7 Climate change and energy

The economic growth that is necessary to reduce global poverty will need to take account of the environmental and resources aspects of growth and development. Growth has clear natural limitations. Since the Rio conference in 1992, crucial international efforts have been underway to integrate environmental considerations in policy-making, production and business activity. The Climate Convention and the Convention on Biological Diversity are among the many important international environmental obligations Norway has undertaken.

This chapter takes as its main points of departure the global climate and energy challenges, and the main forms is on national and international initiatives to manage these. The background for this priority is to put a special focus on the major challenge faced by the global community in order to safeguard the poor countries’ opportunities for development and growth, at the same time reducing the climate emissions in order to prevent further detrimental climate changes.

The main emphasis in this chapter is therefore on the Norwegian climate and energy policies.

Important environmental challenges such as protecting biodiversity and the management of water and other natural resources will not be covered in this report, but this does not mean that these issues are not significant for the fight against poverty.

With such priorities, the Commission would like to emphasise that energy and climate issues can no longer be treated separately, but must be regarded in an integrated and contextual manner at national, regional and global levels.

Protection of biodiversity will be dealt with in chapter 8 on knowledge policies.

7.1 The poor are hardest hit by climate changes

It is well documented that the poor in developing countries are hardest hit by climate change, partly due to more droughts and floods, increased salt content in the ground water and increased burden of illness 1. Climate change can in the worst case scenario reverse the positive development in global poverty reduction. Africa is particularly vulnerable and the poorest there are least capable of adapting to both extreme weather and reduced opportunities for agricultural production.

Out of 262 million people that were affected annually by natural disasters between 2000 and 2004, 98 per cent lived in developing countries. While 1 out of 19 inhabitants in developing countries were affected, the ratio in the OECD countries was 1:1,500. The need for improved early warning systems for natural disasters such as floods and droughts in order to meet the subsequent food crises and population movements is immense, and is growing in poor countries. There are few countries in Africa that currently have adequate early warning systems. The capacity for planning and resources for prevention is also poor despite it being shown that prevention of floods, for example, is much cheaper than paying for the consequential destruction.

Seventy-five per cent of the poor population in developing countries live in rural areas and subsist to a large extent directly on natural resources. They are largely lacking resources to adapt to changes in the environment such as polluted drinking water, more extreme weather and changes in local wildlife and plant life. The development of agriculture depends on sustainable management of the natural resources. According to the World Bank, some African farmers have already started altering their production, with new plant varieties, changed seasons and harvesting due to a shorter growing season. However, many have not made any changes, partly due to lack of capital and credit for procuring new, adapted seeds.

A calculation of the costs related to climate change for rich and poor countries indicates that poor countries have caused climate-related damage for rich countries of USD 740 billion, while rich countries have caused the poor countries USD 2,300 billion worth of damage 2. It can therefore be claimed that the rich countries’ climate debt to poor countries is a staggering USD 1,560 billion, or almost NOK 9,000 billion. This estimate is more than the developing countries’ total foreign debt.

The climate change problems are mainly caused by high energy consumption based on oil, gas and coal. Reducing poverty in developing countries will require economic growth in these countries and the global energy consumption will consequently increase. According to the International Energy Agency (IEA), the developing countries will account for 74 per cent of the growth in energy consumption between 2005 and 2030. China and India alone will make up 45 per cent of the growth. Simultaneous to this, it is still the case that energy consumption per capita is much higher in developed countries than in developing countries.

The clash between environmental considerations and economic growth must be resolved through a global reorganisation of the energy systems that reduce the CO₂ emissions. The great challenge is to prevent such a reorganisation undermining poor people’s opportunities for economic and social development. The challenge is greatest in the densely populated growth economies such as China and India, where rapid development of pollutive coal-based power stations in the next 10 years will generate enormous amounts of CO₂ for at least the next 60 years. Rich countries account for 70 per cent of the historical global CO₂ emissions, but it is expected that the developing countries will account for more than half of the global emissions in 2030.

According to the IEA, improving energy efficiency is the quickest and cheapest way to meet the increasing energy demand and reduce growth in the emissions in the short term. However, even with such initiatives, the IEA’s calculations show that the CO₂ emissions will be 25 per cent above the current level in 2030 if no other initiatives are implemented. In order to achieve a far higher reduction in the emissions major initiatives are required, such as higher pricing of emissions and focus on research and technology development on a large scale. A more extensive quota system, focus on CO₂ capture and storage, increased use of renewable energy sources and, for many countries, increased use of nuclear power, are all initiatives that, according to the IEA, will have to be used to achieve the target of a 50 – 85 per cent reduction in emissions by 2050. It is this target that the UN’s climate change panel believes must be achieved in order to prevent a temperature increase of more than 2 °C. According to the report by Sir Nicholas Stern, a reduction by this amount will, nevertheless, mean almost an 80 per cent chance of exceeding the target of 2 °C temperature increase.

7.2 The poor lack energy security

Today around 1.6 billion people have no access to electricity. A total of 2.5 billion people mainly base their subsistence on traditional energy sources. Indoor pollution from cooking and heating is a main cause of illness and premature deaths among the poor part of the population. The World Health Organisation estimates that 1.5 million people die every year, mainly women and children, due to indoor pollution. The fact that the majority of the poor live in the rural areas where infrastructure is poor, creates special challenges with regard to access to energy.

The commercial basis for large-scale energy supplies in the rural areas does often not exist. Giving the rural poor access to energy therefore requires decentralised, small-scale solutions. The concern is more related to providing access to good energy systems than increasing the energy consumption. Giving the poorest people access to energy does not necessarily lead to major increases in greenhouse gas emissions.

Considerations of Commission

The Commission with the exception of Kristian Norheim considers climate change to be the principal threat today, and it is also the most important challenge for the fight against poverty in developing countries. The way energy supply is currently organised in many countries creates a fundamental conflict between growth and poverty reduction on the one hand and a reduction in climate change on the other. The main challenge is to facilitate a transition to cleaner energy consumption in a way that benefits the developing countries. This requires substantial national and international efforts.

The Commission, with the exception of Kristian Norheim, believes that the Norwegian Government in its policy formulation must to a larger degree view both the climate and energy as global public goods, i.e. goods that benefit all countries, people and generations. This would entail Norway reducing its own climate emissions as well as contributing at an international level to give developing countries better opportunities for economic growth and increased energy consumption. Our contributions would have to comprise reducing our own emissions, compensating for climate emissions in other countries as well as financing research, technology development and technology transfers that increase poor countries’ possibilities for development.

The Commission, with the exception of Kristian Norheim, also believes that Norwegian energy policy cannot be regarded as disconnected from the climate obligations, but must be a key instrument in achieving Norwegian climate change obligations and in the development of a stronger international coordination of energy security and considerations for the climate. The energy sector is a vital contributor to the world succeeding in its attempts to reduce climate emissions and develop clean energy.

