2 A changing world

2.1 A more proactive climate policy globally and green transformation in Norway

It can be difficult to imagine what a warmer world will be like. However, we do know what the world was like when temperatures were four to five degrees lower than today. Norway, northern Europe and Canada were covered by an ice sheet that was 2 000 metres thick. The rest of Europe north of the Alps and the Pyrenees consisted of tundra. This shows that a change of four to five degrees in global temperatures can have dramatic effects.

The world is now facing a race against time to respond to climate change. Anthropogenic greenhouse gas emissions have risen since the Industrial Revolution, and are now higher than ever before. This is resulting in global warming and changes in precipitation patterns, and is affecting life both in the sea and on land – and the climate is changing rapidly. However, the pace of technological development is also rapid, and this may provide us with the tools we need to deal with climate change and its impacts. The markets for climate-friendly technologies such as solar and wind energy and electric vehicles are growing at a phenomenal rate. And last but not least, the attitudes of a large majority of the world’s politicians are changing. The US Administration’s decision to withdraw from the Paris Agreement was a setback, but world leaders have responded in a way that shows that they intend to work together to implement the agreement. Many states and larger cities in the US have also made it clear that they will continue to pursue their ambitious climate policies. Norway is cooperating with US actors on an active climate policy, and will also work closely with other Nordic countries in support of strong European leadership in global climate negotiations.

Climate change is one of the greatest threats of our time. It is occurring as a result of greenhouse gas emissions from sources including energy use, industry, transport, agriculture and forestry. Unless the world succeeds in cutting emissions substantially in the near future, there is a very high risk that climate change will have serious and far-reaching consequences. And it may not be possible to reverse these consequences at a later date.

Greenhouse gas emissions are resulting in global warming across both land masses and oceans. Snow and ice are melting, sea levels are rising, and extreme weather events, flooding and drought are becoming more frequent. Flooding and drought are threatening water supplies in parts of the world and making it more difficult to produce enough food. Much of the increase in greenhouse gas emissions is being absorbed by the oceans, and this is causing ocean acidification and threatening marine life.

Global warming is undermining food security, economic progress and social stability, and intensifying existing security threats in many vulnerable states and regions. And the greater the change in climate, the more the risks increase. It is easy to conceive how climate change could cause or exacerbate major humanitarian disasters. In the worst case, drought and famine could displace millions of people. Rising sea levels may make low-lying coastal areas and islands uninhabitable, and if extreme weather events are more frequent, humanitarian disasters may also occur more often. We have already seen that climate change can cause conflict or worsen existing conflicts in vulnerable countries with unstable governance. This can lead to unrest, civil war and flows of refugees, or create a breeding ground for violence and terrorism.1.

Climate change is already strongly affecting the polar regions. For example, the temperature in the Arctic is rising about twice as fast as the global average. There have been several unusually warm years in Svalbard2,3, particularly after 2000, and a number of records have been set. In 2016, the average temperature in Svalbard was 6.6 ^oC above normal. The glaciers are melting and retreating rapidly. Areas of sea that used to be ice-covered are no longer freezing over. New fish species are expanding into the Arctic from further south and displacing Arctic species.

The wider picture is even more dramatic. More and more research results are suggesting that higher air temperatures, rising ocean temperatures and rapidly melting snow and ice in the Arctic are in turn influencing global wind and weather systems. These changes are influencing the development of storms, precipitation and winter weather in the northern hemisphere. Changes in the Arctic may have a bearing on weather phenomena as far away geographically as the South-East Asian monsoon, and thus affect food production and food prices.

Anthropogenic greenhouse gas emissions have played a part in the climate change over the past 100 years, and these emissions will continue to have an impact on all continents and all oceans in the future as well. Greenhouse gases accumulate in the atmosphere. World temperatures will therefore not drop again in the foreseeable future even if we are able to halt greenhouse gas emissions. However, they can be stabilised over time.

Since global warming is affecting the Arctic both earlier and more strongly than other regions, the changes here are a forewarning of what is likely to happen in other parts of the world as well. Greenhouse gas emissions may result in permanent environmental changes, and these changes may be amplified by positive feedback mechanisms. We cannot restore the environment to its previous state, and there may be uncontrollable, runaway impacts. There are strong indications that this may apply to some particularly vulnerable, unique ecosystems. For example, as ocean temperatures rise, the sea ice that is being lost in the Arctic will not re-form. The coral reefs that appear to be dying and lost to erosion as global warming approaches around two degrees will disappear permanently. We may reach tipping points beyond which climate change becomes irreversible. It is uncertain how much the climate can change before rapid, irreversible change is triggered. But the more the climate warms, the greater the risk that such thresholds will be crossed.

This explains why we urgently need to reduce global emissions and take steps to adapt to unavoidable climate change. The good news is that it is not only climate change that is accelerating: so is the pace of technological change. In this race against time, we need to develop new technology rapidly and ensure that it is quickly deployed in the markets. A policy that supports research, technology development and innovation both in Norway and in other countries is therefore a vital part of efforts to combat climate change. Putting a price on emissions shifts both production and demand in a climate-friendly direction. It also provides incentives for the development and deployment of climate-friendly technology. The transition to a low-emission society also requires an integrated research and development effort and cross-sectoral cooperation between the social sciences, humaniora, technology and the natural sciences. Norway must design educational programmes to give people educated here the right expertise to lead the way and play a key role in the transformation of society.

