector and researchers access to European funding for climate-related research and innovation.

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Source Research Council of Norway.

6.2.5 Education and skills for the green transition

Norway will invest in knowledge as a means of preparing for the future. According to the Norwegian Committee on Skill Needs, technological developments, challenges related to climate change and demographic changes will result in new tasks and new ways of working that may result in changes in the industrial structure, working life and skill needs in the years ahead.5

The Government has made it clear that it expects universities and university colleges to adapt their programmes so that they are in line with the skills that society needs now and will need in the future. In spring 2021, the Government will present a white paper on the workplace relevance of the skills and knowledge provided by higher education, in order to strengthen cooperation between the higher education sector and stakeholders in the labour market on higher education programmes.

In spring 2020, the Government presented a white paper entitled The Skills Reform – Lifelong Learning (Meld. St. 14 (2019–2020) and Innst. 370 S (2019–2020)). The objective of the skills reform is to ensure that no one’s skills become obsolete, and to close the gap between what the labour market needs and the skills people actually have.

There is growing interest in studying subjects that provide skills relating to sustainable nature management and climate change. For instance, a rising number of students have been indicating ‘green’ programmes as their first choice at the Norwegian University of Life Sciences (NMBU), the Inland Norway University of Applied Sciences and Nord University. The largest rise in numbers has been for forestry and plant science programmes. These programmes provide knowledge that will be essential for adaptation to climate change.

In 2020, the Government allocated funding for 90 new study places in the subjects sustainable economy and green technology. NOK 100 million was allocated to flexible education and training systems, with the green transition as a priority area.

6.3 Corporate greenhouse gas reporting

A large number of companies have for a long time been accounting for and reporting on their emissions, both total emissions and emissions associated with products. Many of them use the Greenhouse Gas Protocol (GHG Protocol), which is an international standard for corporate accounting and reporting. The protocol includes reporting of direct greenhouse gas emissions from a company’s own activities (scope 1), indirect emissions from electricity generation (scope 2), and indirect emissions from suppliers and the use of products (scope 3). This makes it possible to identify emission reduction opportunities both for a company’s own operations and for those of its suppliers, and can provide a basis for reporting, for example to customers and financial stakeholders.

In September 2020, PwC published a climate index for the 100 largest companies in Norway. In 2019, 49 of these had adopted quantitative targets for reducing their climate footprint. In addition, 68 of the companies report on their greenhouse gas emissions, and nearly all of them use the GHG Protocol as the framework for their reports. Of these, 44 include indirect (scope 3) emissions in their GHG inventories.

Another form of reporting is product-based. This is generally based on life cycle assessment (LCA), which makes it possible to pinpoint where emissions occur along the whole value chain for a product, and also make it possible to identify opportunities for reducing emissions at high-emission stages of the value chain. Product declarations are also possible to use as documentation in dialogue with customers. The EU is currently developing methods such as the Product Environmental Footprint to provide a common methodology for businesses and to make it easier for customers to compare products from different manufacturers.

To encourage investors to fund green solutions, companies must be more open about their climate footprint. In the EU, large companies are required to comply with the Non-Financial Reporting Directive. In 2019, the EU published guidelines on reporting climate-related information.6 The European Commission is now evaluating the directive, and one of its goals is to ensure better and more comparable reporting of climate-related information. This is further discussed in Chapter 6.4 below.

6.4 Financing solutions for the future

The Government will:

• Follow legislative developments in the EU closely as it seeks to improve reporting of climate-related and environmental information. The Government will consider whether amendments to the Accounting Act are needed so that investors and other stakeholders can receive relevant, comparable climate-related and environmental information.

• Engage in dialogue with the business sector on how to facilitate better and more relevant corporate disclosure of climate-related and environmental information.

6.4.1 The financial sector is leading the way

For the green transition to succeed, a larger proportion of both private and public finance flows must be used to fund green solutions and sustainable activities.

Investors and other stakeholders are focusing increasingly on green investment and on reducing their own financial risk in the face of stricter climate policies, technological developments and physical climate change (climate risk). A number of banks, pension funds, insurance companies and investors have been reducing their exposure to certain types of fossil energy in the past few years. They have focused primarily on coal, but the same trend is becoming increasingly apparent for oil and gas as well.7

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Photo: sarayut/iStock

The financial sector can also act as a driving force for the green transition in other parts of the private sector. The sector can for example develop financial instruments and products that make it easier for investors to identify sustainable investments, and can offer financial products that give customers incentives to cut their emissions. The Norwegian financial sector already offers a range of green financial products. A report8 from EY on the pace of the green transition in the Norwegian business sector describes a clear rise in the availability of green products from the financial sectors, such as green bonds, green loans and green funds. The market for green bonds is for example growing strongly internationally. However, the lack of universally recognised principles or standards for classifying green financial products can hinder growth in the market for sustainable investment and make it difficult for customers to gain an overview. ‘Greenwashing’ is also made possible by a lack of standards for green financial products. Establishing standards for green financial products can facilitate market growth. The EU’s work on a taxonomy for sustainable economic activities may be important in this connection. This is further discussed below.

6.4.2 EU action on sustainable finance

The European Commission has estimated that there is already a need for additional investments of EUR 260 billion per year by 2030 for the EU to achieve its climate and energy targets. The EU’s intention of making its climate targets more ambitious will result in an even greater increase in the need for sustainable investments.

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For an economic activity to be defined as sustainable in accordance with the EU taxonomy, it must contribute substantially to one or more of the six defined environmental objectives, which are shown in the green boxes. In addition, it must do no significant harm to any of the other environmental objectives, and must comply with minimum safeguards.

Source European Commission with adaptations by the Ministry of Climate and Environment

The EU is engaged in the important work of ensuring that investment and finance are in line with climate targets. The aims of the European Commission’s action plan on financing sustainable growth are to reorient capital towards more sustainable investments, manage financial risks stemming from climate change, environmental degradation and social issues, and foster transparency and long-termism in financial and economic activity. The Norwegian Government supports these aims, and is following closely as the EU implements the action plan.

To build a common understanding of which investments are sustainable, the EU is developing a taxonomy for sustainable economic activities (see Figure 6.4). This classification system is being developed in line with the EU’s long-term climate and environmental targets. Joint European criteria are intended to make it easier for investors to compare investment opportunities across countries and sectors, give companies incentives to make their business models more sustainable and make it simpler for investors to identify sustainable investments.9

The Taxonomy Regulation detailing the classification system was adopted by the EU in spring 2020. It is considered to be EEA-relevant. The Financial Supervisory Authority of Norway has proposed that the regulation should be incorporated into Norwegian law in a new act relating to disclosure of sustainability information. The Ministry of Finance is holding a public consultation on the proposal, with a deadline for input of 8 January 2021.10 The requirements of the regulation apply to financial market participants and to companies that are required to report non-financial information under the Accounting Directive. This means that companies must among other things report on the proportion of their economic activities that is sustainable according to the criteria in the taxonomy. The requirements of the regulation will also be relevant for national authorities.

On the basis of recommendations from an expert group,11 the European Commission will adopt delegated acts establishing criteria for determining which activities qualify as contributing substantially to climate change mitigation or adaptation. Norway provided input to the Commission during a recent consultation on the technical screening criteria. These are expected to be finally adopted early in 2021, and will apply in the EU from 31 December 2021. The Commission will determine criteria for the other four environmental objectives (see Figure 6.4) by the end of 2021, and these will apply in the EU from 31 December 2022.

In connection with the Sustainable Europe Investment Plan, which is part of the European Green Deal, the European Commission announced that it would be presenting a renewed strategy for sustainable finance in early 2021. In continuing its work, the Commission will consider whether the taxonomy for sustainable economic activities should be expanded to define activities that do not contribute substantially to or that do harm to the environmental objectives. The Commission will also consider whether the scope of the taxonomy should be widened to include other SDGs, for example those on social issues. Moreover, the Commission will consider the use of the taxonomy in the public sector and will use the new InvestEU Programme to test the use of the taxonomy in practice.

6.4.3 Sustainable investment requires climate risk assessments and disclosure of climate-related information

As shown above, it is crucial that finance flows target investments that promote a low-emission pathway rather than hindering it. Decisions on investments with a long lifetime, for example for hydropower and water supply infrastructure, roads and buildings, are made every day at various levels and by a variety of stakeholders. It is therefore vital to ensure proper assessment of how a low-emission development pathway will affect the viability of long-term investments in both the private and the public sector and the risks associated with them, and to find suitable responses. Assessments of this kind reduce the risk of making unsound investments.

Norway’s Climate Risk Commission12 noted that there are several forms of climate risk. Transition risk is linked to the consequences of climate policy and technological developments in the transition to a low-emission society. Physical climate risk is linked to the consequences of physical changes in the environment, including the costs of more frequent and intense flooding and drought, sea level rise and other physical impacts.

Reporting on climate risk can raise companies’ awareness of the types of climate-related risks and opportunities they may face. The TCFD recommendations (see Box 6.1) provide a framework for climate-related financial risk disclosures. The TCFD was established by the financial authorities of the G20 countries. Its recommendations are intended to help companies report relevant climate-related information and also raise their awareness of the risks climate change, technological developments and a stricter global climate policy may pose for their business models. They include a recommendation that companies should disclose how resilient their strategies are to a range of climate change scenarios. One of these scenarios should be in line with the long-term temperature target of the Paris Agreement. Scenario analyses can be very valuable for investors, since companies have to indicate how they can make money if climate policy ambitions are achieved.

To encourage investors to fund green solutions, companies must be more open about their climate footprint. In the EU, large companies are required to comply with the Non-Financial Reporting Directive. The European Commission is now evaluating the directive with a view to ensuring better, more comparable reporting of climate-related information. The Commission is using the TCFD framework as a basis for amendments to the directive. Reporting of greenhouse gas emissions is an important basis for analysing climate risk. In updating the directive, the European Commission will therefore concentrate on how companies report their greenhouse gas emissions. The Commission will present amendments to the directive in early 2021. The directive is EEA-relevant, and the amendments will probably require changes to the requirements on disclosure of sustainability- and climate-related information under Norwegian law.