Commission member Kristian Norheim believes that climate change is a natural part of the earth’s development and has always happened. However, warnings from various quarters indicate that human activity contributes to the acceleration or alteration of the natural course of climate change. These warnings must be taken seriously, and must be dealt with by global cooperation. Rational initiatives to reduce global CO₂ emissions and with a general environmental benefit to the poorest should be prioritised in preference to expensive symbolic initiatives. The poor countries are the least equipped to face the consequences of climate change, independent of whether they are man-made or not, partly because they are poor. Expensive solutions to fit the West would be meaningless in light of the situation of these countries. A realistic climate policy must recognise that the global growth in prosperity will continue, which entails both increased energy consumption and increased transport needs. The best approach in climate policy entails priority being given to cuts in CO₂ emissions where the greatest effects can be achieved. The global benefit from reducing emissions from old coal fired power plants in Central Europe or China is far greater than what we would get out of large sums used for marginal improvements in modern and already clean industries in Norway. In parallel the Government should prepare the way for the development of new and more environmentally friendly technologies that could cut costs of future CO₂ reducing measures. In developing such technologies emphasis should be placed on solutions that can reduce emissions and simultaneously improve energy supply and/ or public infrastructure. Transfer of technology to poor countries would be an important measure to include these countries in the common global efforts that are needed to meet the climate challenges. Norwegian obligations related to the Kyoto agreement should be honoured through measures that are cost effective and benefit the environment without introducing special environmental restrictions that would reduce Norwegian competitiveness. A new climate agreement should have a global basis to prevent different framework conditions in different countries which would make it attractive for industries to move to countries that stand outside the agreement. The main challenge for developing countries is to create a basis for the development of prosperity, which has to be based on private sector development and opportunities for the creation of wealth. The main precondition for such a development is access to energy. The world, including the poor countries, will greatly increase its demand for new energy over the coming decades. Norway should assume a leading role in creating environmentally friendly technology instead of a leading role in symbolic policies.

7.3 Norway’s climate obligations and development

According to international regulations emissions shall be accounted for in the country where it takes place. Official figures for Norwegian emissions therefore include emissions from the production of goods that are exported to other countries while emissions from the production of goods imported to Norway are not included in the figures.

Total Norwegian climate gas emissions amounted to 55,0 million tonnes CO₂-equivalents in 2007. This is 1,5 million tonnes or 2,7 per cent more than in 2006 and it represents an increase of close to 11 per cent compared with the 1990 figures. After 2 years of reduction in emissions, partly due to a reduction in the production of crude oil, they increased in 2007 to a level slightly above the level of the earlier top-year of 2004.

Source Gas emission accounts from Statistics Norway and The Norwegian Pollution Control Authority.

Onshore industries, oil- and gass activities and road traffic are the greatest contributors to climate gas emissions with 72 per cent of total emissions in 2007.

Norwegian emissions total around 12 tonnes per capita, which is higher than in the rest of Europe, but lower than in the USA and Russia and the industrialised countries as a whole. The emissions in poor countries are well below those in the industrialised countries. Emissions in the poorest countries are approximately 0.1 tonnes per capita. In China, which is in the process of taking over from the USA as the world’s largest emission country, the emissions are approximately 5 tonnes per capita (compared with more than 20 in the USA).

With regard to the petroleum activity in Norway, it is the emissions from the petroleum extraction that are registered as Norwegian greenhouse gas emissions. The use of the same oil and gas is recorded in the importing countries’ emission accounts. The total greenhouse gas emissions from Norway account for approximately 0.15 per cent of the global emissions. Use of exported oil and gas from Norway amount to more than 10 times this, or approximately 1.5 per cent of the global emissions 3. By comparison, African countries account for a total of 2 per cent of the global emissions, while the low-income countries together account for 7 per cent.

Through the Kyoto protocol, Norway has pledged to increase the emissions in 2008 – 2012 by not more than 1 per cent in relation to 1990. According to the Government’s White Paper on the climate situation, the level of ambition shall be increased by ten percentage points to 9 per cent below the 1990 level. 4 The long-term goal, as described in the climate agreement, is a 100 per cent reduction (carbon neutrality) in 2030. This entails Norway ensuring global emission reductions that correspond to Norwegian emissions of greenhouse gases. Norway shall also be a driving force in the effort to achieve a more ambitious and more extensive climate agreement after the Kyoto period, based on the goal that the global temperature increase shall be kept below 2 °C compared with the pre-industrial level. According to the UN’s Climate Change Panel, this will require global reductions of between 50 and 85 per cent between 1990 and 2050.

Norway is a long way off achieving the Kyoto targets without extensive quota purchases abroad and even further from the more ambitious targets that all parties in the Storting, with the exception of the Progress Party, have endorsed in the climate agreement.

Model projections by Statistics Norway show that unless extra measures are initiated, CO₂ emissions in Norway in 2050 will be around 25 per cent higher than in 1999. Any technological progress that contributes to the growth impacting the climate less than previously is not included in these calculations.

7.4 Costs of global emission cuts: Financing and distribution

The Kyoto Protocol in its current form is not adequate for achieving Norway’s international climate policy goals as specified in the White Paper on Climate Change and the Climate Change Agreement between all parties represented in the Storting, except the Progress Party. The protocol is also far from adequate for achieving the emission reductions recommended by the UN’s Climate Change Panel. In the best case scenario, the Kyoto Protocol will help to reduce rich countries’ emissions by 5 per cent, and the global emissions by 1 per cent 5.

The UNDP’s emission path for achieving a 50 per cent reduction in climate emissions is based on industrialised countries reducing emissions by 80 per cent and developing countries by 20 per cent in relation to the 1990 level. A great deal of uncertainty surrounds how high the temperature increase will be under various emission scenarios. Global warming and the melting of glaciers have so far taken place quicker than projections suggest. Based on the precautionary approach, this uncertainty gives reason to give almost 85 as opposed to 50 per cent as a goal for the global emission reduction. In this case, industrialised countries must reduce the emissions dramatically by more than 80 per cent, and probably more than 100 per cent, which is Norway’s long-term goal. Such reductions will entail substantial contributions to emission reductions in developing countries.

The Policy Coherence Commission has commissioned work to outline some principles for financing based on the Stern report’s estimate corresponding to 1 per cent of the world’s GDP. The calculations show that if the world’s 10 richest countries share this expense, this will constitute 3 per cent of their annual GDP, or around NOK 60 billion for Norway. If the world’s 20 richest countries share the cost, the calculations indicate expenses amounting to 1.5 per cent of the GDP for each country, or NOK 30 billion per annum for Norway.

Baer et al 6 has developed another model for allocating and financing emission reductions and adaptations to climate changes, based on the target of 2 °C. The proposal aims to protect developing countries’ needs for economic growth, at the same time ensuring that they take their fair share of the emission cuts. According to these calculations, Norway is the 8th largest contributor per capita. The authors believe that the global emissions must be reduced by around 6 per cent per annum from 2015 in order to reach the target of 80 per cent reduction (from the 1990 level) by 2050.

Historical emission responsibility or «emission debt» is calculated based on the emissions since 1990. Ability to pay entails poor people achieving a minimum of welfare before responsibility is imposed on them to contribute to climate change reductions. According to this model, individuals with incomes and emissions above the development threshold (both in rich and poor countries) have an obligation to pay for the global costs incurred by the climate crisis.

Figure 7.4 shows the capacity of three countries to pay to resolve the climate problem. The green fields are the share of the population with an annual income exceeding USD 7,500 and which, according to Baer et al (2007), bear a responsibility to pay. The yellow fields are the share of the population that is below this development threshold.

Source Baer et al, 2007.

Figure 7.5 shows the proportion of a country/region’s emissions for which it has a responsibility (the green fields).

Source Baer et al, 2007.

Not surprisingly, the USA emerges as the country with the highest «emission debt», but other rich countries with high emissions and a high level of affluence, including Norway, will according to this approach also have to pay for national as well as global emission reductions and contribute funds for adaptations. Perhaps more surprisingly, the calculations show that developing countries with high growth and an increasing middle class – such as China and India, will be net recipients of emission financing from rich countries, while at the same time they would also be obliged to pay for emission reductions. The poorest countries, however, have no obligations other than to ensure development for their people.

Based on this model, with 0.07 per cent of the world’s population, Norway should take on approximately 0.4 per cent of the global obligations. If it is assumed that the global costs for emission reductions are 1 per cent of the world’s total gross national product (ref. Stern), which is approximately USD 690 billion, Norway’s share will be USD 590 per capita. The total costs will be in the region of NOK 15 billion per annum.