The pace of technological change is clearly illustrated by developments in solar and wind power. The costs of solar cells have fallen by 80 % since 2009, and wind turbines are now 30–40 % cheaper.4 According to sources including Bloomberg New Energy Finance, renewable electricity production is becoming competitive with fossil-based production in a growing number of areas and applications.5 World coal consumption has levelled off, and from 2014 to 2015 it sank for the first time after many years of growth. Energy production from renewable sources grew by almost 25 % in the period 2010–2014. In the electricity sector, renewable sources accounted for more than 60 % of new capacity worldwide in 2015.6

Production costs for electric vehicle batteries have dropped steeply in recent years, and consultancies, companies and international organisations are predicting a continued steep decline in costs in the years ahead. According to Bloomberg New Energy Finance, the price of lithium-ion batteries has dropped by more than 70 % since the Nissan Leaf was launched in 2010, from about USD 1000 per kWh to around USD 270 per kWh in 2016. Further reductions in costs are expected. Using existing analyses of cost trends as a basis, the Norwegian Environment Agency estimates that battery prices will be reduced by 9 % per year up to 2022, and by 4 % per year after that.7

The reduction in battery costs is essential to the future of battery electric transport. It is still considerably more expensive to manufacture an electric vehicle than a fossil fuel vehicle, but this is changing rapidly. Bloomberg New Energy Finance estimates that the production costs of electric passenger cars will have dropped to the same level as for comparable fossil-fuel vehicles between 2025 and 2029, depending on car size and geographical market. In 2030, Bloomberg expects electric vehicles to be up to 15 % cheaper than comparable conventional vehicles.8 These estimates are uncertain. It should also be noted that they are based on pre-tax prices and do not take into account the considerable savings that will be possible on fuel and maintenance costs.

Digitalisation will also be important for future transport and energy solutions. The Norwegian National Transport Plan for 2018-2029 refers to studies indicating that digitalisation may lead to the development of transport systems that are radically different from those in use today. Digitalisation of the transport sector may improve traffic flows and reduce emissions, but may also result in an increase in road traffic. The Government will give considerable weight to strengthening the knowledge base on how technological advances will affect the need to increase the capacity of transport infrastructure. It will be vital to monitor technological developments closely in the years ahead so that robust and sustainable investment choices are made for the future.

The transition to a low-emission society will require a green, smart and innovative business sector. Zero- and low-emission technologies will be the winners with a tighter global climate policy Costs will drop rapidly, new solutions will function better and the transformation process will pick up speed. A number of companies are now in the process of establishing production plants for batteries for the maritime sector in Norway. Norway is also playing an active part in developing autonomous maritime technology, and has opened a test bed for autonomous shipping in the Trondheimsfjord. There are also Norwegian participants in several segments of the hydrogen value chain.

Climate change is a worldwide problem that can only be resolved through deep cuts in global emissions. This will require cooperation at every level – global, regional, national and local. The developed countries are responsible for most of the greenhouse gas emissions that have already entered the atmosphere. More recently, however, emissions from developing countries with rapidly growing economies have been rising steadily. At present, developing countries account for about two thirds of annual global emissions, and this proportion is expected to rise. This means that all countries share the responsibility for acting to reduce emissions.

One of the UN Sustainable Development Goals is specifically about action to combat climate change, and refers to the United Nations Framework Convention on Climate Change (UNFCCC). The Paris Agreement was a turning point in international climate cooperation. Norway played a key role in the negotiations, and was instrumental in the adoption of the agreement in December 2015. The agreement aims to strengthen the global response to the threat of climate change, including by holding the increase in global average temperature to well below 2 ^oC and pursuing efforts to limit it to 1.5 ^oC. All countries have undertaken to communicate their nationally determined contributions to emission reductions every five years and to strengthen their ambitions over time.

The Paris Agreement gave a clear message to the world that greenhouse gas emissions must be drastically reduced. The Agreement will have significant consequences in Norway too. Norway has recently adopted its (Climate Change Act), which includes Norway’s transformation to a low-emission society as a statutory target. The Act introduces a system of five-year reviews of Norway’s climate targets, on the same principle as the Paris Agreement. Norway strengthened its climate policy ambitions when, like other countries, it submitted its intended nationally determined contribution (INDC) for 2030 to the UNFCCC in advance of the Paris summit. In February 2015, the Government and the parties with which it is cooperating in the Storting proposed a target of reducing domestic greenhouse gas emissions by at least 40 % below the 1990 level by 2030. The Government is working towards joint fulfilment of this target together with the EU. A broad majority in the Storting endorsed the target in spring 2015. The adoption of the 2030 target marked the beginning of a new era in Norwegian climate policy. Norway has never before had such a binding climate target.