Norway’s Climate Risk Commission also highlighted the financial risks associated with stricter climate policy, technological developments and climate change that businesses face when making investment decisions. The Commission therefore recommended improvements in the disclosure of climate risk by both businesses and public-sector bodies. One important recommendation by the Commission is that Norwegian companies should use the TCFD framework as a basis for climate-related financial disclosures (see Box 6.1).

6.4.4 The Government’s contribution to work on cIimate risk and sustainable finance

Investors are increasingly calling on businesses to provide information on sustainability and climate risk. It is vital that companies report relevant and comparable climate-related information so that the financial sector can identify sustainable projects and deal with climate risk.

Both the Climate Risk Commission and Finance Norway13 recommend that Norwegian businesses should make use of the TCFD framework in their corporate reporting. As discussed in the 2019 and 2020 white papers on financial markets, the Government supports the Commission’s recommendation and expects large Norwegian companies to disclose climate-related information. To ensure comparable reporting standards across companies, sectors and countries, companies should follow international standards such as the TCFD framework. Pending amendments to the EU legislation, the Government has not proposed amendments to Norwegian national requirements for corporate reporting on climate risk.

The finance sector’s own roadmap points out that the availability of financially relevant climate data is limited. In addition, a recent survey by the Financial Supervisory Authority of Norway showed that reporting on sustainability and climate risk by listed companies is incomplete and inconsistent.

In the years ahead, companies will be expected to improve their disclosure of information on sustainability and climate risk as a result of growing demand from the financial markets and future amendments to the legislation. Possible barriers to improvements in reporting may include a lack of access to climate-related data and limited knowledge, for example of how to use scenario analyses, particularly in smaller companies. The authorities can play a part by ensuring a framework for better and more relevant corporate reporting through action to improve access to climate-related data and build up expertise in companies.

The Government will therefore engage in dialogue with the business sector on how to facilitate better and more relevant corporate disclosure of climate-related and environmental information.

Cooperation between the authorities, the finance sector and other relevant stakeholders can for example contribute to the development of knowledge about climate-related data, reporting and scenario analyses across sectors. Such cooperation can also help to identify where more knowledge is needed, and how the authorities can promote the use of the new tools and frameworks.

The Climate Risk Commission developed a good basis for work on climate risk in Norway. In the forthcoming white paper on long-term perspectives on the Norwegian economy, the Government will include stress tests of Norway’s public finances and national wealth. In this connection, scenarios for oil, gas and carbon prices will be established, including one scenario in which the ambitions of the Paris Agreement are achieved. The Government will consider the Commission’s recommendation that a suitable framework should be established for disclosure of climate-related risks in the public sector and at national level. The Commission recommended the preparation of central government guidelines on climate risk to improve the decision-making system for the public sector. The Government will review existing guidance on economic analysis for the most relevant sectors and consider whether climate risk is adequately taken into account, given the Commission’s recommendation.

In the revised national budget for 2019 and the 2019 white paper on financial markets, the Government has given an account of its assessments of the Commission’s recommendations. In the white paper on long-term perspectives on the Norwegian economy to be published in spring 2021, the Government will provide an overview of efforts to identify and reduce climate-related risks.

6.5 Initiatives for the green transition, technological developments and technology leaps

6.5.1 Technological developments are vital for achieving the climate targets

The development of new technologies and solutions will be vital for achieving emission reductions in the period up to 2030 and in the longer term. The International Energy Agency (IEA) compiles information on technology development in its annual Tracking Clean Energy Progress reports.14 The IEA has found that on a global basis, only a few technologies are developing in line with its own Sustainable Development Scenario, which is intended to be consistent with a temperature rise of less than 1.8 ^oC. Only five of 38 technology areas are on track to achieve this scenario (see Figure 6.5). These are solar PV; lighting (LED); data centres and technologies; rail; and electric vehicles. All other technology areas require further resources and technology development.

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Source Adapted from IEA Tracking Clean Energy Progress 2019 by the Research Council of Norway

The Government will encourage the development of Norwegian business and industry, among other things through a focus on climate technology and by using a variety of instruments to promote its development, including research and development and grants for pilot and demonstration projects and market introduction of new technology (see Chapter 6.2 on research and innovation).

Developing and deploying low-emission technologies often involves very long development pathways. To achieve the climate targets, the cost of existing low- and zero-emission solutions must be reduced through research and innovation over the next ten to twenty years. This can result both in emission cuts in Norway and in the development of new industries and export opportunities.

The petroleum industry, for example, can offer a great deal of knowledge and expertise, and has the innovation capacity to develop new technologies with a potential for reducing greenhouse gas emissions both within the oil and gas sector and in other sectors. This expertise will be important in the development and deployment of technologies in areas such as offshore wind, CCS, the exploitation of seabed minerals and hydrogen production from natural gas coupled with CCS. Over time, these can become important industries together with the petroleum industry.

The Government has therefore taken initiatives to support important technology development pathways that can play a part in developing new solutions for reducing greenhouse gas emissions both in Norway and globally. Some of these are described further below.

Textbox 6.2 Energy-efficient, low-emission value creation

Energy-efficient, low-emission production processes will be crucial for the necessary transition to a low-emission society. Using the Norwegian metallurgical industry as a basis, grants from Enova have contributed to the development of a competitive Norwegian solar cell industry, which is at the forefront of energy efficiency developments internationally. One of the most recent projects where Enova has been involved is an innovative project to recover silicon from the waste stream from wafer production, run by REC (now Elkem). This has never been done before either in Norway or elsewhere. Enova provided NOK 110 million in support for construction of the first demonstration plant in Kristiansand. Another example is NorSun’s new production line for monocrystalline silicon ingots and wafers in Årdal. Enova has provided a loan of NOK 195 million for this demonstration project. This has enabled NorSun to upgrade its plant and deploy highly innovative technology that is at the cutting edge globally as regards the energy efficiency of solar cell silicon production.

Enova has provided support for technology development and full-scale implementation that will put Glencore in Kristiansand and Boliden in Odda at the forefront internationally as regards emission-free production of copper and zinc respectively. In 2014, Glencore received a grant of NOK 380 million for construction of an innovative, energy-efficient production plant, and in 2019, Boliden was granted NOK 340 million to deploy several new and innovative technologies at its plant in Odda.

Norske Skog constantly improves its paper mills and introduces new technology, and as a result they are some of the most energy-efficient in the world, with a high rate of energy recovery and use of renewable energy. Enova has for many years been providing support for Norske Skog in its efforts to develop key technology for energy-efficient pulp production and for energy recovery both from waste heat and from waste materials produced during biogas production.

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Photo: Enova

6.5.2 Carbon capture and storage and the Longship project

Reports from the IPCC show that carbon capture and storage (CCS) will be necessary to reduce emissions from industry and power generation and move towards negative emissions, thus reducing global greenhouse gas emissions in line with the climate targets at the lowest possible cost.

The Government will promote the development of technology for carbon capture, transport and storage and facilitate the development of a cost-effective solution for full-scale CCS in Norway that also results in technology development internationally.

The Government will provide support for the implementation of a full-scale Norwegian CCS demonstration project called Longship, which comprises CO₂ capture, transport and storage. The Government’s proposal is for the first CO₂ capture project to be implemented at the Norcem Brevik cement plant in Porsgrunn, and for CO₂ to be transported by ship to a terminal in Øygarden municipality in Western Norway, and then by pipeline to a well where CO₂ will be injected into a subsea formation for permanent storage. The Northern Lights project, which involves collaboration between Equinor, Shell og Total, will be responsible for CO₂ transport and storage. The Government intends to co-fund the carbon capture project at Fortum Oslo Varme’s waste incineration plant, provided that the company provides sufficient funding of its own and obtains funding from the EU or other sources.

In the first instance, the direct national emission reductions from this project will be about 400 000 tonnes CO₂ per year once the Norcem capture project is operational, and will rise to about 800 000 tonnes per year if the Fortum Oslo Varme project is also realised. About half of the 400 000 tonnes in emission reductions from the Fortum project will be of biological origin.

The project will also have indirect climate-related impacts because the demonstration of a complete, flexible value chain for carbon capture and storage and the establishment of transport infrastructure will play a part in reducing costs for subsequent projects.

The Longship project may make a significant contribution to the development of CCS as an effective mitigation tool and result in technology development internationally. The project is intended to demonstrate that CCS is both safe and feasible. It will facilitate learning effects and cost reductions for subsequent CCS projects, and will establish infrastructure that can also be used by other projects. This will lower the threshold for establishing new carbon capture projects. The Longship project is also intended to serve as a platform for business development.

International cooperation on technology development and emission reductions will be vital for the world to achieve the global temperature targets. It will also be needed for the success of the Longship project. The project is part of a concerted international effort to develop a vital mitigation tool, and it will only be successful if subsequent projects make use of the infrastructure and knowledge it generates. The project should primarily be judged by whether it achieves its own goals and the Government’s goals for CCS. In the short term, there may be other measures requiring comparable resources use that would result in larger emission reductions, but short-term national emission reductions are not the main purpose of the project. A number of analyses have shown that in the longer term, CCS is a crucial, cost-effective mitigation measure. The Government’s assessment is that the Longship project will pave the way for cost reductions that will make CCS an effective mitigation measure if other countries follow suit and introduce specific policies in this area. The project highlights the importance and value of international cooperation on technology development and emission reductions.

Through Northern Lights’ efforts to create a market for CCS in Europe, it has become clear that several projects are considering using the infrastructure in Norway. The agreement on government support for the transport and storage component of the project is designed to attract new projects. Northern Lights’ will obtain its revenues from storage of CO₂ from new projects, which gives the consortium a strong incentive to develop the CO₂ storage market. In the Government’s view, it is important for storage capacity provided by Northern Lights to be used by stakeholders that are not directly financed by the Norwegian state. If this is successfully achieved, it will provide clear evidence that the project has had the desired effect. Norway also needs the EU and individual European countries to play a part in developing CCS as a mitigation tool. The Government is therefore now anticipating a European response so that the remaining capacity of the storage facility is used by third parties that are not directly financed by the Norwegian state.