7.5 Climate policy instruments

The instruments in the climate policy shall reduce the global emissions of greenhouse gases and aid the adaptation to unavoidable global warming. Instruments for aiding the adaptation to climate changes include measures such as building flood barriers in order to avoid floods in countries such as Bangladesh, or securing the water supply in countries that will be exposed to more droughts.

The instruments for reducing the greenhouse gas emissions can roughly be divided into three main groups 7. The first group covers measures to increase the price of climate emissions, such as duties and quota trading. The purpose of increasing the price of emissions is to make climate-friendly production and consumption relatively cheaper, and in this way change the behaviour of companies and consumers towards lower climate emissions. There are strong indications, however, that increasing prices of greenhouse gas emissions is not sufficient to initiate the extensive development of climate-friendly technologies that are needed to achieve the required emission reductions of between 50 and 85 per cent of the 1990 level (see Stern 2006, chapter 16 for an overview). The strong price increase in oil in 2008 may help to accelerate this process if the price remains high.

The second groupof instruments covers measures to promote technology development, including Government funding of research and development.

The third groupof instruments cover measures to facilitate energy economising, for example, building regulations and other rules and standards, labelling schemes and information initiatives, in addition to removing various subsidies that work to increase emissions (subsidising of transport, energy-intensive industry etc.).

Norwegian climate policy has so far mainly been based on price instruments, primarily duties. In the future, however, the climate policy will to a growing extent be based on quota purchases abroad, even if the climate agreement states clearly that two thirds of the emission reductions shall be on a national basis. In 2007, Norway signed up to the EU quota system, which is more stringent than Kyoto because it (mainly) rules out the purchase of hot air from the previous Soviet Union. Norway’s new quota system 8 entails an improvement over the original system from 2005. One weakness of the new system is, however, the special treatment of new gas power plants when allocating quotas. This can lead to more investments in gas power plants than is profitable from an economic perspective, and thus weaken the competiveness situation for renewable power production. Neither does the new quota system give any incentives for CO₂ handling 9. Some of these weaknesses will be corrected if Norway implements the notified changes in the EU quota system.

The purchase of quotas abroad also takes place via the Kyoto mechanisms JI and CDM (see the box on Kyoto). When quotas are purchased from countries with binding emission restrictions (JI), the host country’s national emission obligations will be correspondingly intensified. In this case the emission reduction is reasonably effective and controllable 10. CDM quotas, however, are aimed at countries with no emission obligations. Some positive aspects of this are that CDM has the potential to reduce the global carbon leakages, that the private sector gets involved through an attempted use of market mechanisms, and that developing countries can introduce new environmental technology. On the other hand, uncertainty surrounds the actual emission reductions from a number of CDM projects. Particular uncertainty surrounds whether CDM projects would have been carried out anyway (additionality). In this case, the purchase of CDM quotas in the worst case scenario can lead to emission increases. In the best case scenario, CDM would help to curb the emission growth in the developing countries.

From an environmental point of view, CDM is the «next best» solution in relation to developing countries taking part in the international quota trading system. On the other hand, this must entail the developing countries agreeing to set a ceiling on their own emissions, which they have been opposed to so far. Considering that half of the world’s greenhouse gas emissions will soon emanate from developing countries, the emission reduction targets will not be reached unless the large emission countries such as China, India and Brazil take part in a binding collaboration that also sets a ceiling on their emissions. The UN’s climate conference on Bali in 2007 showed that the developing countries have a deep mistrust of the rich countries’ genuine willingness to reduce the emissions, and fear that they will be faced with fewer opportunities for growth if they commit themselves to a collaboration. Norway’s contribution to the conservation of the rain forest – which does not release quotas – can improve the confidence in rich countries undertaking genuine obligations. This can give Norway a position as a mediator towards a future establishment of a new international climate agreement.

7.6 A development-friendly climate policy

An assessment of whether Norwegian climate policy is coherent with poverty reduction should be based on whether the initiatives lead to sufficient emission reductions, given that poor countries and groups are most exposed to the negative effects. Whether the initiatives that are introduced limit or facilitate the potential for economic development for poor countries and population groups should also be considered.

Norway should, both out of consideration for the poor in developing countries and the importance of strengthening global public goods, have an ambitious climate policy. Stern suggests that the costs linked to reducing the climate problems will amount to 1 per cent of the global GDP. This is an estimate of the costs if the initiatives are implemented now. The longer they are delayed the higher the costs. In other words, a great deal is to be gained financially by acting now. If the emissions are not reduced now, the reductions will need to be greater later. According to IPCC, the peak in global emissions must be reached in 2015, and then they must fall. This means that the development leading up to 2015 is vital.

One per cent of the GDP in Norway corresponds to around NOK 20 billion. The current level is well below this figure, although it is difficult to quantify how much resources are used on emission reductions. In order to get large developing countries to commit to a binding emission target, rich countries need to make a more than proportional contribution to the financing. Norway’s role as a mediator is a positive step in the right direction, but the efforts must be escalated and Norway must involve more countries in this work.

The weaknesses in the Kyoto Protocol mean that it is risky to focus exclusively on international agreements to solve the problems. Great uncertainty surrounds the effect of the CDM initiatives. In a poverty perspective, it is relevant that CDM is primarily carried out in developing countries with high levels of manufacturing, which rules out the poorest countries. Transaction costs linked to the approval of CDM projects is a barrier to such projects in the poorest countries. They also reduce the recipient country’s revenues from such projects compared to in quota trading. There is therefore reason to be cautious with regard to whether development policy goals can be achieved through climate policies, with the exception of countries with large emissions such as China and India. The most important contribution of the climate policy should be to reduce the emissions, in order that the fight against poverty is not undermined.

Developing countries that do not get CDM investments also miss out on technology transfers and an inflow of financial resources. This can undermine the fight against poverty. Norway can go further in supporting the formulation of CDM projects in Africa, and in contributing to their realization.

None of the instruments in the climate policy will be able to cover the high costs incurred on poor countries due to the climate changes. Estimates of adaptation costs in developing countries for preventing droughts, diseases, and food and water shortages vary from USD 10 billion to USD 100 billion per year, and will probably increase even if global warming is successfully reduced. The developing countries’ position is often that rich countries should pay since they account for most of the historical emissions.

The international cooperation for adapting to climate changes is organised under the United Nations Framework Convention on Climate Change (UNFCCC). They have initiated the Nairobi Work Programme in order to improve the knowledge of various aspects of adaptation. The Least Developed Countries are devising national adaptation plans, which will form the framework for adaptation measures in these countries. Financing of these plans is mainly through three different funds under the UNFCCC: Special Climate Change Fund (SCCF), Least Developed Countries Fund (LDCF), and Adaptation Fund. All are presently administered by the Global Environment Facility (GEF). There are also bilateral, regional and multilateral financing mechanisms.

As it is difficult to separate traditional development projects and adaptation projects, it is difficult to estimate exactly how much funds go towards adaptation measures. Since 2005, Norway’s contribution to SCCF has been NOK 51 million, and NOK 47 million to LDCF. This is allocated from the aid budget. GEF reports that the fund for the Least Developed Countries is fully financed in relation to the demand, but that SCCF does not have funds for all projects applied for.

Although it is difficult to quantify the costs for developing countries of Norwegian greenhouse gas emissions, it is reasonable to assume that Norway, as with other industrialised countries, is not even close to compensating for this. The current arrangements under UNFCCC are insufficient. It is important, however, to emphasise that it is not just the size of allocations that needs to be taken into consideration. The capacity in developing countries to handle these adaptation projects must be strengthened so that the allocations can be used optimally.