Climate change is influencing global political and economic trends. The World Economic Forum has identified the changing climate as one of the top trends in the risk landscape that are determining global economic development for the decades ahead.9 Extreme weather events and natural disasters, both of which are considered to have a high likelihood of occurring, will have major economic impacts. According to the Bank of England, climate change may destabilise global financial markets, both because of the losses companies suffer from physical damage and the effects on trade, and because the transformation to a low-emission society may affect the prices of many financial assets and investors may suffer major losses as a result.10 Greater uncertainty may in itself exacerbate the financial impacts.

However, the costs of an ambitious climate policy can be offset by longer-term avoidance of costs if policy instruments are used appropriately. According to the IEA,11 the additional costs of the two-degree scenario will be more than offset by future fuel cost savings. It is estimated12 that in China, the health and mortality burden of air pollution has economic costs equivalent to more than 10 % of the country’s GDP. This demonstrates the huge human and economic impacts of pollution.

Unclear policy signals on the future prices of emissions or on regulatory measures may hinder the adoption of the most cost-effective climate-related measures.13 The result will be that the costs of the transformation process are higher than necessary. In a recent report, the OECD14 lays out a case showing that the G20 countries can achieve more growth and at the same time a shift towards a low-emission pathway by combining climate action with fiscal initiatives and structural reforms.

The report estimates that the G20 countries can increase GDP by 2.8 % in the long term if they combine a cost-effective climate policy with sound economic reforms. In addition, they would enjoy the benefits of avoided climate change impacts, which are estimated at more than 2 % of GDP. Delaying climate action until after 2025 would increase the cost of achieving the climate targets by an estimated 2 % of GDP.

It is important to send clear signals about what trajectory emissions should follow later in this century, from 2050 and onwards. The authorities need to pursue a credible climate policy that gives clear, predictable signals to the private sector about the future costs of greenhouse gas emissions (see Chapter 5, Box 5.3 on the Green Tax Commission). This will reduce project risk for investors, encourage the right economic choices today and help to avoid unsound investment, thus laying the foundation for a transformation process that is as cost-effective as possible.

Global trends have a major impact on developments in a small open economy like Norway. In June 2017, the Storting adopted the Act relating to Norway’s climate targets (Climate Change Act), which makes Norway’s target of becoming a low-emission society by 2050 legally binding. This was done in order to promote the long-term transformation of Norway in a climate-friendly direction. According to the Act, Norway’s target is to reduce greenhouse gas emissions by 80–95 % by 2050 relative to the 1990 level. However, as a small open economy, Norway is dependent on a similar shift in global development if it is to maintain its ability to make full, effective use of labour and other resources and achieve its climate and environmental policy goals. The Climate Change Act introduces a system of five-year reviews of Norway’s climate targets, on the same principle as the Paris Agreement. As a party to the Agreement, Norway has undertaken to prepare, communicate and maintain successive nationally determined contributions that it intends to achieve. The Agreement requires a global stocktake of progress every five years, and this will ensure that international climate policy is steadily tightened. A sound climate policy will improve conditions for people around the world. Making the transition to a low-emission society will not only make it possible to prevent the dramatic impacts of climate change, but will also improve most people’s everyday lives. There will be cleaner air, less congestion, more effective production and smarter everyday solutions. The risk is highest for those who make the first move, but they will also have the opportunity to reap the greatest benefits from green competition. The Government will assist Norwegian innovators and companies to profit from such opportunities.

A green shift to sustainability will alter the framework for business and industry all over the world, particularly for producers of coal, natural gas and crude oil. During the past 40–50 years, petroleum has become Norway’s largest industry, but production has probably already peaked. Although the petroleum industry will continue to be important for several decades, it will not contribute to growth in other sectors of the Norwegian economy in the same way as it has done before. In the last few years there has been a drop in demand from the petroleum industry which illustrates this, and also highlights the importance of new jobs in other sectors. The profitability of the Norwegian petroleum industry will also be influenced by global climate policy. Implementation of the Paris Agreement will result in lower demand for fossil fuels, and put downward pressure on prices.

Growing competition from renewable energy sources will also put pressure on the oil and gas industry in the time ahead. At the same time, the Norwegian petroleum sector has in the past proved to be profitable across a wide range of oil prices. In a high-cost country like Norway, growth has to be based on knowledge. To maintain pay levels that are higher than in almost all other countries, Norwegians must be more productive than other people. Norway needs to make commercial use of new knowledge and new technologies better and more quickly than neighbouring countries.

Norway must be prepared for a gradual, lengthy transformation process. It will be vital to exploit any opportunities that arise as a more ambitious climate policy is introduced globally. We must ensure that there is room for many different branches of industry, and enable enterprising business leaders and employees to make use of Norway’s natural advantages to create growth. This will make Norwegian value creation more sustainable as more effective mitigation and adaptation instruments are introduced nationally and globally.