The Government is involved in other work on CCS in addition to the Longship project. Research, development and technology demonstration provide a vital basis for speeding up wider deployment of CCS technologies. The Technology Centre Mongstad (TCM) has been operational since 2012. A large number of stakeholders have tested or plan to test their technologies at the centre. The CLIMIT research and development programme has supported the development of several different technologies and solutions to make CCS more effective and safer. The CLIMIT programme is participating in an international initiative called Accelerating CCS Technologies, thus enabling Norwegian researchers to apply for support for projects with international partners. This contributes to international knowledge sharing. The CLIMIT programme and work at the TCM will also play a part in realising the benefits of the Longship programme. In addition, one of the Centres for Environment-friendly Energy Research (under the FME scheme) is dedicated to CCS. The centre has a number of industry and research partners from Norway and abroad, who are seeking to speed up developments and the demonstration of industry-driven innovation. Through international cooperation, Norway has contributed to the global development of CCS technologies.

6.5.3 Offshore wind power

Offshore wind power is a renewable energy source that can play a part in cutting greenhouse gas emissions globally. In November 2020, the EU presented its offshore renewable energy strategy, which includes an ambition of realising 300 GW of installed capacity for wind power by 2050. Europe is in the lead in the development of offshore wind power, but the technology is developing rapidly, and offshore wind offers a large international potential for growth. Many Norwegian companies are aware of opportunities in this market.

Through its petroleum and maritime activities, Norway has developed a great deal of experience and expertise in offshore technology. It is therefore in a good position to play a role in maturing wind power technology so that it more rapidly becomes a competitive, renewable alternative and yields emission reductions globally. Both Equinor and the Norwegian supply industry are involved in the development of some of the largest offshore wind farms in Europe and the US, including both bottom-fixed and floating turbines. Floating wind power is a less mature technology, which is transitioning from the demonstration stage to full-scale testing. There is considerable interest in the development of floating wind power technology in Norway, and the world’s largest floating wind farm, Hywind Tampen, is under construction. The first floating wind turbine, Hywind, was installed off the island of Karmøy in 2009, and is now part of the test infrastructure there. Several different floating wind technologies are to be tested at this site in the years ahead. For example, the EU has awarded EUR 25 million to an international consortium that is planning to test a 10 MW floating turbine. The project is led by the Spanish company Iberdrola, and the consortium includes several Norwegian companies.

Offshore wind power has been an R&D priority, and the Research Council of Norway has awarded more than NOK 500 million to research projects on fixed and floating turbines. The Government’s green restructuring package includes steps to expand R&D on renewable energy, for example by establishing a Centre for Environment-friendly Energy Research (under the FME scheme) focusing on wind power.

The Government has decided to open two areas, Utsira North and Southern North Sea II, for licence applications for offshore renewable energy production, including wind power projects. The decision applies from 1 January 2021. Utsira North is suitable for floating wind power; Southern North Sea II is shallow enough for fixed wind power to be developed, but floating wind power would also be possible. The two areas offer considerable opportunities for development, with a combined potential for wind power of up to 4500 MW in installed capacity. See Box 6.3.

Textbox 6.3 Areas opened for offshore wind power in Norway

Utsira North is west of Haugesund, and is suitable for the development of floating wind power, which is the most interesting technology from a Norwegian point of view. This is a large area, covering 1010 km², and is close to land and therefore suitable for both demonstration projects and larger scale projects. Its size also means that it is possible to make adjustments to accommodate other interests during licensing procedures.

Southern North Sea II is in the southeastern North Sea, bordering on the Danish economic zone, which means that it is of interest for direct electricity exports. The area covers 2591 km², and the water depths make it possible to develop bottom-fixed wind power, but floating wind power developments are also a possibility.

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Source Norwegian Water Resources and Energy Directorate

6.5.4 Hydrogen

Hydrogen is an energy carrier with a considerable emission reduction potential both nationally and globally, and a potential for value creation for Norwegian business. At present, annual global consumption of hydrogen is about 70 million tonnes, mainly in the chemical industry and oil refining. About 90 % of the hydrogen used in Europe is currently produced from natural gas, resulting in substantial emissions.

The Norwegian Government presented its hydrogen strategy on 3 June 2020. The strategy provides a basis for the Government’s continued work on hydrogen, and must be considered in conjunction with other relevant documents the Government has presented or is preparing.

If hydrogen is to be a low- or zero-emission energy carrier, its production must be a very low- or zero-emission process. As described in the mitigation analysis for Norway 2021–2030, hydrogen technology is immature for use in certain sectors. High costs are a key barrier to the use of hydrogen in maritime transport and heavy-duty vehicles, and as an input factor in industrial processes. One important goal for the Government is to increase the number of pilot and demonstration projects in Norway and thus contribute to technology development and commercialisation. This goal is being backed up by broad-based support for the development of zero-emission technologies and solutions across all the funding agencies. The Research Council of Norway, Innovation Norway and Enova are involved in developing and demonstrating energy-efficient and cost-effective methods and a value chain for the production, transport, storage and use of clean hydrogen, for example through joint calls for proposals under the PILOT-E scheme. Norway has also joined the EU cooperation on IPCEIs (Important Projects of Common European Interest) on hydrogen. This scheme is intended to support innovative projects in selected fields that require cross-border coordination. Grants are provided through national systems, but IPCEIs are exempt from the normal state aid rules, and Norway notifies the EFTA Surveillance Authority (ESA) separately of any plans to grant state aid for such projects. Enova will be responsible for administering Norway’s participation.

The public sector can use its procurement activities to be an important driver of innovation and a transformation in the Norwegian economy. As a way of promoting new technology, the Norwegian Public Roads Administration will include requirements for zero- and low-emission solutions when a new call for tenders is issued for a ferry service across the Vestfjorden that is part of the national road system, see Chapter 3.4.4. The two main ferries on the Bodø–Røst–Værøy–Moskenes route will have to be at least 85 % hydrogen-powered.

In the 2021 budget, the Government has increased funding for hydrogen activities by NOK 100 million, with a special focus on supporting the development and establishment of infrastructure. The Government is particularly interested in work on hydrogen hubs and supply chains, which will facilitate the commercial use of hydrogen. In spring 2021, the Government will therefore present a white paper on long-term value creation from Norwegian energy resources, which will include a new roadmap for hydrogen intended to encourage a more systematic approach in the years ahead. The white paper will also address topics such as Nordic cooperation, the use of public procurement, export opportunities and the interplay between energy carriers and different types of infrastructure.

6.5.5 Agriculture and forestry

Innovative, smart technology adapted to large and small holdings can make food production more resource effective and sustainable. Precision techniques involve using new technology to adapt and tailor management decisions in agriculture, forestry and livestock grazing, including reindeer husbandry. In precision farming, for example, the application of fertiliser, pesticides and lime is adjusted to meet site-specific needs. These needs are mapped using information from many sources, and techniques rely heavily on the use of various types of sensors, cameras and satellite positioning systems. The equipment needed can be installed on tractors, autonomous robots or unmanned aircraft.

In forestry, satellite positioning systems are used throughout the value chain. For example, they are used in connection with environmental inventories in forests, which improve the quality of forestry activities by providing information on valuable biodiversity and the cultural heritage. Livestock on unfenced rough grazing are being fitted with radio bells, so that the position of individual animals can be recorded via a satellite navigation system. This allows closer supervision of livestock, thus improving animal welfare. In addition, it is much easier to gather the animals at the end of the grazing season. Earth observation systems and interpretation of satellite images have been used to some extent to monitor the carrying capacity of reindeer grazing areas.

New technological solutions are also being used in mapping and monitoring programmes in the agriculture and forestry sector. These services improve precision and effectiveness in work in various areas: the National Forest Inventory, monitoring of forest damage, statistics on uncultivated land, monitoring of the agricultural landscape and cultural heritage, and field experiments run by farmers’ groups and research institutes. The technology is important for the development of the agricultural and forestry sector and in the implementation and monitoring and verification of agricultural and forestry policy. In addition, activities in this field provide data that can be used by the environmental authorities and to meet Norway’s international reporting obligations, for instance as regards climate change.

6.6 The circular economy and digitalisation

6.6.1 Transition to a circular economy vital for tackling climate change

Emissions from the extraction of raw materials, production processes and land use will be lower in a circular economy, as stated in documents including the EU Circular Economy Action Plan (see Box 6.4) and input from business and industry. The action plan points out that half of total greenhouse gas emissions come from resource extraction and processing. Scaling up re-use and recovery and making resource use more effective will reduce greenhouse gas emissions from businesses and their suppliers and customers. At present, products and materials that could be re-used are often discarded as waste after a single use. As a result, greenhouse gas emissions from raw material extraction, production processes and land use are much higher than from value chains where products are used for longer and there is more re-use and recycling. Businesses have identified the benefits to be gained from cluster collaboration, which enables a group of businesses to make better use of energy resources and materials than they could separately. They have also pointed out that to facilitate trade in secondary raw materials in a larger market, it is necessary to develop better systems and better documentation of these materials.

The new EU Circular Economy Action Plan was published in March 2020. It includes action points to promote a circular economy which will be important for achieving the EU’s goal of being a climate-neutral, resource-efficient and competitive economy in 2050.

Deloitte was commissioned by the Ministry of Climate and Environment to assess which sectors offer the greatest potential in connection with the development of a circular economy in Norway.15 Deloitte considered these to be construction and buildings; wholesale and retail trade; the bio-based sectors (agriculture and forestry, and aquaculture and fisheries); and the process industries. A report from EY16 found that few businesses are concerned about the climate footprint of their products during use or about circular solutions, even though these can provide opportunities for new services or products.

The Government will be presenting Norway’s strategy for developing a green, circular economy in 2021. The Government wishes Norway to play a pioneering role in the development of a green, circular economy that makes better use of resources. The strategy will demonstrate how value creation can be increased within sectors and through cooperation between sectors while at the same time ensuring that the economy puts less pressure on the climate and environment. This can be done for example by designing products to have a longer lifetime and making it easier to repair them and to re-use buildings, products and materials. Another approach is to facilitate the use of by-products and residual raw materials that are currently not used in other products. The Government has a wide range of tools at its disposal to provide a good framework for the development of a circular economy, from product design to recycling. The growing consumer demand for low-emission products will also be crucial in promoting circularity and reducing emissions. The central government must do its part both as a purchaser and as a consumer to create markets for such products in different sectors (see Chapter 3.3.4).