The international climate negotiations are currently characterised by a deep mistrust between the poor and rich parts of the world. This mistrust must be overcome if we are to have a hope of getting the fast-growing developing countries such as China, India and Brazil to assume emission obligations. Norway can play a key role here. The success of a new climate agreement depends on whether the differences can be bridged. If the developing countries are to take on emission obligations these must be seen as fair and provide opportunities for crucial improvements in welfare. A climate agreement that covers all countries is an ambitious goal. If it is not successful, it will nevertheless be important to maintain the rich countries’ responsibilities in order to reduce their own emissions and finance climate measures in developing countries.

Considerations of the Commission

There are good grounds to claim that the climate changes affect the poorest the hardest and that reducing poverty can exacerbate the climate problems if economic development continues to be based on unclean fossil energy sources. The interests of the poor must be protected through limiting global warming to 2 °C. At the same time a new climate agreement must ensure poor countries’ right to the development and the opportunity to adapt to the changes that will take place with global warming at 2 °C or more.

The Commission notes that the Norwegian greenhouse gas emissions are among the highest in the world, and that they are increasing. Norwegian climate policy in practice is at variance with the goal of reducing poverty. Increased emissions in the rich part of the world prevent the necessary growth and development in the poor countries. With regard to contributions in addition to the obligations of the Kyoto Protocol, the effort is not on par with the goals and needs. As with other OECD countries, Norway has not contributed sufficiently to cover the costs incurred on poor countries due to climate changes.

This report assumes that Norway is committed to the goal of limiting global warming to 2 °C. This goal will not be achieved with the emission reductions that have so far been committed internationally. A new international agreement must therefore outline measures that give a reduction in emissions closer to 85 than 50 per cent from the 2000 level by 2050.

A climate solution requires the developing countries to be involved in binding emission reductions. The developing countries’ willingness to take part, however, will depend on rich countries taking a considerable financial and technological responsibility for the climate change problems. By taking on financial obligations, Norway can spearhead mediation between rich and poor countries in the efforts to establish a new international climate agreement.

The commitment to provide NOK 15 billion for the conservation of the rain forest is an important signal that rich countries can and should pay the main part of the climate change bill. However, the Commission, believes it is important that the financing of the conservation of the rain forest is additional to increased efforts to reduce world poverty. Financing of the conservation of the rain forest must be undertaken in ways that does not legitimize the financing of purely emission reducing measures over the aid budget. Any financing of the conservation of rain forest over the aid budget needs to be in line with OECD/DAC’s ODA rules.

Although many countries now focus on the cleaning and storage of CO₂, the Commission recommends that Norway takes the initiative in IEA for an assessment of the effect on energy prices and the global energy security of allowing the so far undiscovered energy resources in the Arctic to remain unused.

Commission member Kristian Norheim does not share the other Commission members’ views expressed in the preceeding 6 paragraphs.

7.7 Norwegian energy policy and development

7.7.1 Energy production in Norway

Oil and gas production accounts for 20 per cent of GDP and 50 per cent of export revenues, and is therefore Norway’s most important source of income. Norway is a major player in the global markets for fossil fuels, which are the domineering markets for energy globally. Only 0.07 per cent of the world population lives in Norway, but Norway accounts for 3.5 per cent of the world’s oil production and 3.1 per cent of the world’s gas production. This means that Norway is one of the world’s top ten exporters of oil and gas.

The oil production in 2007 was 2.6 million barrels per day and is expected to gradually decline in the coming years. Gas sales on the other hand are experiencing strong growth, which means that the petroleum production is expected to increase in the years ahead. From making up more than 35 per cent of the Norwegian petroleum production in 2007, the gas production will probably increase to more than 50 per cent in 2017.

According to Eurostat and the UN Norway is one of the world’s top ten hydropower producers and the largest in the EU/EEA area. More than half of the energy consumption in Norway is based on hydropower. The large production of petroleum products in Norway, however, means that hydropower’s share of the total energy production is less than 5 per cent. Production of renewable energy from sun or wind has so far been limited. In recent years, Norway has become a major producer of silicon and solar panels, which contributes to energy production in a number of European countries that subsidise solar energy (particularly Germany). The oil and gas production on the Norwegian shelf has increased considerably and accounts for 95 per cent of energy extraction (see figure 7.7).

Source Energy statistics, Statistics Norway, Norwegian Petroleum Directorate and NVE.

The energy policy’s effect on poverty reduction cannot be considered in isolation from the climate changes. The Norwegian oil and gas production does not only contribute to energy security, but also to the weakened poverty reduction in developing countries through climate change related disasters.

The current known oil, gas and coal reserves amount to around 150 times today’s annual global emissions of greenhouse gases. The climate goals are not likely to be achieved without the consumption of fossil fuel being reduced, which means that a great deal of oil and gas must remain in the ground.

Norway’s known oil and gas reserves correspond to approximately 250 annual Norwegian emissions at the current level.

The authorities have a large degree of control over the Norwegian oil and gas production through regulating access to the petroleum resources, as a co-owner in a number of fields and as a majority shareholder in the largest operator company on the Norwegian shelf, StatoilHydro. In the 1970s, the Storting agreed on a moderate rate of extraction of the oil resources with a ceiling of 90 million tonnes of oil equivalents in the year. This ceiling was broken in 1989. Since 1989, the rate of oil extraction has increased considerably and been disengaged from political goals for reduced CO₂ emissions. The increase is partly due to the oil companies steadily being allocated new areas, as well as managing to extract increasing amounts of oil from existing fields. Today, the political control is primarily in the allocation of new fields and not least regarding the opening of new areas for exploration activity 11.

7.7.2 Oil price development and significance for the developing countries

Import of oil is a major expenditure for many developing countries. The oil price has shown major fluctuations in the past 30 years, and multiplied from below USD 20 a barrel at the end of the 1990s to more than USD 140 a barrel for a period in 2008 before falling again.

The price increase led to Norway’s export revenues from oil increasing by 26 per cent in 2005 despite the export volume falling by 4.5 per cent in relation to the previous year. This price increase has negative consequences for many oil-importing countries, and the poorest and the most heavily-indebted countries are the hardest hit. In 2005, G8 agreed to write off the debt for 20 of the poor countries in Africa. The IEA has calculated that the extra costs that the said poor countries have incurred due to high oil prices are eight times higher than the debt that was cancelled 12.

Source US Energy Information Administration.

A study conducted by the African Development Bank shows that 28 countries in Africa now use more than 10 per cent of their total import expenditure on oil 13. The increase in both food and oil prices has created major challenges for the efforts to reduce poverty, improve food security and create macroeconomic stability. The consequences for the individual countries’ economic situation have until recently been limited, but are now being noticed more and more clearly. According to the IMF 14, a prolonged period at the current or a higher price level will put a strain on many countries’ balance of payments. Budget balances are under pressure and inflation is increasing, which affects the poor.

7.7.3 Norwegian players and «Oil for Development»

StatoilHydro is the largest oil company in Norway with a growing foreign involvement. Half of the company’s investments in 2006 were made abroad. StatoilHydro contributes to the oil production in low and middle-income countries with low standards of living and high levels of corruption, such as Nigeria (no. 158 on the UNDP’s Human Development Index, HDI, and no. 142 on Transparency Internationals corruption index, CPI), Algeria (HDI no. 104, CPI no. 84) and Azerbaijan (HDI no. 99, CPI no. 130). The company has recently withdrawn from Iran, after 9 years of activity.

It is, however, difficult to estimate the overall development effect of the total Norwegian political and commercial activity in the oil and gas sector, but the economic potential linked to developing oil and gas is of course extensive. For example, StatoilHydro’s activity in Angola generates up to NOK 3.2 billion in tax revenues for the country. By comparison, Norwegian aid to Angola is approximately NOK 150 million a year.