2.2 Norway’s climate targets

Norway has ambitious climate targets that are set out in various policy documents. These are the updated cross-party agreement on climate policy from 2012 (published as a recommendation to the Storting (Innst. 390 S (2011–2012)) in response to the white paper on Norwegian climate policy from the same year (Meld. St. 21 (2011–2012)); the white paper New emission commitment for Norway for 2030 – towards joint fulfilment with the EU (Meld. St. 13 (2014–2015)) and a subsequent recommendation to the Storting (Innst. 211 S (2014–2015)); the documents relating to the Storting’s consent to ratification of the Paris Agreement (Innst. 407 S (2015–2016) and Prop. 115 S (2015–2016)); and the Climate Change Act that the Storting adopted in June 2017.

1. Norway will reduce global greenhouse gas emissions by the equivalent of 30 % of its own 1990 emissions by 2020.

2. Norway has conditionally undertaken a commitment to reduce its emissions by at least 40 % by 2030 compared with the 1990 level.

3. Norway will be climate neutral by 2030.

4. Norway has adopted a legally binding target of being a low-emission society by 2050.

5. Greenhouse gas emissions from deforestation and forest degradation in developing countries will be reduced in ways that contribute to sustainable development.

6. As a political goal, Norwegian society will prepare for and adapt to climate change.

Norway’s 2020 target is being followed up under the Kyoto Protocol, while the 40 % target for 2030 has been communicated to the UN as Norway’s contribution under the Paris Agreement and has been made legally binding in the Climate Change Act. Norway’s target of being a low-emission society by 2050 has also been made legally binding in the Climate Change Act.

Norway will reduce global greenhouse gas emissions by the equivalent of 30 % of Norway’s own 1990 emissions by 2020

The commitment Norway has undertaken under the Kyoto Protocol means that it must ensure that annual greenhouse gas emissions for the period 2013–2020 are on average 16 % lower than in 1990. This establishes an emission budget for Norway for the period 2013–2020 under the Protocol that is also in line with Norway’s 2020 target of cutting global greenhouse gas emissions by the equivalent of 30 % of its own 1990 emissions by 2020.

Within the framework of the Kyoto Protocol, Norway has long experience of using flexibility mechanisms, particularly project-based cooperation in developing countries under the Clean Development Mechanism (CDM). By using these mechanisms, Norway can fund reductions in greenhouse gas emissions in countries such as Brazil or Uganda, and be credited for these reductions in its greenhouse gas inventory under the Kyoto Protocol. Since climate change is a global problem, it does not matter whether emissions are reduced in Brazil, Uganda or Norway. What matters is the overall reduction in global emissions. By using such international mechanisms, Norway has so far more than met its commitments under the Kyoto Protocol.

Norway’s original cross-party agreement on climate policy, adopted in 2008, sets out the level of ambition for the proportion of the 2020 emission reduction target Norway aims to achieve through domestic cuts in emissions. This translates into a reduction in domestic emissions in 2020 from the estimated 60.6 million tonnes CO₂ equivalents (CO₂-eq) in the baseline projections to 46.6–48.6 million tonnes. Box 2.4 explains this in more detail.

Norway will reduce emissions by at least 40 % by 2030 compared with 1990

The 2030 target is a conditional commitment for Norway to reduce its emissions by at least 40 % by 2030 compared with the 1990 level.15 The Government is working towards joint fulfilment of this commitment together with the EU, as further described in Chapter 2.3 and Chapter 4. The 2030 target has been made legally binding in the Climate Change Act.

If it is not possible to achieve joint fulfilment with the EU, the target of reducing emissions by at least 40 % by 2030 compared with 1990 will still be Norway’s nationally determined contribution under the Paris Agreement. This target is conditional on the availability of flexibility mechanisms under the new climate agreement and on Norway being credited for participation in the EU Emissions Trading System (EU ETS) so that this counts towards fulfilment of the commitment. If no agreement is reached with the EU, the Government will consult the Storting at a later date on the determination of a national target for the non-ETS sector. In this case, it will also be necessary to decide on accounting rules for emissions and removals from forest and other land categories in connection with Norway’s emission commitment, depending on the international rules that are drawn up for this. Norway will advocate international accounting rules for forest and other land categories that are in line with the principles set out in the Paris Agreement and in Norway’s nationally determined contribution to the Paris Agreement, which was drawn up in line with the white paper New emission commitment for Norway for 2030 – towards joint fulfilment with the EU (Meld. St. 13 (2014–2015)) and a subsequent recommendation to the Storting (Innst. 211 S (2014–2015)).

Norway will be climate neutral by 2030

In connection with its consent to ratification of the Paris Agreement, the Storting asked the Government to work on the basis that Norway is to achieve climate neutrality from 2030. This means that from 2030, remaining Norwegian greenhouse gas emissions must be offset by climate action in other countries through the EU ETS and international cooperation on emission reductions, emissions trading and project-based cooperation.

The Standing Committee on Energy and the Environment has pointed out that because the Kyoto Protocol system provides for cooperation between countries, it has been possible for Norway to take on greater commitments and contribute more to global emission reductions than would otherwise have been the case.16 It is important to assess on an ongoing basis whether there are other international mechanisms that could be used to achieve the Storting’s targets.