6.6.2 Digitalisation as part of the green transition and the circular economy

The Government wishes Norway to be at the forefront in making use of new digital opportunities in all sectors. Digitalisation involves using technology to renew, simplify and improve. It lays a foundation for more value creation and innovation and can help to boost productivity in the private and public sectors. The present Government’s political platform clearly expresses the importance of digitalisation in all sectors, and is a basis for a leap forward in the digitalisation of society. In its Circular Economy Action Plan, the European Commission points to digitalisation as a vital basis for circular solutions and for achieving the climate targets. The Commission views the digital transition and the green transition as twin drivers of the European Green Deal and for achieving the transition to a climate-neutral, resource-efficient and circular economy.17

In a circular economy, it is important to maintain a good overview of the secondary raw materials that arise in a value chain and how they can be used in other production processes. To realise the potential for enhancing circularity, it will be crucial to develop digital solutions for information on material and waste streams, and to make data accessible across value chains and industries. The EU has announced that it is planning to develop product passports, a form of digital product labelling that will make it easy for consumers to find information on what products contain, how long their lifetime is intended to be, and whether they are possible to repair and recycle.

Digitalisation can be used to reduce greenhouse gas emissions in many areas. One of these is transport, where examples have been particularly prominent during the COVID-19 pandemic. Transport can be replaced by digital communication, or public transport can be improved through good communication with customers on timetables and up-to-date information. Digitalisation can provide support for car-sharing arrangements and other examples of a sharing economy. It also facilitates digital product labelling and digital markets for second-hand products, which encourage re-use, recycling and improved waste management to provide secondary raw materials of high quality. In the electricity market, digitalisation makes it easier to take advantage of demand response and operate the grid more efficiently.

In early 2021, the Government will present a white paper on the data-driven economy and data-driven innovation. Acquiring, using and sharing data will be vital for Norway’s competitiveness in the future.

7 Construction and buildings

7.1 Greenhouse gas emissions from construction and buildings

Construction and buildings account for about 40 % of global energy consumption and roughly 30 % of global greenhouse gas emissions. Over 80 % of the sector’s emissions are from construction products. The Intergovernmental Panel on Climate Change (IPCC) points out that since a large proportion of the current building stock will still exist in 2050, renovating and upgrading existing buildings will play an important role in reducing emissions from this sector.

Emissions from heating of buildings in Norway are low. The prohibition on using fossil oil to heat buildings was announced as early as 2012, with effect from 1 January 2020. From 1 January 2022, the prohibition will be extended to include the use of fossil oil for heating and drying buildings during construction and renovation. Under the Regulations on technical requirements for construction works (Technical Construction Regulations), it is not permitted to install heating systems that use fossil fuels (oil or gas) in new buildings.

Statistics Norway estimates direct greenhouse gas emissions from construction to be around 2 million tonnes CO₂eq. This figure includes emissions from heating and drying buildings during construction and the use of construction machinery, as well as emissions from transport to and from construction sites in cases where the vehicles are accounted for as part of the sector.

The construction industry is also responsible for emissions related to construction products, transport and land-use change. These emissions are largely accounted for in other sectors. In Norway, emissions from the transport and manufacture of construction products are either subject to taxation or come within the scope of the EU ETS or other regulatory measures. The construction sector can contribute to carbon storage in construction products. Using more wooden materials from Norwegian timber would have a positive effect on Norway’s greenhouse gas inventory, since this would be accounted for as removals in the land use, land use change and forestry (LULUCF) sector.

In other words, the construction industry has an important part to play in addressing the problem of climate change. The industry has demonstrated a very solution-oriented and adaptable approach to earlier changes in the Technical Construction Regulations. The industry itself has called for clear requirements and a predictable framework that affects the entire sector equally. Previous changes have resulted in substantial innovation and technological development.

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Photo: Moelven

As announced in its political platform, the present Government intends to facilitate a transition to fossil-free construction sites by 2025. The public sector has a special responsibility to ensure that publicly funded construction sites lead the way. The Government will therefore be presenting an action plan for fossil-free construction sites in the transport sector, see Chapter 3.4.

The municipalities can include climate-related requirements in public procurement processes for their own construction projects, and many already do so.

Rising prosperity and consumption are making current resource use across the world unsustainable. Resources must be used more efficiently than is currently the case. This is the starting point for the EU Circular Economy Action Plan, which identifies construction and buildings as one of seven key product value chains. One of Norway’s environmental targets is that growth in the quantity of waste generated will be considerably lower than the rate of economic growth, and that the resources in waste will be used as fully as possible through recycling and energy recovery.

The EU Waste Framework Directive, which is part of the EEA Agreement, requires 70 % of non-hazardous construction and demolition waste to be re-used or recycled by 2020. Norway is not currently achieving this level; in 2018, just under 43 % of all construction waste was re-used or recycled. To achieve the target, construction products must be designed for re-use or recycling. Future regulatory measures must therefore facilitate this type of design while also helping to reduce waste quantities below the current levels.

As part of the input for Norway’s strategy for developing a green, circular economy, the Ministry of Climate and Environment commissioned a study from Deloitte.18 This identifies construction and buildings as one of the sectors with the highest potential for greater circularity, partly because it generates large quantities of waste.

The transition from a linear to a circular economy is part of the solution to making the construction and buildings sector more sustainable. Continuing to use existing buildings, re-using existing buildings in innovative ways and recycling will all reduce the use of raw materials, waste quantities, emissions and energy consumption. These are measures that effectively reduce greenhouse gas emissions immediately – not just estimated benefits some decades into the future. Re-using buildings more widely may also reduce emissions from land-use change.

A study by SINTEF (2020) considered life-cycle analyses (LCAs) of more than 120 Norwegian construction projects.19 Calculations of greenhouse gas emissions in the study show that renovation is more climate-friendly than new construction. From a life-cycle perspective, it is most often more climate- and environment-friendly to maintain, use and further develop the existing building stock. Where possible, we should therefore seek to maintain existing buildings rather than demolish them and build new ones.

The SINTEF study found that the most important measures to consider when renovating existing buildings are a combination of selecting environment-friendly materials, implementing energy efficiency measures and using renewable energy. It is also important to choose the most appropriate measures to improve energy efficiency in existing buildings. Measures should not be so far-reaching that the embodied emissions resulting from new measures actually rise by more than the savings in operational emissions (such as heating-related emissions) (SINTEF 2020). It should also be possible to carry out such measures without compromising the historical value of buildings to any great extent.

In keeping with its ambition for Norway to play a part in the transition to a more circular economy, the Government will present its strategy in 2021 (see Chapter 6.6).

7.2 Climate-related requirements for buildings

It will not be possible to achieve national and international climate targets without reducing greenhouse gas emissions from construction and buildings. In Norway, the sector accounts for roughly 40 % of energy consumption and a large proportion of resource use and waste generated. Elsewhere in Europe, the largest source of greenhouse gas emissions from buildings is the use of fossil fuels during the operation phase, for instance for heating. In Norway, however, the largest remaining emissions are related to the actual construction process such as emissions from the production of materials and transport.

This was highlighted in a report from the Bygg2120 programme and a report by Asplan Viak,21 both on greenhouse gas emissions in the construction and buildings sector. The Asplan Viak report found that about 15 % of total emissions in Norway are related to activities in this sector. The largest proportion of these emissions is in fact in other sectors, for example the production of materials and transport of raw materials, waste and construction products. Norway’s construction-related emissions in other sectors were estimated at about 4.2 million tonnes CO₂eq (Asplan Viak 2019). Norway imports a large share of the raw materials and construction products used in the country. According to the Asplan Viak report, emissions from imported construction products were estimated at 5.8 million tonnes CO₂eq. These emissions are recorded in other countries’ greenhouse gas inventories.

The energy requirements in Norway’s Technical Construction Regulations have thus far dealt with energy efficiency and the use of renewable energy largely by requiring an energy-efficient building structure and the use of renewable energy supplies. It is important to reduce energy consumption as far as possible and reasonable in financial terms. If energy now used in buildings is freed up, it could be used in other sectors to replace fossil energy and reduce the need for new electricity production and developments in undisturbed areas.

As announced in its political platform, the present Government will develop energy requirements for buildings in line with the cross-party agreement on climate policy. As part of the follow-up of the 2012 update of the agreement (Innst. S 390 (2011–2012)), the energy requirements contained in the Technical Construction Regulations were tightened to passive-house level in 2015, and the Government is now developing energy requirements corresponding to nearly zero-energy level.

The point has been reached where it is necessary to consider the balance between further improving energy efficiency and using more materials, taking into account both environmental pressures and costs. Use of materials and energy consumption in buildings must be considered together, since total emissions associated with buildings depend on the combination of the two. More flexible requirements, and technology- and material-neutral requirements for CO₂ emissions per m², may drive major innovation. It is relatively straightforward to express such requirements in quantitative terms. This would also avoid the use of many different measurement parameters, which could open the way for additional measures that would increase costs but be of little real value, and would also eliminate incentives for greenwashing, or making changes without any real cuts in emissions. Such requirements should be announced well before they are implemented in order to allow for effective cooperation on methodology, to give the industry time to adapt and to promote innovation.

An analysis by the Norwegian Construction Products Association found that emissions from Norwegian-manufactured construction products are lower than those from imports. This applies to the manufacture of construction products, where Norwegian suppliers are world leading. The difference is even more marked when emissions from the transport of construction products are included. Introducing climate-related requirements in the Technical Construction Regulations would thus strengthen green value creation and competitiveness in Norway.

For requirements of this kind to achieve the intended effect, it is vital to know what is being measured and how. Developing a common system of standards and requirements for specifications will be an important part of this work. Digitalisation, open data and machine-readable documentation will play a key role.

This will require amendments to the Technical Construction Regulations and the regulations on documentation for construction products, and close cooperation between the authorities and the construction industry. The Government has already made a good start on this work.

The construction industry is a major and important purchaser. Requirements or incentives to make more use of climate- and environment-friendly materials will change purchasing patterns and can help to drive the development of innovative, climate-friendly solutions and products. More emphasis on the climate and environmental footprint of materials in the Technical Construction Regulations could play a part in creating a future market for zero- and low-emission solutions, and encourage companies to invest in and choose these solutions.