Much of the development effect of foreign investments within petroleum depends on national supplier industries being developed and tax revenues being generated that are redistributed through public expenditures to, for instance, health and education services. Many developing countries have considerable petroleum resources, which gives the potential for major revenues to the Government. However, experience shows that these countries often do not spend the oil revenues on reducing poverty or improving living conditions for the population, not least because the Government’s revenues are not depending on a high level of knowledge and a good distribution policy.

To what extent Norwegian players’ foreign involvement can contribute to political changes that increase the development effect of the companies’ economic activity in the countries is therefore of significance.

In September 2005, the Norwegian Government launched Oil for Development (OfD), which is a further development of assistance within the Norwegian petroleum sector that has already been in existence for almost 30 years. The focus here has been extended from technical assistance within resource management to also include environmental and financial management, with good governance integrated as a main theme throughout the entire initiative. Through Oil for Development, a considerable escalation has taken place in the financial support for bilateral aid within the petroleum sector.

The OfD focus consists of:

• A strengthening of the Norwegian bilateral aid to countries that demand Norwegian expertise and Norwegian experiences from the petroleum sector

• A stronger profiling of good governance and management of petroleum resources in our global work in this area.

Oil for Development has a broad base and puts great emphasis on transparency in petroleum management.

As part of the initiative, the Norwegian involvement in relevant international fora such as the World Bank, IMF, relevant UN bodies and the Extractive Industries Transparency Initiative (EITI) will be strengthened. A website is also being planned where the tax revenues from the Norwegian continental shelf and details of Norwegian companies’ payments to other host countries will be given. This initiative will help Norway to lead the way through a best practice with regard to transparency in petroleum management.

The purpose of the OfD initiative is to help petroleum-producing developing countries get out of a situation in which the countries do not manage to translate the oil and gas resources and the revenues from the petroleum activity into improved living conditions for the population.

The OfD activities are demand-driven. The countries themselves must want to learn from Norwegian experiences. It must be possible to ensure that all interested developing countries with significant petroleum resources are made aware of Norwegian experiences through exchange visits, seminars and adapted courses. Such an offer is short-term, has a limited economic scope and will not be bound to a more long-term and extensive cooperation.

Norway will also be able to offer a more long-term and extensive cooperation in a small selection of countries in order to strengthen their capacity to manage the resources and revenues. The cooperation with these countries will be much more extensive and binding, and will therefore be subject to a more stringent selection process.

An independent evaluation of Norway’s aid within the petroleum sector shows that this form of aid in particular has helped improve legislation and regulations in the petroleum sector in the recipient countries that are relatively young oil nations. The petroleum-oriented aid has not had an explicit goal to reduce poverty, despite this being a main goal for Norwegian aid policy in general. However, neither does the evaluation say that Norwegian aid in this field has not helped reduce poverty. The recommendations from the evaluation are that this form of aid should have a broad approach in order to be successful. This entails the environment, financial management and good governance being key elements of the focus.

The evaluation has not considered whether the Oil for Development has suppressed the focus on environmentally-friendly energy sources. A study on this should therefore be undertaken in order to see whether Norway should have used its resources more beneficially.

Within the hydropower sector, SN Power has established itself as a significant Norwegian player in a number of countries. The company was jointly founded by Norfund and Statkraft in order to increase Norwegian expertise and technology transfers for profitable hydropower projects in developing countries. Statkraft’s main focus outside Europe is the company SN Power. SN Power runs large-scale hydropower plants in Peru, Chile, Philippines, Sri Lanka, Nepal and India. Three new plants in Chile and India are under construction. The purpose is commercial profits and contributions to sustainable development in the respective countries. With regard to two of the projects, SN Power has been granted CO₂ quotas corresponding to emissions of 0.5 million tonnes of CO₂ per annum, which the company can sell. One of these projects, Allain Duhangan in India, is controversial locally and has been criticised by non-governmental organisations for lacking additionality, i.e. that it would have been realised also without carbon credits 15. Statkraft also owns the company Nordic Hydropower AB, which in turn owns 20 per cent of Theun-Hinboun power station in Laos. The power station has been criticised for having a negative impact on the environment and the local community 16.

The share capital for SN Power is in excess of NOK 4 billion, half of which is from Norfund, i.e. from Norway’s aid budget. This is the largest aid-financed capital injection in a Norwegian company ever. Nevertheless, SN Power has no requirements with regards to investments in the poorest countries. SN Power has activities in two low-income countries (Nepal and India), and only in one of the LDCs (Nepal). There are plans for activities in Mozambique, another LDC. SN Power ended an engagement in Uganda in 2007.

Norwegian energy aid to Mozambique and Nepal was evaluated in 2007, but the activities of SN Power were not covered by the evaluation. The evaluation concluded that the cooperation with Nepal has been successful while the experiences from Mozambique are more mixed, particularly with regard to the economic sustainability of the projects. One objection to the energy aid in general was that the projects often neglect key objectives of the development policy, such as poverty reduction, gender equality, good governance and the environment. The focus on hydropower and oil is aimed at economic growth, and to a limited extent directly at the energy needs of the poor. The energy aid has only to a limited extent been aimed at energy sources such as wind, sun and biomass, despite that this may also contribute towards reduced poverty and climate problems.

However, it can be claimed that when the activity contributes to economic growth, it also puts the recipient countries in a better position to adapt a poverty-reducing distribution policy, if they really wish to do so. The ongoing electricity crisis in South Africa illustrates this point. The lack of traditional electricity does not only affect industry and affluent townspeople, it also affects the urban poor and as many as 50,000 people are in danger of losing their job as a result of the lack of electricity. The result will be reduced economic growth and poorer conditions for many poor people. Better access to electricity will also reduce the price of electricity for the poor and improve the potential to create more jobs.

7.7.4 Norway and the international collaboration within oil and energy

As an energy nation, Norway can influence the development internationally of the energy sector, through active participation in and support for international political initiatives.

Norway is a member of the International Energy Agency (IEA). The IEA was founded during the oil crisis in 1973 – 74 as a counterweight to OPEC, and aims to provide energy policy advice to the 27 member countries, including the USA. The IEA has gradually developed into a central collaboration forum on global energy challenges. Secure supplies is still an important collaboration area, but the climate changes have led to increased focus on clean energy.

One of the initiatives with focus on renewable energy is the Johannesburg Renewable Energy Coalition (JREC), which is a collaboration that follows up obligations made during the World Summit for Sustainable Development (WSSD) in 2002. JREC has a mandate to work with policy development for the increased production of renewable energy. The coalition is headed by the EU Commission and Morocco and Norway are members. Another network that was established in Johannesburg in 2002 is the REEEP initiative – the Renewable Energy and Energy Efficiency Partnership, registered as an international NGO financed by national authorities. Norway is a major contributor.

The EU Commission has in many ways taken the lead in the development of renewable energy globally. It has established a global market-driven fund, the Global Energy Efficiency and Renewable Energy Fund (GEEREF), which will make it possible for donors and private investors to finance small and medium-sized renewable energy projects and energy-efficiency projects in ODA-approved developing countries. The initiative was launched by the EU Commission during a meeting for the Climate Convention in Nairobi in November 2006. GEEREF is regarded as an important contribution to fulfilling the obligations from the summit in Johannesburg in 2002.

The EU Commission also plays a key role in REN21, which links authorities with international institutions, NGOs and industrial organisations from the energy, development and environmental sectors. The purpose is to facilitate an active dialogue on policy development in order to ensure a rapid global dissemination of renewable energy.