Follow-up of the Storting’s decision on climate neutrality from 2030 is closely linked to the process of achieving joint fulfilment with the EU and to negotiations under Article 6 of the Paris Agreement on international cooperation. The Government will provide the Storting with an account of its follow-up at a suitable time, once the rules for implementation of the EU Effort Sharing Regulation are in place.

Norway has adopted a legally binding target of being a low-emission society by 2050

Norway’s target of being a low-emission society by 2050 has been made legally binding in the recently adopted Climate Change Act. The purpose of this was to promote Norway’s long-term transformation in a climate-friendly direction. The Act describes a low-emission society as one where greenhouse gas emissions, on the basis of the best available scientific knowledge, global emission trends and national circumstances, have been reduced in order to avert adverse impacts of global warming, as described in the Paris Agreement. In quantitative terms, the target is to achieve emission reductions of the order of 80–95 % from the level in the reference year 1990. The effect of Norway’s participation in the EU ETS is to be taken into account in assessing progress towards this target. The interval specified above is the same as that used in the EU’s conditional goal for reduction of EU-wide emissions by 2050.

Norway’s target of becoming a low-emission society is set out in the 2012 cross-party agreement on climate policy (recommendation to the Storting (Innst. 390 S (2011–2012)) and the white paper New emission commitment for Norway for 2030 – towards joint fulfilment with the EU (Meld. St. 13 (2014–2015)). In the cross-party agreement, the parliamentary majority also pointed out that an ambitious national policy must also be rational in an international situation where the overall goal is to reduce global greenhouse gas emissions. This means that policy development needs to take into account the consequences of the Emissions Trading System, the risk of carbon leakage and the competitiveness of Norwegian industry. This will have a bearing on the use of policy instruments to reduce domestic emissions in the period up to 2030 and 2050. To become a low-emission society, Norway will need support from a similar shift in global developments

The Climate Change Act does not preclude joint fulfilment with the EU of climate targets set out in or adopted under the Act, either before or after 2030. Norway’s climate policy is closely integrated with EU climate policy. The EU has adopted an ambitious roadmap for moving to a low-carbon economy in 2050. Cooperation with the EU on joint fulfilment of climate targets can be an important way of contributing to systematic, internationally verifiable implementation of Norway’s national emission commitment, and to the long-term transformation of Norwegian society that the Climate Change Act is intended to promote.

Greenhouse gas emissions from deforestation and forest degradation in developing countries will be reduced in ways that contribute to sustainable development

The global target of holding global warming to well below 2 °C and pursuing efforts to limit the temperature increase to 1.5 °C cannot be achieved unless emissions from tropical forests are reduced. Norway’s contribution to these efforts, its International Climate and Forest Initiative, was launched at the climate summit in Bali in 2007. One of its goals was for tropical forests to be included in the international climate agreement. This goal was achieved with the adoption of the Paris Agreement in 2015. Since the updated cross-party agreement on climate policy was adopted in 2012, reducing emissions from tropical forests has also been one of the national targets of Norwegian climate policy. This target has three parts: the Climate and Forest Initiative is intended to play a part in making the international climate regime an effective instrument for reducing emissions; to take early action to achieve cost-effective and verifiable reductions in greenhouse gas emissions; and to promote the conservation of natural forests to maintain their carbon storage capacity.

As a political goal, Norwegian society will prepare for and adapt to climate change

The climate is changing, and these changes are having impacts on both nature and society. This is the reason for the political goal that Norwegian society will prepare for and adapt to climate change, which was first adopted in the budget proposal for 2014 (Prop. 1 S (2013–2014)). A climate-resilient society is one that is able to limit or avoid the negative impacts of climate change, and that can also make use of the opportunities offered by a changing climate.

New projections of the future climate were presented in the report Climate in Norway 2100,17 and provide updated information on how the climate may change in Norway in the years ahead. The projections are based on several different emission scenarios, and show that if the rapid rise in global greenhouse gas emissions continues, we must expect a marked temperature rise, more severe and more frequent extreme rainfall events, and changes in patterns of flooding. The report also explains that the changes will be considerably smaller if global greenhouse gas emissions are reduced. Norway’s policy on adaptation to climate change is based on the report Adapting to a changing climate (NOU 2010: 10) and the white paper Climate change adaptation in Norway (Meld. St. 33 (2012–2013)). A fundamental principle of climate change adaptation in Norway is that the actor responsible for the work is the actor responsible for the task or function affected by climate change. The Ministry of Climate and Environment is responsible for overall coordination of the Government’s integrated climate change adaptation work. Norway has been pursuing an active climate change adaptation policy for some years. It is a challenging task both to identify the action that is needed and to measure how effective adaptation measures are in practice. Norway’s new Climate Change Act includes a requirement for regular status reports on preparation for and adaptation to climate change in Norway. This will provide a basis for longer-term and better integrated work on climate change adaptation.