7.3 A common set of environmental aims for the central government administration in its roles as developer, manager and tenant of property

The Government has formulated a set of climate and environmental aims for public buildings and property in the civilian sector. These will apply to the central government administration in its roles as developer, manager and tenant of property:

• The central government will seek to make full use of existing buildings and ensure re-use of empty properties;

• The central government will re-use construction products and enable other parties to re-use construction products from public buildings;

• The central government will promote climate-friendly construction products in cooperation with the industry;

• The central government will establish a common methodology for measuring the overall climate and environmental impact of buildings and properties in the central government civilian sector, with a view to making improvements and establishing shared targets;

• Central government agencies will give weight to the environmental benefits of re-using already developed areas and existing buildings, and of siting their premises near public transport nodes and the centre of towns and urban areas, in line with central government planning guidelines for coordinated housing, land use and transport. This applies to the central government administration in its roles as developer, manager and tenant of property.

The climate and environmental impact of properties used by the central government and of its construction projects must be reduced. The central government will lead the way and facilitate the green transition. As a major developer, manager and tenant of property, the central government has a major responsibility for promoting responsible, efficient use of society’s resources. According to official figures (statenslokaler.no, in Norwegian), in 2019 the central government civilian sector owned or rented about 2 500 properties with a total area of 7.6 million m². This means that there is considerable potential for central government activity in this field to play a part in reducing emissions. Central government influences the construction and buildings sector mainly through procurement processes, particularly in the case of construction projects, but the location of central government agencies, which have many employees and visitors, will also influence transport needs and opportunities to travel by public transport, cycle or walk. Thus, the central government is a major stakeholder that can influence and develop the buildings and property sector. Clearer climate-related and environmental requirements will play a part in expanding the market for green, innovative solutions. This will create a predictable framework and accelerate the green transition in the buildings and property sector.

The central government has not previously established a common set of aims for its buildings and property, so the level of ambition may vary from one central government agency to another. In the Government’s view, coordinating climate and environmental policy for central government buildings and property offers considerable potential. This is why a common set of climate and environmental aims for public buildings and properties in the civilian sector has now been presented. The Government is also developing an integrated strategy for this area, which according to plan will be put forward in 2021.

By making use of existing properties rather than commissioning new builds, the central government can play a role in relieving pressure on undeveloped areas and reducing greenhouse gas emissions from land-use change. Of all the measures that can reduce environmental impacts in the construction and buildings sector, using the existing building stock rather than new builds to meet needs has the greatest environmental effect. This is because of the large emission reduction potential offered by reducing new construction activity, which in turn decreases the need for new materials. Retaining and re-using existing properties also makes it possible to preserve existing public spaces, architecture and buildings.

When central government agencies improve space efficiency in the properties they are using, some of their premises will be underused. These should be a natural first choice if another central government body needs premises in the same area. When central government agencies need to rent premises, they should also look for existing buildings that would meet their needs.

The Government also wishes to promote the use, re-use and transformation of historical buildings and the built environment through coordinated use of policy instruments, see the white paper New goals for Norway’s cultural environment policy – involvement, sustainability and diversity (Meld. St. 16 (2019–2020)). The central government administration manages a large number of properties of historical interest, and it is therefore important for the administration to set a good example as regards the continued use and re-use of historical buildings.

Construction products represent large volumes of resources, and emissions associated with their manufacture are high. Re-using construction products rather than manufacturing new products thus offers a large emission reduction potential.

Systematically re-using construction products will lengthen their life span. Their positive economic effect will be prolonged until they reach the end of their functional life span and need to be recycled. This also means that central government agencies will have to make less use of new construction products and instead plan how products can be carefully removed from existing buildings and dismantled so that their life span is prolonged. Under the current legislation, this will mean that central government agencies are considered to be manufacturers of construction products. They will therefore be responsible for ensuring that products made available for re-use meet performance standards, and that this is documented. Re-using or recycling construction products, whether in other public buildings or private buildings in Norway or abroad, will create value where they are used. Buildings that incorporate used construction products will have a lower climate footprint than buildings consisting of new construction products, since the manufacture of similar new products entails higher emissions.

Establishing shared targets and a common methodology for measuring the climate and environmental impact of buildings in the central government civilian sector may increase the capacity of the central government to harmonise the way climate change and environmental considerations are taken into account across sectors. This will also make it possible to compare the results and effects of climate-related and environmental measures. One shared target could for example be to reduce greenhouse gas emissions by introducing a shared minimum level of ambition for emissions for central government construction projects, going beyond the current requirements of the Technical Construction Regulations. It is important to consider the entire life cycle of a building – not only the construction process but also the use phase and beyond. LCAs consider greenhouse gas emissions throughout a building’s life cycle – from the extraction of raw materials and manufacture of construction products to the end-of-life phase. Thus, they provide a more complete picture of the impacts of demolition and new construction on the environment and society, as compared with those of renovation and re-use. A complete LCA of greenhouse gas emissions will make it easier to decide which buildings can and should be upgraded, what should be done and how this will affect the building’s overall emissions. In this way, the central government will play a part in driving the development of climate-friendly, energy-efficient solutions and facilitating the climate-friendly use of buildings.

Even if it is possible to achieve large-scale re-use of construction products, new products will always be needed. Some materials are long-lasting, while others cannot be directly re-used but can be recycled into new products.

The central government has a key role to play in promoting climate-friendly materials. Since the central government spends billions a year on buildings and construction products, it is also in a position to drive innovation by rewarding low-emission solutions. This must be done so that emission requirements for construction products are based on the principle of technology neutrality. Environmental product declarations are a good tool for this, because they provide information about emission levels associated with individual products. If this information is used systematically in estimating buildings’ greenhouse gas emissions, high-emission products can be rejected in favour of low-emission products. In central government construction projects, construction products are purchased by contractors on behalf of the central government. To achieve the desired effect, it is therefore essential to include requirements in public procurement processes that will guide contractors when they select construction products.

8 Renewable energy is making the green transition possible

8.1 Access to energy

Norway has plentiful supplies of renewable energy resources, mainly in the form of flexible hydropower production. About 98 % of Norwegian electricity production is renewable. In addition, market design and the structure of the power grid ensure that the overall power system is used effectively. These features combined mean that Norway is in a good position to increase electricity use in areas that are currently based on the use of fossil energy.

Norway’s energy system already has a high degree of electrification. Further progress, particularly in the transport sector, will be needed to achieve the country’s climate targets and the transition to a low-emission society. A flexible energy system can speed up electrification and result in lower costs for households and the business sector.

The main elements needed to achieve this are effective regulation and correct pricing, but they are not always sufficient to drive the necessary technological and market developments. Enova has a role to play in finding good solutions that meet the need for an energy system that is effective during a period of major change. For instance, coordination between thermal energy and the power system needs to be improved, and new technologies and solutions for energy storage and demand response must be developed.

Energy efficiency is still important in all sectors, and it often pays for individual people to improve their energy efficiency. Smart meters provide better information on electricity consumption and are important as a tool for facilitating other technological solutions, for example smart charging of electric cars.

Norway currently has a surplus of renewable electricity in years when weather conditions are normal. There is also likely to be an electricity surplus both in Norway and in the Nordic region in the years ahead, even given the anticipated increase in consumption by households, transport, industry and the petroleum industry.

The Government’s policy is that renewable electricity production should be profitable, which means profitable at both the macroeconomic (see the Energy Act) and the microeconomic level. The development of new production capacity for renewable electricity must take place at a pace and on a scale that does not result in unacceptable consequences for communities or for environmental and other important public interests. There will be many areas that are not suitable for the development of renewable energy production because of their national and/or significant regional environmental value. Where developments are permitted, valuable landscapes and biodiversity must be safeguarded. The expansion of production capacity for renewable energy must be based on a thorough evaluation of the advantages and disadvantages for society. In a white paper on onshore wind power (Meld. St. 28 (2019–2020)), the Government proposed that impacts on landscapes and the environment, society and neighbours should in future be given greater weight in licensing procedures for onshore wind power developments.

Wind power currently offers the greatest potential for new renewable electricity production in Norway, both onshore and offshore, as is also the case elsewhere in the Nordic region. The Government has decided to open certain areas for licence applications for offshore renewable energy production, including wind power projects. The areas Utsira North and Southern North Sea II are being opened from 1 January 2021. Utsira North is suitable for floating wind power; Southern North Sea II is shallow enough for fixed wind power to be developed, but could also be used for floating wind power.

There is still a potential for some new hydropower development in river systems that are not permanently protected. It is also possible to increase production from existing hydropower installations by upgrading and expanding them. The Government’s policy is that as a general rule, protection of river systems will be maintained, as set out in the 2016 white paper on energy policy (Meld. St. 25 (2015–2016)).

Both when carrying out new hydropower or wind power projects and when upgrading and expanding existing installations, the companies themselves have to assess the commercial viability of projects and apply for the necessary licences. Commercial viability depends mainly on electricity prices, which in turn are governed by market conditions in Norway and neighbouring countries. Important drivers of electricity prices include developments in electricity consumption and new power production, and the price of emission allowances in the EU ETS.

New cross-border interconnectors will integrate Norway and the rest of the Nordic region even more closely into the wider European market in the period up to 2020. Norway’s cross-border transmission capacity is currently about 6200 MW. New interconnectors to Germany and the UK that are scheduled for completion in 2020 and 2021 will increase this capacity to about 9000 MW. This will enable Norway to take advantage of differences between different power systems and thus ensure reliable electricity supplies.

It is not possible to avoid negative impacts on the environment or other interests completely when developing renewable energy production and expanding the electricity grid. It is important to safeguard Norway’s valuable and varied landscapes, ecosystems, habitats and species. Environmental impacts are therefore always weighed against public interests in all development projects.

The environmental impacts vary from one project to another. Both hydropower and wind power projects affect the fauna, the natural environment, landscapes and the cultural environment, and also opportunities for outdoor recreation and people’s enjoyment of the outdoors. Hydropower developments influence fish and fishing opportunities, and habitats and areas associated with river systems. Wind farms often require larger areas and can reduce the connectivity of habitats and ecosystems, causing disturbance and habitat fragmentation for mammals, birds and other animals. Birds are particularly vulnerable to collisions with wind turbines. Like other infrastructure developments, pylons and power lines have impacts on the landscape, outdoor recreation and biodiversity. Birds as a group are also most vulnerable to collisions with power lines.