7.7.5 Biofuel

Biofuel also has a large potential to reduce greenhouse gas emissions. In order for bioenergy to have a positive effect on the climate, its production method is vital. To what degree biofuel actually contributes to a net reduction in emissions of greenhouse gases depends on a number of factors throughout the entire value chain. Through all parts of the chain – from the choice of cultivation area, raw material type and cultivation technique, via transport and refinement process to end use, the use of energy and emissions of greenhouse gases must be quantified. Net greenhouse gas gains will vary substantially between the different value chains. When, for example, palm plantations suppress the rain forest in order to produce oil for biofuel, the climate goals are undermined. Increased demand for biofuel has been one of the causes of the dramatic increases in global food prices seen in recent years, particularly in 2006 and 2007 (ref. chapter 4 on trade).

Increased consumption of biofuel in poor countries could limit the negative consequences of decreased terms of trade as a result of increased oil prices. However, in order for biofuel production to be compatible with long-term development and poverty reduction, values need to be re-allocated to the local community. All industries linked to the utilisation of resources have examples where multinational companies buy up tracts of land from the local population without ploughing values back into local development and where disgraceful working conditions are reported.

In order for the production of biofuel to be sustainable and contribute to poverty reduction, certification and labelling schemes must be developed. Extensive efforts are now underway to develop environmental and social standards for the production of biofuel and to establish international certification schemes. Together with industry and other civil society organisations, the WWF has developed voluntary standards for the sustainable production of palm oil, soya and sugar canes and is working on more general guidelines for biofuel. Among Governments, the EU and a few member countries (the UK and Netherlands) are spearheading the international development of obligatory standards. Various UN organisations are actively working on creating a common global standard. At the same time, more focus must also be given to developing second generation biofuel that does not use up valuable farming areas and contribute to an artificially high level of food prices.

Considerations of the Commission

Although Norway, on its own, contributes to increased energy security through the export of energy, it is vital to the global climate development that the world’s nations reduce the energy consumption globally and turn the consumption towards sources with no emissions. The Commission believes it is a paradox that Norway as an energy nation makes such a small contribution to international policy development and research and development within topics that relate to global energy security. Norway must therefore step up its efforts to develop an international energy policy and become a more important contributor in international arenas that work with global energy challenges.

Oil for Development is a key instrument for Norwegian aid in the petroleum field and is broadly aimed at strengthening the administration of the petroleum sector in developing countries. Norwegian companies’ commercial interests in countries that Oil for Development regards as partner countries are, however, increasing. This may conflict with the intentions of Oil for Development. It is therefore important that the authorities make a clear distinction between the goals it wants to achieve through the petroleum-oriented aid, and the commercial activities of the companies.

A strong civil society is vital for community participation and the democratic distribution of resources. In Norway, the foundation in democratic institutions and the interaction between authorities, industry and civil society has been important in the development and management of the oil industry. The trade union movement and environmental organisations have played a very important role. 

Support to organisations that work to protect and promote the environment, local communities and workers’ rights is therefore of great importance and must form part of the Norwegian oil and development effort.

As part of the Norwegian aid effort, Norwegian players have contributed to the energy area in developing countries primarily through hydropower expansion and aid to the oil and gas sector in resource-rich developing countries. Norway has to a lesser degree focused on the fact that the poorest, particularly in Africa, have absolutely no access to electricity. The poor are, to a large extent, dependent on traditional energy sources, which are both a health hasard and inefficient. The Commission believes Norwegian energy aid must be reviewed with a view to strengthening the poverty-orientation and the sustainability.

SN Power’s involvement in the hydropower sector in some developing countries can contribute to a win-win situation with both reduced greenhouse gas emissions, economic growth and reduced poverty, but can also lead to major conflicts in relation to the local population and nature. The considerations related to returns and development effects can, however, prove to be difficult and controversial. It cannot be assumed that all profitable projects take the necessary considerations to development. The Commission believes major requirements should be set for development effects with regard to investments funded by aid.

Commission member Kristian Norheim does not share the views of the Commission expressed in the 6 previous paragraphs.

Projects that are partly financed by commercial players, such as Statkraft, and partly by aid, as in the case of SN Power, mean that it is even more important that the goals of the activity are clear and well communicated both internationally and in Norway.

Effective energy utilisation is vital to economic development in poor countries, but the expansion of national energy systems is not necessarily aimed at ensuring the energy needs of the poorest population. The energy solutions will often be very different in towns and urban areas and in the rural areas where the majority of the poor live. The poorest need access to energy in order to meet their basic needs such as cooking, lighting, water pumping and the refrigeration of medicines at local health facilities. Major improvements in quality of life can be achieved through simple technology based on renewable energy.

Norway helps to increase the global energy security through its considerable export of energy. This is positive for developing countries that are net importers of energy and which are served by the lowest oil price possible. Through relevant international fora, Norway can help to facilitate collaborations that enable more stable and predictable energy markets and to developing countries to a lesser extent being affected by energy price shocks. The IEA is the most natural collaboration partner here. Norway can also to a greater extent help to develop a strategic collaboration between Governments, aid partners, industry and international financial institutions on long-term and sustainable energy planning in poor countries. The effect of the energy policy on poverty reduction cannot, however, be considered in isolation from the climate changes. Our energy production and export do not only contribute to energy security, but also to an increase in global climate emissions. Commission member Kristian Norheim does not share the views of the Commission expressed in the last two sentences.

The majority of the Commission would like to note that the current known oil, gas and coal reserves correspond to around 150 yearly global emissions of greenhouse gases (at the current level). The climate situation is so serious that some of the petroleum resources must remain in the ground. The climate goals are unlikely to be achieved without the consumption of fossil fuels being reduced, which means that a lot of oil and gas must remain in the ground. Norway’s known oil and gas reserves correspond to approximately 250 yearly emissions in Norway at the current level. It will reduce the greenhouse gas emissions somewhat if Norway waits until better cleaning technology is available to open new fields, and particularly if Norway can involve other oil-producing countries in this. Dramatic reductions in Norway’s greenhouse gas emissions can also help trigger greater global reductions, as this would show that a rich country is willing to take the lead and make emission reductions. A signal effect is also given if Norway refrains from opening new areas of exploration.

A minority in the Commission, consisting of Julie Christiansen, Gunstein Instefjord, Kristin Røymo, Malin Stensønes, Camilla Stang, Håvard Aagensen and Kristian Norheim, believe that it is doubtful that reducing the rate of the oil extraction on the Norwegian shelf will lead to significant reductions in CO₂ emissions globally because other producing countries will increase their production correspondingly. Higher CO₂ emissions from these alternative sources can then worsen the situation through higher emissions per unit.

The Commission with the exception of Kristian Norheim believes it is important that technology is developed and implemented to capture and store carbon emissions for the oil and gas production that will take place. To this end, it is crucial that the emission price is high enough for this to pay off.

The Commission with the exception of Kristian Norheim would like to point out that both the developing countries and Norway’s future energy needs to an increasing extent must be covered by more effective energy use and a greater share of renewable energy. Norwegian energy policy has not been sufficiently adapted to this. Large energy volumes can be made available through more effective energy application by the end users. Although these are often profitable measures, the users frequently lack the necessary knowledge and motivation to implement such measures. Although the energy consumption can be made more efficient by a factor of four or more, and although energy efficiency is one of the initiatives that has least impact on the environment for obtaining the necessary energy services, it generally receives less attention and financing than the production of new energy.

The government-owned energy foundation Enova gives up to four times higher grants for the production of renewable electricity than what is allocated to helping increase access to energy through efficiency measures. Production of renewable electricity from the sun or wind has not been attractive in Norway due to poor framework conditions. Countries such as Sweden and England give high subsidies and facilitate the development of new technology and expansion of the market, which in the long term will reduce wind power costs. The German Government’s subsidies for solar power have made the Norwegian solar cell venture REC possible.