2.3 Cooperation with the EU on the 2030 emission reduction commitment

The Government has chosen to enter into a dialogue with the EU on joint fulfilment of the 2030 emission reduction commitment. Both Norway and the EU consider the implementation of mitigation measures to be part of a long-term transition to a low-emission society. In its roadmap for 2050, the EU has set out its ambition for the transition to a competitive and cost-effective low-carbon economy in 2050. Norway has adopted a legally binding target of becoming a low-emission society.

Joint fulfilment of climate targets for 2030 by Norway and the EU would involve cooperation to reduce greenhouse gas emissions by at least 40 % from 1990 to 2030. The EU’s climate policy is based on three pieces of legislation: the Emissions Trading System (EU ETS) and the proposed Effort Sharing Regulation and Land Use, Land-Use Change and Forestry (LULUCF) Regulation. Cooperation with the EU would make the provisions of the Effort Sharing Regulation (which covers emissions from transport, agriculture, buildings and waste management, and non-ETS emissions from manufacturing and the petroleum sector) and the LULUCF Regulation relevant to Norway as well. This legislation would therefore be an important basis for Norwegian climate policy in the years ahead. EU climate policy and its implications for Norway are further discussed in Chapter 4.

Various EU legislative acts covering non-ETS emissions already apply to Norway, but joint fulfilment of the 2030 target would entail wider cooperation and stricter control of Norway’s climate policy than previously. The Government views this as an important means of achieving Norway’s climate targets. Cooperation with the EU on climate action would give Norway a much more binding responsibility for reducing non-ETS emissions. In the Effort Sharing Regulation, the European Commission has proposed several forms of flexibility to assist countries to meet their targets. The most important of these for Norway are the flexibility to access a limited number of allowances from the EU ETS, and the opportunity to trade emission units with other countries.18 Flexibility under the Effort Sharing Regulation is further discussed in Chapters 4.3.4 and 4.5.1. The flexibility mechanisms will make it possible to achieve the national emission targets for 2030 cost effectively.

The legislative procedures for the proposed new EU legislation will have to be completed before Norway and the EU can conclude an agreement on joint fulfilment of the 2030 emission commitment. The European Commission’s proposals are being considered by the European Parliament and the Council, and the new legislation is not expected to be adopted before the end of 2017 at the earliest. The Norwegian Government has provided written input and put forward Norwegian views at a number of bilateral meetings, at informal ministerial meetings and through membership of the ministerial Green Growth Group.19 Efforts to influence EU decisions will continue until development of the 2030 policy has been completed.

Since 2008, Norway has taken part in the EU ETS on the same terms as EU member states. The ETS is a ‘cap-and-trade’ system, in which there is an overall limit, or cap, on emissions from the installations covered by the system, and the total number of emission allowances is reduced each year. The continual tightening of the emissions cap will bring about the necessary emission cuts in the ETS sector in the EU and Norway by 2030.

The long-term transformation to a low-carbon economy in Europe will require deep cuts in emissions in the ETS sector up to 2050. If the European Commission’s proposal for annual tightening of the emissions cap is followed, the total number of emission allowances available to companies in 2050 will be 86 % lower than the volume of emissions in 1990. There will be fewer and fewer emission allowances available to companies in the sectors covered by the ETS. The price of emission allowances will probably be much higher than it is today. The constant tightening of the cap will drive a transition involving greater and greater use of climate-friendly solutions.

Norwegian installations in sectors covered by the EU ETS will also have to be prepared to pay far more for their remaining emissions. The present white paper sets out a strategy for cutting non-ETS emissions in Norway, but the Government also considers it very important to promote technology development in the ETS sector. In the white paper New emission commitment for Norway for 2030 – towards joint fulfilment with the EU (Meld. St. 13 (2014–2015)), the Government presented the five priority areas of Norwegian climate policy. The most important of these for the transformation process in the ETS sector will be the focus on the development of low-emission industrial technology. Enova’s budget has been strengthened in this area and the allocation for Innovation Norway’s grant scheme for environmental technology has been increased, both of which will play an important role in technology development.

It will be important to maintain the focus on long-term technology development to reduce process emissions from Norwegian industry. The Norwegian process industries have delivered a roadmap for a low-emission path of development to a Government-appointed expert committee on green competitiveness, which includes a proposal to establish a strategic forum called Prosess21. In a recent white paper on industrial policy, A greener, smarter and more innovative industry (Meld. St. 27 (2016–2017)), the Government announced that it intends to establish a long-term strategic forum for the process industry sector. Prosess21 will be asked to provide input on how best to combine the reduction of emissions from the process industries to a minimum by 2050 with sustainable growth in the sector. The white paper on industrial policy also gives an account of emissions from Norwegian industry, how they can be reduced, and the challenges involved in this. Policy development in this field must take into account the effects of the Emissions Trading System, the risk of carbon leakage and the competitive position of Norwegian industry. Under the Emissions Trading Directive, EU states may up to 2020 compensate sectors that are considered to be at significant risk of carbon leakage for higher electricity prices resulting from the operation of the EU ETS. The Norwegian Government is seeking to ensure that compensation arrangements continue after 2020. These arrangements must be designed to ensure that the ETS is effective and continues to provide incentives for cost-effective emission cuts. This is in line with the purpose and design of the EU Emissions Trading System.