Norway also has substantial biomass resources in the forestry and agricultural sectors that offer a large technical potential for bioenergy production. Greater use of felling waste and of by-product streams from wood processing and the pulp and paper industry are the solutions that offer the largest potential. If felling waste is left to rot in the forest, it will over time generate greenhouse gas emissions. If the waste is utilised, there will be emissions in the LULUCF sector, but at the same time emissions in other sectors will be reduced if the resources are used to replace fossil energy. It is important to leave at least 30 % of felling waste in situ to maintain the nutrient content of the soil, and to retain tree stumps, damaged and dead trees and large broad-leaved trees in order to maintain biodiversity. The Government has adopted targets to increase advanced biofuel use. Establishing Norwegian production of these fuels will contribute to green value creation based on the country’s own resources.

Together with communal solutions such as district heating and the use of waste heat, stationary heating solutions based on biomass can increase flexibility and relieve pressure on the power supply system when heating needs are highest and the load is high.

8.2 The Norwegian electricity sector up to 2030

Following a period when little new power production capacity was developed in Norway, there has been a considerable increase in the past few years. At the beginning of the fourth quarter 2020, Norwegian power production capacity was 151 TWh in a year with normal weather conditions. Since 2015, electricity production has risen by about 12.6 TWh, of which 4 TWh is hydropower and 8.8 TWh wind power (there has also been a small reduction in thermal power production). In the same period, electricity consumption rose by 4.3 TWh to 134.7 TWh in 2019. Norway currently has an electricity surplus, given normal weather conditions.

In the next few years, electricity production is expected to rise, largely as a result of wind power projects that are already under way. Most of the wind farms currently being planned or built will be completed in 2022. There are also major projects in progress in Norway’s neighbouring countries. The Norwegian and Nordic electricity surplus is therefore expected to increase in the next few years, despite the growing demand for electricity.

Electricity consumption is expected to increase in several sectors and in new areas up to 2030. Industry and the petroleum sector in particular are expected to use more electricity. In addition, electrification in the transport sector will result in higher electricity consumption, but the quantity involved is relatively small compared with that in other sectors.

Developments in consumption in the latter part of the period 2021–2030 are uncertain. For example, the pace of electrification in the transport sector could be higher than assumed, resulting in higher electricity consumption. Hydrogen may also become an important energy commodity in the transition to a low-emission society. It is particularly suitable for long-distance transport, for example heavy-duty road vehicles and ships. Hydrogen may also be of interest in other sectors, for example in industrial processes. Hydrogen production by electrolysis requires large volumes of electricity.

With the prospects of an electricity surplus and an increase in cross-border transmission capacity, Norway is in a good position to increase electricity consumption in the period up to 2030.

8.3 The power grid

A well-developed power grid is an essential basis for electrification. Major grid investments are now being made in various parts of Norway and at all grid levels. In the period up to 2030, many of the transformers and power lines in the distribution grid will have to be replaced because of their age. When they invest in new installations, the grid companies can take into account the increase in peak energy demand anticipated as a result of rising consumption. This will ensure that the grid becomes even more robust in the next few years and has sufficient capacity for a higher degree of electrification. Statnett (Norway’s transmission system operator) and the local grid companies have made an overall assessment of how the grid should be designed and developed to meet peak energy demand. The aim is to expand the grid only as much as is necessary and at the lowest possible cost for consumers.

The electrification of industry, cars, buses and ferries has made it necessary to increase the capacity of the distribution grid. The capacity of the regional grid has generally been sufficient to deal with the rise in consumption. Statnett has considered the consequences of increasing electrification for the power grid. Its analyses show that higher electricity consumption by the transport sector will have little effect on the need to upgrade and expand the transmission grid, but may result in many investments being brought forward. Electrification of certain ferry services is proving difficult because of limited capacity in the transmission grid, but these are exceptional cases.

By law the grid companies at all grid levels are obligated to offer all customers a grid connection. When necessary this obligation includes planning, applying for licenses and investing in new capacity without any unfounded delay, in order to ensure that new grid connections as soon as possible can meet operational requirements. The lead time for grid connections may be longer than the time it takes before the new consumption is in place. Binding agreements between the relevant grid company and the consumer requiring a connection can help to ensure good coordination and reduce the risk of unnecessary analyses and unsound investments for both parties.

Major grid investments are now being made in various parts of Norway and at all grid levels. These will both facilitate the achievement of climate targets and enhance Norway’s competitiveness. According to the Norwegian Water Resources and Energy Directorate, grid investments totalling NOK 135 billion are expected in the ten-year period 2018–2027. Statnett is for example anticipating an annual investment level of more than NOK 4 billion up to 2030 as a result of plans to upgrade and renew the transmission grid throughout the country.

Given the high investment level, it is crucial to ensure that the costs are no higher than necessary, and that the right investments are made. In addition, a reasonable way must be found to split the costs between grid customers. If a grid customer asks for a connection to the grid or an increase in capacity or quality, and the customer’s request entails a need for grid investments, the grid company must require the customer to pay all or part of the investment cost through a connection charge. Connection charges are intended to give customers more effective price signals regarding siting, design and establishment.

Connection charges communicate the costs of customers’ requests for connections or higher capacity, for example to establish fast-charging stations for electric vehicles or shoreside electric power in ports. This allows customers who request a connection to assess this against other options, for example using charging infrastructure that requires less power and smarter control systems, using extra batteries or taking other action to reduce energy needs and peak energy demand. In some cases, connection charges can also be reduced by establishing charging infrastructure at a site where there is plenty of grid capacity. Such measures can ensure that total investments are no higher than necessary. Grid investments that are not paid for through connection charges must be paid for by other customers of the grid company through higher tariffs.

In autumn 2020, the Ministry of Petroleum and Energy held a consultation on proposed legislative amendments that would allow a grid company and a consumer to conclude an agreement on a grid connection with the proviso that the customer could be disconnected or have to reduce consumption in certain circumstances. These amendments would make it possible to provide new connections or allow an increase in consumption without the necessity for grid investments, to the benefit of both the grid company and the customer. In many cases, this would enable the grid company to provide a connection more quickly.

8.4 Peak load and grid costs

Optimal use of grid capacity is an essential basis for the success of electrification. If the grid is not used effectively, there is a risk that it will be expanded more than necessary. This can result in environmental disturbance that could have been avoided and in higher tariffs than necessary for households and businesses.

In recent years, the peak load in Norway has increased more than energy use. The result is higher peak loads at certain times, while the costs have to be spread across fewer kilowatt-hours. Peak load pricing can make customers more aware of their own peaks in electricity consumption and how these affect the costs of grid operation, and can provide incentives for customers to modify their behaviour. The overall long-term effect may be lower grid tariffs.

Peak load pricing can be an effective and rational way of spreading the costs of grid operation. The Norwegian Water Resources and Energy Directorate, in its role as Norway’s national regulatory authority for energy, has held a consultation on proposed changes to the structure of grid tariffs. The proposal involves a greater degree of peak load pricing. The latest proposal is being assessed by the Ministry of Petroleum and Energy at the time of publication.

9 Implementation of the climate action plan and further white papers on climate policy

9.1 Introduction

The Government will:

• Give an account of the implementation of the climate action plan and Norway’s progress towards the 2030 target in its annual reporting to the Storting under the Climate Change Act;

• present further white papers on climate policy at regular intervals, starting in 2024.

In this white paper, the Government presents a plan for Norway’s climate policy for the next ten years, and charts a course towards a low-emission society. The policy instruments that are necessary will be used to achieve Norway’s climate targets. However, this does not mean that the development of Norwegian climate policy has been finalised. The implementation of the plan and action to achieve the targets start now. To ensure that Norway achieves its climate targets, progress must be assessed regularly. This chapter describes how the Government will follow up the climate action plan, assess the policy instruments it uses and use reporting as a tool for assessing progress.

The effects of policy instruments depend on a range of factors, and there are many sources of uncertainty. Technology development could prove to be either slower or more rapid than the analyses indicate.

The Government will follow up the climate action plan over time, and will give an account of the implementation of the climate action plan and Norway’s progress towards the 2030 target in its annual reporting to the Storting (Norwegian parliament) under the Climate Change Act. These reports will give an indication of whether the course that has been charted needs to be adjusted.

The Government also intends to present white papers on climate policy at regular intervals, starting in 2024. In the 2024 white paper, the Government will report on emissions and assess progress in reducing them, and consider whether policy adjustments are needed.

The timing of white papers on climate policy after 2024 will depend on several factors, including whether any changes are made to Norway’s commitments under the climate agreement with the EU. The EU has enhanced its 2030 climate target, and will in this connection be making amendments to its climate legislation. Amendments to the EU legislation may have implications for Norway’s climate policy under the climate agreement with the EU. It may be appropriate to consider presenting a new white paper on climate policy when there are amendments to EU climate legislation that will be relevant for Norway.

9.2 Reporting and review mechanisms enhance transparency

9.2.1 Reporting to the Storting, the EFTA Surveillance Authority and the UN

Reporting is an important tool for assessing status and providing information to the public. Reports provide information on how climate policy is functioning and whether Norway is on track to achieve its climate targets and the transition to a low-emission society.

Norway has obligations to report on climate change at several levels. Norway reports to the UN under the Climate Change Convention and the Paris Agreement and to the EFTA Surveillance Authority under the climate agreement with the EU, and the Government reports to the Storting under the Climate Change Act.

9.2.2 Reporting to the Storting under the Climate Change Act

Under Norway’s Climate Change Act, the Government is required to report to the Storting every year, providing a status report and an account of progress towards Norway’s climate targets. The information submitted must include an account of changes in emissions and removals of greenhouse gases, projections of emissions and removals, progress towards the climate targets, an overview showing sectoral emission trajectories for non-ETS emissions, a status report on Norway’s emission budget and how Norway is adapting to climate change. In its annual reports, the Government will give an account of the implementation of this climate action plan and Norway’s progress towards the 2030 target.