The petroleum revenues have given Norway a financial latitude that can be used for the adaptation of new energy technology (separate details below), and an international position that can be used to affect other countries. These opportunities are not sufficiently exploited.

It is the opinion of the Commission that biofuel will be a necessary part of an overall strategy to prevent the rapid escalation in climate changes. For many developing countries, biofuel also represents a unique opportunity to be less dependent on petroleum imports, and is also an energy solution with extremely good possibilities for local production and resource exploitation. At the same time, it is being reported that rain forest areas are being cleared and burned, and wetlands are being drained to provide room for plantations to grow raw material for biofuels, which releases large amounts of stored carbon to the atmosphere. The Commission also believes it is important that Norway in this regard works actively to secure an international certification system in order to guarantee that bioenergy products meet environmental standards. Biofuels have a large potential both economically and environmentally, but the development in the area must be sustainable and must not impair global or local food security.

Commission member Kristian Norheim believes that to improve economic conditions in developing countries and contribute to a more peaceful world, Norway must contribute to securing access to stable and affordable energy. According to the IEA energy use will increase by 55 per cent by 2030. Fossile fuel sources will comprise around 85 per cent of this growth. In this scenario it is difficult to see how reductions in CO₂ emissions can be achieved simultaneously. According to the reference path calculated by the IEA China and India alone will be responsible for 45 per cent of the increase in energy demand. 80 pere cent of all new energy production in China is based on coal. This entails increased living standards for millions of people and it cannot therefore be seen as a question of whether it is a right development path or not, but the question is rather how to handle it. Norway as an energy nation should contribute to good international solutions. Cleaning up «dirty» coal and gas energy plants is a contribution to reducing negative environmental effects, but at the same time it is a very energy intensive solution as it contributes to a reduction in the world’s total energy resources at a time when they are needed for the future. Unfortunately areas such as nuclear power and geo-engineering are regarded as taboo in the contemporary energy debate. Geo-engeneering could be a useful mechanism in a transition phase – if 2 per cent of the sunlight could be deflected, the warming effect of a doubling of the CO₂ concentration could probably be neutralized. IEA has for the first time recommended increased use of nuclear power plants. The main reason for this is the fear of climate change as a result of CO₂ emissions. Many countries now regard uranium based nuclear power in a new light. Long term storage of the waste is still a challenge however. Research must therefore be undertaken to develop long term, environmentally friendly and cost effective alternatives. Norway’s thorium reserves make it possible to explore further what potential this resource entails.

7.8 Environmental and energy research

As commissioned by its member countries, the IEA has described a development path for how the global energy systems must be transformed in order to achieve the most ambitious goals of the UN’s Climate Change Panel (450 stabilisation cases):

• Energy efficiency in the use of fossil fuels accounts for 25 per cent of reduced emissions

• Lower demand for electricity due to energy efficiency in buildings: 13 %

• Changeover to second generation biofuel in the transport sector: 4 %

• Increased use of renewable energy sources: 19 %

• Increased use of nuclear power: 16 %

• CO₂ capture and storage (CCS) in power production and industry: 21 %

The development path assumes a rapid development and phasing in of advanced technology, including technologies that are not currently commercially sustainable, particularly CCS and second generation biofuel. CCS has a major potential for cleaning CO₂ from the point of emission (industry, power stations etc.), which accounts for a total of 60 per cent of the total emissions. Without CCS, it would be completely impossible to reach the world’s emission goals without a total re-adjustment of the world’s energy consumption.

Norway is a net technology importer, but is a leading player within the fields of energy and the environment. The driving force behind this success has partly been the expansion of hydropower, subsequently the oil sector and in later years also solar energy, in a close collaboration between the public and private sectors. With regard to the EU’s 6th framework programme, Norwegian research environments took part in a total of 30 per cent of the projects within the areas of the environment, climate and energy. Norway is also one of three countries that have initiated major CCS projects. Norway possesses unique expertise in CCS and according to an external assessment the Norwegian focus on technology development is of major importance for reducing the costs of such technology 17.

The Low Emission Commission concluded that an increased focus on skills building and the research and development of climate-friendly technologies are fundamental to achieving effective reductions in emissions 18. Among other things, they note that Norway has good specialist environments in these areas and natural conditions that give comparative advantages in order to develop this particular type of technology. Such technology development can, in the Low Emission Commission’s opinion, be a contribution from Norway to the global technology effort that is needed to remedy the climate change problem and as an investment in business development for the future. A large and long-term focus on technology development can also have spin-offs in the form of more expertise and business development in Norway.

As long as agreements on climate emissions are not binding, public sector support for technology development in the intersectoral field of energy/climate will be particularly important. The uncertainty that the lack of obligations entails with regard to a future market for technology to reduce emissions acts as a brake on private investors’ willingness to invest in new technology. A forward-looking focus on climate-related research and development can therefore be appropriate 19.

Energy and environmental research was one of four priority areas in the White Paper: «Commitment to Research» 20. The left-centre coalition Government’s vision is for Norway to be a world leader within the development of environmentally-friendly energy, and the strategy «Energi21» is aimed at facilitating an increased focus on research and development. The climate agreement in the Storting also entails an increased focus on research and development within the intersectional field of energy/climate. The Government announced an increase for 2008 of NOK 70 million for research on renewable energy and the treatment of CO₂. The plan is to increase this to a minimum of NOK 600 million per annum from 2010.

Before this increase, Norway’s focus on research and renewable energy was very low. It corresponded to approximately 20 – 25 per cent of what was invested in the other Scandinavian countries. For the time being, the notified increase to the year’s budget will not change this ratio to any noticeable degree. The annual analyses of the national budget carried out by NifuStep 21, showed that the allocations to research in the intersectoral field of energy/climate stagnated, with the exception of the period 2004 – 2006 when the focus was on petroleum research. NifuStep characterises it as particularly notable that there was no growth in the allocations to research for renewable energy and climate research, given that this has been a high political priority. It is especially the research and development allocations from the Ministry of Petroleum and Energy that are central to this prioritising. Figure 7.10 shows the development in this allocation.

Source NifuStep

Despite Norway’s advanced position with regard to petroleum technology, the oil and gas industry is not very research intensive. In 2005, the industry spent less than NOK 2 billion on research and development, which is less than half a per cent of the industry’s added value (gross product) of almost NOK 450 billion. By comparison, 1.5 per cent of Norway’s total added value (GDP) was spent on R&D in the same year. The technology development within the industry has mainly been aimed at getting more oil and gas out of the fields that are open. StatoilHydro carries out some research into climate-friendly technology, such as CO₂ capture and storage, but very little on developing renewable energy. It is therefore reasonable to claim that the authorities have not used their position as majority shareholder and the opportunities this gives for stimulating StatoilHydro to develop climate-friendly energy technology.

Developing new technology is in itself insufficient to reduce poverty in a sustainable manner. Existing and new technology must be used to reduce emissions and increase the access to energy in poor countries in general, and for poor groups in particular. The introduction of energy technology in developing countries will partly be safeguarded by the market, but as pointed out in chapter 8 on the knowledge policy, economic resources also need to be supplied from outside. Many of the technology initiatives for emission reductions will be expensive in relation to people’s purchasing-power in many developing countries. Experiences from the health sector, among others, also show that use of patents can be a barrier to poor groups and countries gaining access to new technology.