2.4 The Norwegian Government’s climate policy

Over the last five years, the Government has followed up and strengthened the 2012 cross-party agreement on climate policy. Norway’s non-ETS greenhouse gas emissions were reduced from 28.1 million tonnes CO₂-eq in 2013 to 27.4 million tonnes in 2016. Total Norwegian greenhouse gas emissions were reduced by 1 % from 2015 to 2016. The white paper Long-term Perspectives on the Norwegian Economy 2017 (Meld. St. 29 (2016–2017)), published in March 2017, presents projections of a continued decline in Norway’s greenhouse gas emissions up to 2020. The trend is expected to continue up to 2030, probably with the largest reductions in the road traffic sector. Particularly important factors here are Norway’s electric vehicle policy and the plan for increasing the proportion of biofuel used by road vehicles.

The 2008 cross-party agreement on climate policy set a target of reducing emissions in Norway by 15–17 million tonnes CO₂-eq by 2020. This figure included 3 million tonnes in CO₂ uptake by forests, giving a net reduction of 12–14 million tonnes CO₂-eq in emissions. Expressed as an emission ceiling, this meant that Norway’s total emissions were not to exceed 45–47 million tonnes CO₂-eq in 2030. There has since been a technical adjustment of this figure, and the interval has been altered to 46.6–48.8 million tonnes CO₂-eq (presented in the budget proposal for 2017 from the Ministry of Climate and Environment (Prop. 1 S (2016–2017)): see Box 2.4). When the present Government took office in 2013, it commissioned a report from the Norwegian Environment Agency on progress towards the 2020 target.20 The report indicated that there was a gap of about 8 million tonnes CO₂-eq between the target and projected emissions in 2020. Using more recent projections, this gap is now estimated at about 3 million tonnes CO₂-eq. If the expected increase in biofuel use is taken into account, the gap is reduced to about 2 million tonnes CO₂-eq. As a result of steps that have been taken to strengthen climate policy, projections now suggest for the first time that Norway’s emissions will decline up to 2020, even though other factors such as a growing population are making it more difficult to achieve the 2020 target.

In its 2017 budget proposal, the Government included a green tax shift in response to the recommendations of the Green Tax Commission. Its purpose is to promote more climate-friendly action and consumption. The proposed green tax shift was strengthened in the budget agreement between the Government parties and the Christian Democratic Party and the Liberal Party. Fuel taxes and taxes on greenhouse gas emissions have been increased, while other taxes have been reduced. In all, environment- and energy-related taxes have been increased by almost NOK 5.5 billion since the Government took office.

The budget proposal for 2017 and the budget agreement between the Government parties and the Christian Democratic Party and the Liberal Party in autumn 2016 also strengthened the cross-party agreement on climate policy through specific measures such as the planned stepwise increases in the biofuel quota obligation, continued preferential treatment of electric vehicles, the promotion of carbon capture and storage (CCS), forest fertilisation and the restoration of peatlands and other wetlands.

The Government has identified five priority areas for Norway’s climate policy: reducing emissions from the transport sector, strengthening Norway’s role as a supplier of renewable energy, the development of low-emission industrial technology and clean production technology, environmentally sound shipping and carbon capture and storage. These are all fields where emissions must be greatly reduced. Another aim is to lay the foundation for new industrial development and a forward-looking business sector.

The Government and the parties with which it is cooperating in the Storting are giving high priority to the railways and public transport. During the first four years of the plan period for the current National Transport Plan (2014–2023), allocations to the incentive scheme for urban areas to improve public transport have been 30 % higher than originally planned. Allocations to the railways have also exceeded the amounts original planned. In the new National Transport Plan for 2018–2029, the Government is giving even higher priority to improving the railways, and intends to make investments of NOK 18 billion in goods transport by rail to promote a shift from road to rail. The Government also proposes an allocation of NOK 66 billion for measures to encourage walking, cycling and the use of public transport in Norway’s largest towns. The new transport plan also proposes new, ambitious targets for phasing in zero-emission vehicles. One of the targets of the 2012 cross-party agreement on climate policy is that average greenhouse gas emissions from new passenger cars in Norway should not exceed 85 g CO₂/km by 2020. Norway is on track to achieve this well before 2020, and perhaps as early as 2017.

In spring 2016, the Government presented a white paper on Norway’s energy policy (Meld. St. 25 (2015–2016)). Its main message is that a coherent approach to security of energy supply, climate change and industrial development is needed to ensure that Norway has an effective energy supply system. Norway already derives a large share of its energy supplies from renewable sources. The electricity generation sector is virtually emission-free. However, energy use in transport, manufacturing, oil and gas production and for heating still results in greenhouse gas emissions. In the white paper, the Government defined four main priorities for its energy policy: improving security of supply; profitable development of renewable energy; more efficient and climate-friendly energy use; and value creation based on Norway’s renewable energy resources.