9.2.3 Reporting to the UN under the Climate Change Convention and the Paris Agreement

Norway has been reporting in line with its commitments under the UN Climate Change Convention for a number of years. The national greenhouse gas inventory is reported every year (National Inventory Report), while biennial reports take stock of the effects of national climate policy every other year, and include calculations of the effects of climate policy instruments or groups of instruments to reduce greenhouse gas emissions. These reports also include information on public financial support provided by Norway. Every four years, Norway submits a comprehensive report (National Communication) that gives a wide-ranging account of the country’s climate policy. The national communications also include information on climate research, climate change in the education system and climate change adaptation. Expert review teams review all the reports submitted to the Climate Change Convention.

Under the Paris Agreement, Norway will continue to submit a National Inventory Report every year. In addition, Norway will report on progress towards its target under the Paris Agreement (its Nationally Determined Contribution), and provide information on climate change adaptation, and on financial, technology transfer and capacity-building support provided to developing countries. These reports will be submitted every two years from 2024 onwards.

9.2.4 Reporting to the EFTA Surveillance Authority under the climate agreement with the EU

From 2021 onwards, Norway is required to report regularly to the EFTA Surveillance Authority on progress towards its commitments under the climate agreement with the EU. These reports will provide a basis for the Authority to assess whether Norway is meeting its commitments under the agreement. Norway is required to submit its greenhouse gas inventory data every year (15 March) and a status report on its climate policy, climate policy instruments (or groups of instruments) and the most up-to-date emission projections every other year (15 March). The biennial reports must also where possible include an account of the effects of Norway’s climate policy and the policy instruments it is using.

9.2.5 Comprehensive reviews of national inventory data

Under the climate agreement with the EU, the EFTA Surveillance Authority will carry out comprehensive reviews of Norway’s inventory data in 2027 and 2032. The first review in 2027 will cover emissions and removals in the period 2021–2025, and the second will cover the period 2026–2030. If the reviews show that Norway is not meeting its commitments, the sanction mechanisms set out in the legislation will be used.

10 Economic and administrative consequences of Norway’s climate action plan for 2021–2030

10.1 General picture

Achieving the climate targets for 2030 will entail costs. However, the costs of global failure to reduce emissions would be extremely high. It will also be costly if the Norwegian economy is not adequately prepared for a situation where global climate targets are achieved. The policy instruments the Government sets out in this action plan will have implications for almost everyone in Norway in one way or another. Many of the emission reductions included in the plan will have co-benefits in addition to their climate impact, as described in the chapters on specific sectors. Raising climate-related tax rates will strengthen incentives for a green transition so that the need to use fossil energy can be eliminated.

Putting a price on emissions is consistent with the polluter-pays-principle. Moreover, using cross-sectoral policy instruments helps to ensure a uniform price for emissions. The authorities are promoting a transition by providing support both for specific measures and for technology development, for example through Enova. This will make the transition easier and less costly for both businesses and households. Substantial funding is being allocated to climate-related work, including an allocation of about NOK 3.3 billion to Enova in 2021. There is considerable uncertainty about technological developments and about the effects of different mitigation measures on both emissions and costs. The consequences and the design of Norway’s climate policy therefore need to be evaluated at intervals. The technical committee on methodology relating to climate change mitigation provides advice on improvements in the methodology for assessing the effects of policy instruments, and presents annual reports.

The Government intends to increase the carbon tax gradually to NOK 2000 per tonne CO₂eq (2020 NOK), which is expected to result in large reductions in emissions. The Government’s policy is not to increase the overall level of taxation. This means that any increase in a tax rate must be offset by corresponding reductions in other taxes, primarily for the groups affected by tax rises.

Statistics Norway prepared a macroeconomic analysis of a 50 % reduction in non-ETS emissions in connection with the mitigation analysis for Norway 2021–2030. This indicates that the emission price would have to be increased to about NOK 4 000 per tonne in order to reduce Norway’s non-ETS emissions by 50 % by 2030 through increases in the tax rate. Both households and businesses will incur direct costs when tax rates are increased because they will change their behaviour and choose more expensive technologies associated with lower emissions. The analysis shows an overall utility loss, which can be seen as a metric for social costs. The analysis also demonstrates that the way in which higher revenue from taxation is used is important. If the revenue is used to reduce taxation of labour income, both GDP and consumption increase, and the utility loss is smaller. The carbon tax and the analyses are further discussed in Chapters 3.1 and 3.3.

The overall increase in the tax rate and the rate for each specific year will need to be determined through the normal budgetary processes and assessed in the light of technological developments, so that emissions are reduced sufficiently. In this white paper, the Government has assumed that increasing the tax rate gradually year by year will result in a linear increase in the effects on emissions. If tax rates are increased more rapidly earlier in the period, this may result in a greater anticipated effect on emissions. If increases in tax rates are delayed, the anticipated effect on emissions may be smaller. If technological advances are made more quickly than has been assumed and the cost of low- and zero-emission solutions falls more rapidly than expected, it may be possible to achieve the same reduction in emissions with a lower tax rate. On the other hand, it may be necessary to speed up the increases in the tax rate if progress in reducing non-ETS emissions is too slow.

A higher carbon tax rate affects emissions primarily by increasing the price of emissions and giving stronger incentives to choose zero-emission technologies and/or take other action such as making travel more effective. Adjustments of this kind may result in higher costs for both the business sector and individual people. If businesses continue to use fossil-based solutions, a carbon tax rate of NOK 2 000 may mean higher operating costs. Other tax rates for both companies and households may be reduced since the Government intends to compensate for the increase in the carbon tax.

10.2 Consequences for the transport sector

Opportunities for people and businesses to adapt to stricter climate policy, for example by choosing zero-emission solutions, are improving and becoming more and more numerous. Increasing the carbon tax rate gradually will ensure that changes are not too great from one year to the next. For cars, it is now assumed that given anticipated developments in sales of new cars, about half the passenger cars on Norwegian roads will be zero-emission vehicles by 2030 and therefore not affected by the rising tax rate. It is also expected that a large proportion of the cars that are still internal combustion engine vehicles will be hybrids with low fuel consumption. Improvements in the performance of electric cars and a higher carbon tax give strong incentives for high-mileage drivers, for example taxi drivers, to choose electric vehicles. Developments for heavy-duty vehicles are more uncertain, although it is expected that a transition to zero-emission vehicles can take place rapidly once the technology is available. The rising carbon tax rate will also provide a stronger incentive to improve transport logistics to make transport more effective and reduce emissions and operating costs.

The Government is using combinations of policy instruments to achieve the targets for the transport sector. Policy instruments in addition to taxation, such as grants, regulatory measures and coordinated spatial and transport planning, can ease the transition for people and businesses that are currently using fossil fuels.

Higher carbon tax rates will create stronger incentives to reduce emissions from transport by switching to zero-emission technology and lowering fuel consumption, or through an increase in the number of people choosing to use public transport. On its own, the rising carbon tax rate will mean higher costs for households and businesses that continue to use fossil vehicles if their travel patterns do not change.

It is assumed that stakeholders in shipping, fisheries and aquaculture will respond to a price signal, and that announced increases in the tax rate in combination with more specific policy instruments for different vessel categories will promote a faster green transition. For road traffic, the Government will consider adjustments to the provisions on low-emission zones so that they can also be established on climate-related grounds. The Government will also consider the use of the legal authority provided by section 7 of the Road Traffic Act to establish zero-emission zones on climate-related grounds, initially in the form of a pilot project in a few cities and not including trunk roads/national roads. This would expand the toolbox available to the municipalities. If zero-emission zones are established, individuals and companies that need to drive within these areas will face additional costs, unless they have already purchased zero-emission vehicles. The municipalities will be responsible for assessments, establishing zero-emission zones, information activities, and enforcing the rules and penalties, and will therefore incur administrative costs. At the same time, establishing low- and zero-emission zones may yield other benefits by improving local air quality and reducing noise from commercial transport in city centres. The scale of these benefits will depend on how people, companies and so on adapt to their introduction, how permanent zero-emission zones are and how large they are.

Stricter requirements in public procurement processes may mean higher purchasing costs for municipalities and counties in the next few years, but over time, lower operating costs will make categories such as electric ferries and buses economically viable. The Government intends to introduce requirements to ensure the use of zero-emission solutions or biogas in new procurement processes for buses from 2025. According to the mitigation analysis for Norway 2021–2030, switching to electric buses is likely to result in declining investment and operating costs for municipal bus services from about 2025 onwards. The costs of establishing charging infrastructure are included in the calculations in the mitigation analysis. The Government also intends to ensure the use of zero-emission solutions in public procurement processes for passenger cars and small vans from 2022 onwards.

The Government will introduce criteria concerning zero- and low-emission solutions, where feasible, for new procurement processes for ferry services and high-speed passenger vessel services in the course of 2023 and 2025 respectively. Estimates by DNV GL indicate that for most ferry and high-speed passenger vessel services, the introduction of low- and zero-emission solutions will result in higher costs for the counties, but there are considerable variations between routes.22 The counties will receive compensation for extra costs resulting from criteria concerning zero- and low-emission solutions in procurement processes for ferries and high-speed passenger vessels. The Government will present specific proposals relating to compensation in the annual budgets. The central government is supporting technology development through several channels, including the Klimasats grant scheme and Enova, both of which can provide support for modification and refitting of vessels and for the development of infrastructure such as shoreside electric power and charging facilities.

Changes to the biofuel quota obligation for road traffic and the introduction of a biofuel quota obligation for offroad diesel (see Chapter 3.4.2.3) will involve administrative costs for the authorities. Users of biofuels will experience higher pump prices as a result of quota obligations, since biofuels are more expensive than fossil fuels. Moreover, prices are expected to rise up to 2030 as a result of increasing global demand.

More use of biofuels will have consequences for the municipalities in the form of higher operating costs. How much the costs rise will depend among other things on price developments for fossil fuels and biofuels.

The Government intends to introduce requirements for zero- and low-emission solutions for aquaculture service vessels, to be phased in gradually from 2024 where feasible. The requirements will apply to vessels for commercial use. More use of low- and zero-emission solutions in response to requirements in procurement processes may necessitate the development of onshore infrastructure.