The current international climate agreement (the Kyoto Protocol), which does not bind developing countries to reduce their CO₂ emissions, gives them few incentives to invest in emission-friendly energy technology. Poor countries will also be less willing to pay than rich countries with regard to initiatives whose effects are felt well into the future, such as CO₂-reducing initiatives, because poor people to a greater extent than the rich see the need to prioritise consumption today at the expense of consumption in the future. Stern (2006 p. 491) implies that it will cost USD 20 – 30 billion a year to introduce low-carbon technology in developing countries. Bruvoll et al (2007) indicates that Norway can be a frontrunner nation by setting aside money for this in a fund 22. A number of large developing countries such as China and India struggle with local pollution problems. Initiatives that reduce local pollution as well as greenhouse gas emissions are possible.

The introduction of energy technology in developing countries also requires adequate infrastructural and technological conditions, as well as social and administrative expertise in the recipient countries. There is a large variation between developing countries regarding their development of an industrial structure, expanding a knowledge base in the form of the education and research/innovation sector and administrative institutions and governance. The poorest countries are weak in these fields. Norway takes part in a number of collaborations and provides aid within higher education and research in order to help build the knowledge base in the partner countries, but this is currently not a high priority.

7.9 Norwegian focus on environmental technology

The climate change problems cannot be solved without new technology. The Norwegian authorities have frequently proclaimed research on the climate/energy to be a priority area, without following up with sufficient resources. The authorities have failed to use Government ownership in the oil industry as an instrument to stimulate development of climate-friendly energy technology. It is reasonable to assume that technology development within the climate/energy sector is one of the areas where the unused synergies between Norwegian policy and poverty reduction are greatest.

There is a danger that steadily more stringent patent protection can undermine technology transfers to developing countries. This is covered in the chapter on the knowledge policy. Any barriers to transferring climate-friendly energy technology to developing countries will be at odds with Norway’s self-interest. The EU Parliament agreed on a number of measures in 2007 to ensure the transfer of such technology to developing countries 23.

Considerations of the Commission

Norway has good research and technology environments in the area of energy and the climate in the university and university college sector, in research institutions and in the business sector. So far, no large-scale focus on knowledge and technology development has emerged, despite broad political support. Denmark and Sweden used 5 – 6 times as many resources as Norway on research into renewable energy.

The Policy Coherence Commission believes that Norway’s strong position within the energy sector can and should be used to counteract global warming, and that in the long term this will be economically profitable for Norway. The Commission believes this requires a considerable increase in the Norwegian focus on energy-related research and development.

7.10 Proposal on initiatives for the climate and energy policy

7.10.1 Climate policy that protects the right to development

1. The Commission with the exception of Kristian Norheim believes that Norway must work towards a climate agreement that covers all countries, which limits the global warming to a maximum of 2 °C, and which helps to level out inequalities in welfare and income. This entails poor countries being given latitude to increase their emissions and rich countries financing emission reductions in developing countries. Emission obligations and the financing of climate initiatives must be based on countries’ historical responsibility and economic ability, and must protect the right to development for poor countries.

   • Norway should aim for agreements and solutions that ensure the execution and financing of emission reductions, technology development and adaptations in developing countries.

2. With the exception of Kristian Norheim, the Commission recommends that, until a climate agreement that sets a ceiling on the emissions in all countries is in place, Norway earmarks 1.5 – 3 per cent of its annual GNI, which is approximately NOK 30 – 60 billion per annum, for initiatives to reduce the greenhouse gas emissions both nationally and internationally. At the same time, Norway must work towards convincing the 10 – 20 other richest countries to earmark a corresponding share of their GDP for climate initiatives.

   • By 2050, Norway should become a low emission society with emissions that are at least 90 per cent lower than the current emissions. This will give us emissions per capita that are on a par with what the world average would be if we are to achieve the goal of limiting the global temperature increase to 2 °C.

3. Until a new climate regime is in place, Norway should concentrate the CDM quota purchase around initiatives that benefit the poorest and which contribute to development for the poorest. Norway should support initiatives for technology transfer to developing countries with large emissions in order to reduce growth in the greenhouse gas emissions. Relevant initiatives are the cleaning of coal power plants in countries such as China and India.

7.10.2 Energy policy and development

1. With the exception of Julie Christiansen, Camilla Stang, Gunstein Instefjord, Malin Stensønes, Kristian Norheim and Håvard Aagesen, the Commission recommends that Norway takes the initiative, out of consideration for the climate, for an agreement on freezing all extraction of new oil and gas deposits in the areas outside national jurisdiction, i.e. outside continental shelves and national economic zones. It is particularly recommended that Norway initiates negotiations linked to a moratorium for projecting oil and gas in the Arctic areas.

2. With the exception of Kristian Norheim the Commission recommends that Norway should take the initiative in the International Energy Agency to explore how energy prices and energy security are affected by the as yet undiscovered petroleum resources remaining in the ground.

3. The Policy Coherence Commission recommends that considerations to the climate and the energy needs of the poor are given a higher priority in the energy aid (including aid through Norfund/SN Power). More focus should also be given to the development of small-scale diversified energy systems based on effective energy utilisation of renewable energy.

   • Norwegian aid authorities should strengthen their energy expertise beyond hydropower and actively seek partnerships with private players with expertise in the development of small-scale local energy systems based on effective utilisation of local renewable energy sources.

4. The Policy Coherence Commission with the exception of Camilla Stang and Kristian Norheim recommends that Norway introduces a sales injunction on biofuel of 2 per cent initially, as an element in a comprehensive strategy that also includes a reduction of absolute transport needs and increased energy efficiency in the transport sector and parallel introduction of mechanisms that ensure sustainable production of biofuel with positive net greenhouse gas gains. Such mechanisms must include certification of environmental sustainabilty, carbon accounts in the value chain and social sustainability standards.

5. With the exception of Håvard Aagesen, Malin Stensønes, Julie Christiansen, Kristian Norheim, Kristin Røymo, Camilla Stang and Gunstein Instefjord, the Commission believes that Norway should introduce a 5-year moratorium for allocating new exploration blocks on the Norwegian shelf. By then we will know the content of a new agreement and our new obligations.

6. With the exception of Kristian Norheim, the Commission thinks that Norway should work towards an international order on the treatment of CO₂ for all new fossil power stations from 2020. Norway and other OECD countries should spearhead and introduce such an order from 2015.

7. The world’s poorest are the hardest hit also by unstable energy markets and high oil prices. The Commission therefore recommends that Norway as an energy nation participates actively in the work on international energy security and the development of more stable energy markets. An important priority of such a new effort would be to contribute to predictable and transparent energy markets and to set ambitious international goals for energy efficiency and transition to clean and renewable energy.

7.10.3 Environment and energy research

1. The Policy Coherence Commission recommends a considerable increase in the Norwegian focus on research within the climate, energy efficiency, renewable energy and environmental technology. The Norwegian focus on research into the climate, energy efficiency, renewable energy and environmental technology should be increased to a level at least on a par with the public and private sector efforts in petroleum research.

   • Public financing must be strengthened, and incentives should be developed to increase the energy industry’s efforts in development of climate-friendly energy technology.

2. Commission members Lars Haltbrekken, Camilla Øvald, Audun Lysbakken, Hildegunn Gjengedal, Linn Herning, Kristin Røymo, Åsne Seierstad and Anne K. Grimsrud recommend that StatoilHydro extends its business strategy to become a leader within research, technology development and the production of renewable energy, so that the company is well equipped to meet future energy needs, both in Norway and the rest of the world.

3. Commission member Kristian Norheim believes that the Norwegian authorities should work actively for and support initiatives for technology development within clean and affordable energy, including hydropower, wind power, solar energy, bioenergy and thorium-based nuclear power. In addition, the Norwegian authorities should work actively for and support research within geoengineering – various initiatives to neutralise the warming effect of greenhouse gas emissions.