Enova’s budget has been considerably strengthened, and funding for Innovation Norway’s grant scheme for environmental technology has been almost tripled. The Government has also started the establishment of a long-term strategic forum, Prosess21, for the Norwegian process industries. The aim is to combine the reduction of emissions from the process industries to a minimum by 2050 with sustainable growth in the sector

Norway is a coastal state. The Government is giving high priority to environmentally sound shipping. A green shift in the shipping industry is being promoted through the introduction of grant schemes for renewal of the short sea shipping fleet, including grants towards scrapping vessels and innovation loans, and funding for the development and deployment of low- and zero-emission technology in the shipping industry. By introducing climate-related criteria in public procurement and providing funding through Enova, the Government has ensured that many new low- and zero-emission car ferries will be deployed along the Norwegian coast in the years ahead. The Government will continue this work by ensuring that all new car ferries that are part of the national road system use low- or zero-emission solutions and promoting the use of such solutions in car ferries and high-speed vessels that are part of the county road system. In the National Transport Plan for 2018–2029, the Government has announced that by 2030, its aim is for 40 % of the short shipping fleet to run on biofuel or be low- or zero-emission vessels. This will reduce greenhouse gas emissions and promote the development of green technology and employment along the coast.

Carbon capture and storage (CCS) could provide part of the solution to the problems of climate change. The overall goals of the Government’s work in this field is to play a part in making CCS a cost-effective approach to combating global climate change. Achieving this will require technology development and cost reductions, for example through the construction of full-scale CCS demonstration facilities. The Government presented its CCS strategy in the 2014 budget proposal from the Ministry of Petroleum and Energy (Prop. 1 S (2014–2015)). Measures in the strategy include research, development and demonstration, and the implementation of a full-scale project using technology that has a potential for widespread diffusion. The strategy also includes international efforts to promote CCS as an important mitigation measure.

Internationally, Norway is involved in several courses of action to realise the ambitions of the Paris Agreement. The most important of these is Norway’s International Climate and Forest Initiative, which pays for reductions in emissions from deforestation and forest degradation in developing countries. In theory, as much as one third of emissions reductions needed to solve the global climate problem could be achieved through cuts in emissions from deforestation and forest degradation. Through the Climate and Forest Initiative, Norway has entered into partnerships with Brazil, Indonesia and other countries with the aim of promoting sustainable rainforest management. These efforts reduce CO₂ emissions through the conservation of forest, safeguard valuable biodiversity and contribute to sustainable development for people who live in and depend on forests.

There is agreement in the Storting that the current level of funding for the Climate and Forest Initiative is to be continued until 2020. In a recent white paper on Norway’s development policy, Common Responsibility for Common Future (Meld. St. 24 (2016–2017)), the Government called for broad agreement from the Storting to maintain a high level of funding for the Climate and Forest Initiative through the aid budget until 2030. The Government has intensified cooperation with the business sector on forest conservation, among other things by launching a new fund to support deforestation-free agriculture, with the support of the Climate and Forest Initiative. This is an example of the innovative role the Climate and Forest Initiative can play in development policy.

The Government will continue its international work both through the Climate and Forest Initiative and through other international efforts to assist developing countries in implementing their own low-carbon development plans and climate change adaptation plans.

Norway also provides substantial funding for climate change adaptation and support for renewable energy in developing countries. Between 2015 and 2018, Norway will contribute NOK 1.6 billion to the Green Climate Fund, which is the key multilateral channel for funding to support implementation of developing countries’ national climate targets. The developed countries have committed themselves to the goal of mobilising USD 100 billion annually by 2020 towards climate action in developing countries, to be obtained from a mix of public and private sources.

The need for climate finance is growing. In the years ahead, emissions will primarily rise in developing countries, and these are also the countries that will be hardest hit by climate change. If the world is to achieve the targets of the Paris Agreement, it will be vital for developing countries to have access to funding. Many of their nationally determined contributions are also conditional on the availability of international climate finance. According to the Paris Agreement, developed countries should continue to take the lead in mobilising climate finance from a variety of sources, instruments and channels, as part of a global effort. In line with this, Norway intends to increase the level of climate funding it provides.

Article 6 of the Paris Agreement provides for market-based cooperation between countries to enable them to set more ambitious mitigation targets. Norway is already funding mitigation measures in developing countries through the Clean Development Mechanism (CDM). Through the Transformative Carbon Asset Facility (TCAF), Norway is involved in pilot programmes to test new market mechanisms. Norway is also promoting a green shift in developing countries through various international partnerships both within and outside the UN, and through the Norwegian Carbon Credit Procurement Programme.

These market-based initiatives are a key element of international climate action because they also involve systematic sharing of expertise on sustainable management and renewable energy, and partner countries become more aware of the value of improvements in energy and resource efficiency. Such initiatives are most likely to succeed when countries themselves request support, and can be confident that it is possible to shape the economic framework to improve long-term results. Internationally, Norway is thus involved in several courses of action to realise the ambitions of the Paris Agreement. Norway intends to play a leading role in efforts to put an international price on greenhouse gas emissions and develop effective international carbon markets.