This climate action plan will help to drive restructuring of the transport sector, increasing the share of zero-emission vehicles and expanding the use of biofuels.

In urban areas, reductions in greenhouse gas emissions, traffic congestion, air pollution and noise should be brought about by effective spatial planning, and public transport, cycling and walking will be used to meet the growth in the volume of passenger transport. It should be easy to get around in Norway’s cities, and the negative impacts of road traffic should be reduced to a minimum. Many elements of a sound climate policy deal primarily with providing a good residential environment, improving conditions for the business sector and improving mobility for everyone.

10.3 Consequences for the agricultural sector

The letter of intent between the Government and the agricultural organisations sets out the target of reducing emissions and enhancing carbon uptake by a total of 5 million tonnes CO₂eq over the ten-year period 2021–2030. In addition to emission reductions in agriculture, some cuts in emissions in other sectors are also credited to agriculture under the agreement. In this climate action plan, the Government therefore estimates that a reduction of 4 million tonnes CO₂eq will be accounted for in the agricultural sector over the period 2021–2030 in Norway’s official greenhouse gas inventory. Assessments of climate-related measures and instruments in the agricultural sector are included as a natural part of the negotiations on the annual Agricultural Agreement.

A number of the mitigation measures for the agricultural sector can also contribute towards other social goals such as improvements in the aquatic environment, greater biodiversity and lower emissions to air. Their overall social benefits may therefore be greater than shown by analyses of their climate impact only. Several of these measures will also involve improvements in agronomic practices. Some measures may have negative side-effects in other areas, for example by making it more difficult to achieve goals such as maintaining agricultural production throughout the country and maintaining diverse agricultural landscapes.

According to calculations presented in the mitigation analysis for Norway 2021–2030, changes in consumption patterns that may indirectly reduce greenhouse gas emissions from the agricultural sector will be socially profitable. This applies both to dietary changes in line with the recommendations from the Directorate of Health, and to reducing food waste in line with the agreement between the authorities and the food industry. The mitigation analysis does not quantify the consequences of changes in policy instruments targeting the agricultural sector or changes in the public goods provided by the agricultural sector. However, it is difficult to identify the specific effects of policy instruments on people’s diets and in the next instance on agricultural production and thus greenhouse gas emissions.

The counties and municipalities will not be affected to any great extent by the measures set out in this climate action plan to reduce emissions from agriculture, other than the changes that are part of the annual Agricultural Agreements.

10.4 Consequences for other sectors that generate non-ETS emissions

Businesses that use fossil fuels will incur higher costs as a result of increases in climate-related tax rates. Many of these businesses will be able to avoid the higher taxes by switching to electricity, biofuels, heat pumps or other energy carriers derived from renewable resources. Making such changes also involves costs. More use of electricity may also have consequences for the power supply system in certain areas, see Chapter 8. Climate policy instruments may improve the profitability of other parts of the business sector, such as companies that supply energy solutions of these kinds. There will also be more financial incentive to deliver used HFCs and PFCs for destruction in accordance with the rules.

Costs will rise for households that use natural gas for heating as the carbon tax rate is increased. It will be possible for them to switch to other energy solutions, as described for the business sector in the previous paragraph.

Like businesses and households, local government bodies will incur greater costs as a consequence of the increased carbon tax if they use fossil fuels, for example for heating. Some municipalities own waste incineration plants and operate them on a partly commercial basis. Such plants may become less profitable as a result of the tax on waste incineration.

10.5 Consequences for land use, land-use change and forestry (the LULUCF sector)

Mitigation measures for forest differ from those in other sectors because a general increase in the growing stock also has the co-benefit of increasing value added in the forestry and wood industries. This applies both to primary production and to forest-based manufacturing. At the same time, most of the climate mitigation measures for forest discussed in this white paper will involve more intensive production and could have negative impacts on biodiversity and other environmental factors. The Government believes that it is possible to design mitigation measures so that the environmental impacts are acceptable.

Reducing the development of forests, peatlands, agricultural areas and other carbon-rich areas for other purposes has benefits for the climate, biodiversity, forestry, farming and food security, but puts constraints on how areas can be used. There are synergies between densification and the re-use of already developed areas on the one hand and reduced transport needs leading to lower transport emissions on the other.

Amendments to the regulations relating to sustainable forestry including requirements relating to minimum ages for tree felling (see Chapter 4.4.4) may give the municipalities some additional forestry-related administrative tasks. The statistics show that these requirements will apply to 3–4 % per year of the area of managed forest land. Assuming the areas in question are evenly distributed across the country, each municipality would have to deal with one to two applications per year.

If a ban on opening new sites for peat extraction is introduced, peat extraction would be restricted to areas already in use. At the current rate of extraction, the producers could operate for another 20 years in the areas where peat is already being extracted. The Government will continue to promote a shift from peat-based to peat-free products. If this is successful, it will reduce the risk of carbon leakage from imports.

The plan for reducing the development of green areas involves little in the way of new local government obligations. The Government will take steps to ensure that municipalities and counties receive sound guidance and good tools so that they can take carbon-rich areas into consideration in spatial planning. A ban on opening new sites for peat extraction would restrict local government powers as regards spatial planning under the Planning and Building Act. The Government will develop a specific strategy to prevent the conversion of peatland. It is too early to say what the consequences will be for municipalities and counties.

10.6 The use of flexibility mechanisms

The Government is planning for Norway to meet its commitment for non-ETS emissions through national emission cuts. If necessary, the Government will consider using other policy instruments. The Government will also if strictly necessary make use of flexibility mechanisms under EU legislation to ensure that emissions are reduced sufficiently.

If Norway’s non-ETS emissions are higher than its annual allocation, it can borrow from the following year’s allocation. If there is a surplus of emission units, these can be banked for later use. If Norway for some reason is unable to meet its obligations under the EU legislation using national measures, it will have to use the EU flexibility mechanisms to do so. This means paying for further emission cuts or removals in other EU/EEA countries. The Effort Sharing Regulation makes countries accountable for their emissions and ensures a reduction of total emissions in Europe. The flexibility mechanisms that are part of the EU system are intended to allow more cost-effective implementation of emission cuts across the EU. They also function as a safety valve, ensuring that targets are achieved.

The Government has developed plans for enhancing CO₂ removals in forest and reducing emissions from land use and land-use change. Given the currently available information, it is likely that under EU accounting rules, Norway will have substantial net accounted emissions from the LULUCF sector. In this case, it will be possible for Norway to cut non-ETS emissions, for example from transport and agriculture, by more than its commitment, in order to comply with the ‘no debit’ rule for the LULUCF sector. It will also be possible to access allowances from the EU ETS or emission units from other European countries, either emission units available in their non-ETS sector or credits from the LULUCF sector. The level of uncertainty as regards emissions from the LULUCF sector is high. This is further discussed in Chapter 4.8.

If a country chooses to use the flexibility to access allowances from the EU ETS, the costs will depend on the market price of emission allowances in the second half of the period 2021–2030.23 If Norway concludes agreements with other countries on cooperation under the Effort Sharing Regulation, the price will depend on what is agreed in each case. The costs of making use of these flexibility mechanisms are uncertain, and will depend among other things on what it costs for other countries to reduce their emissions, and on whether EU countries are interested in buying emission allowances from Norway.

10.7 Consequences for sectors that generate ETS emissions

The Government intends to raise the carbon tax for domestic aviation and emissions from oil and gas extraction that are within the scope of the EU ETS in line with the rise for non-ETS emissions. The overall carbon price (tax + price of emission allowances) is to be increased to about NOK 2000 per tonne CO₂ in 2030, measured in fixed 2020 NOK. The overall carbon price is not to exceed NOK 2000 in the period 2021–2030.

Industries on the Norwegian mainland in the ETS sector will not be subject to the carbon tax, but will pay the same price for emission allowances as those elsewhere in Europe. In Norway, the proportion of ETS emissions in industry linked to industrial processes is higher than in other countries. Eliminating a large proportion of process emissions will require new technologies and new solutions. The development of new technology takes time and is often costly. There are various uncertainties related to the actual development pathways.

Many Norwegian industries export much of their production, and compete successfully in international markets. If the price of emissions is higher in Norway than in other countries, this in itself can weaken the competitiveness of Norwegian businesses and result in carbon leakage if businesses that are exposed to international competition move their production to countries with a less strict climate policy.

The Government will counteract carbon leakage, in other words reduce the risk that companies move production to countries with less strict climate-related legislation because of the costs of emission allowances, through the compensation arrangements for indirect emission costs for energy-intensive industry. In addition, grants for the development of low-emission technologies will reduce the risk related to higher prices for emission allowances in the future. Restructuring of the industrial sector must take place without any unnecessary loss of industries that are otherwise competitive, so that Norway’s business and industry remains internationally competitive in the future and can provide export revenue.

The oil and gas industry will pay more for its emissions when the carbon tax is increased. Oil and gas prices are determined in the global market, and petroleum from Norway competes with oil and gas from other countries. Higher costs, including emission costs, may influence investments and the level of activity in the industry. At the same time, if the cost of greenhouse gas emissions rises, this provides an incentive to use and invest in low-emission solutions to reduce emissions.

The carbon tax rate for domestic aviation will also be increased up to 2030. Together with a range of other policy instruments targeting technology development, this will give the aviation industry incentives to make use of low- and zero-emission technology. In the short term, a higher tax may result in higher ticket prices, as long as emissions continue. If zero- and low-emission solutions are phased in, the airlines will pay less in carbon tax. Making ground-based infrastructure and air space available for testing may involve higher costs for Avinor and the Civil Aviation Authority Norway, and the cooperation between the Civil Aviation Authority Norway and EASA may involve higher costs for the Civil Aviation Authority.

Support from Enova and the Green Platform initiative, national research cooperation and participation in international research will provide incentives for emission reductions and for a green transition in Norwegian business and industry. Access to risk capital for green solutions, for instance through Nysnø Climate Investments, will also provide support for the transition process. Together with rising costs for greenhouse gas emissions (taxes and price of emission allowances), this is intended to provide incentives for emission cuts and restructuring by Norwegian businesses.

Industries that succeed in cutting their emissions will gain a competitive advantage in markets where there is a demand for low-emission products. The European Green Deal is expected to result in the development of markets where low-emission products are in demand.