Distinguished guests, ladies and gentlemen,
It is a great pleasure for me to be here in Oxford with you. The Oxford Energy Seminar is highly regarded and it is therefore an honour for me to be a speaker at the seminar.

Norway has a rich supply of primary energy sources: crude oil, natural gas, hydropower and wind. These resources have been, and will continue to be, an important basis for the country's economic growth. Norway is among the fifteen countries in the world with the highest energy production, all energy sources included. The United Kingdom is the only West European country with a higher production. The figure is even more positive when the size of our population is taken into consideration: Norway produces roughly 47 ton oil equivalent per capita.

Hydropower accounts for 99 per cent of the electricity generated in Norway. In most years our electricity consumption is close to our electricity production. Even though we will see hydropower projects in Norway in the future, it is clear that an increase in electricity consumption must be met by other sources of energy. Wind energy can be one answer. Another answer is giving more attention to energy saving.

During the last thirty years, Norway has become a major producer and exporter of oil and gas. Today, Norway is the sixth largest producer of oil in the world, the third largest exporter of oil, and an important exporter of natural gas to European markets.

The Norwegian Continental Shelf still contains large petroleum resources. Based on these resources, Norway has the potential for at least another 50 years of oil production and more than 100 years of gas production. It is unlikely that Norwegian oil production will increase much from the level we see today. In a few years there will be an inevitable decline. But we, the Government as well as the industry, must not forget that the volumes that may be produced some years ahead are still considerable and deserve our utmost attention. There are no constraints on the resource that tells us that Norway will not be able to be a sizeable producer in, say, 2020, even though the numbers look smaller compared to what we produce today. Gas is a very different story. It is possible to increase Norwegian gas production substantially over the years. How much will depend on developments in the European gas market.

For a relatively small country like Norway with 4,5 million inhabitants, it is evident that the petroleum sector has significant impact on the Norwegian economy. The petroleum sector is the most important sector in the Norwegian economy. However we have a diversified economy. The petroleum sectors share of our gross domestic product has on average been around 15 per cent over the two last decades.

The revenue from the petroleum sector gives the Norwegian Government flexibility in its fiscal policy. But be aware that only a small part of the revenue is actually spent.

The net cash flow from the petroleum activities is allocated to the Norwegian Petroleum Fund. The purpose of the Petroleum Fund is to safeguard long-term considerations in the use of petroleum revenues. It is currently discussed whether the use of the fund should be directly linked to pension obligations and thus reduce the flexibility of using means from the fund in the budget. There is currently a debate in Norway where political parties have different positions in this regard. Some parties favour full flexibility with regard to use of the petroleum fund in the economy. Others favour a stronger wall that inhibits the politicians' freedom. So far we have spent only a limited amount of the petroleum revenues in our economy so to keep control of inflation and pressure on wages. With the increasing size of the petroleum fund this challenge will increase in complexity.

This illustrates a more general issue that faces most, if not all, oil exporting countries. We benefit from the revenue stream generated from the petroleum activities while we at the same time are faced with new challenges to the economy due to these revenues. Both the fiscal and the monetary policies will from time to time come under pressure. Inflation and pressure on other exporting industries are familiar problems for many oil exporting countries. We have seen symptoms in Norway too. Investments made in the petroleum sector divert investments from other sectors while inflation makes it difficult to export other goods. A situation where other industries struggle, and maybe disappear, and more of the work force is employed in the public sector can then arise. The country finds itself more dependent on the petroleum revenues than ever. A general challenge which has no general remedy.

But let it be clear: even if these challenges exist, and will continue to exist, it is evident that Norway has benefited greatly from the revenue stream from the petroleum sector.

An increasing challenge facing the industry and governments nationally and globally is the environmental issues. I will therefore spend some time on these issues. In this context I will concentrate on challenges related to climate change policies.

Norway has held a high profile in the intentional climate debate. Taking into account the importance the petroleum production has for our country this may look surprising. Our concern for the environmental challenges is sincere and I am sure that it will be in our interest to see international commitments fulfilled. To focus only on the possible negative effect such commitments will have for Norwegian petroleum revenues, is in my mind too shortsighted. However, energy is a vital part of the lives of all human beings and must not be viewed as something undesirable. Norway will therefore continue to supply energy while we at the same time argue for solutions to the climate challenge. I realise that it would be more difficult to pursue both paths had our economy not been healthy and diversified.

Global climate change is without doubt one of the most challenging environmental problems the world is facing today. It is also one of the major threats to sustainability. In a global perspective, we will have to deal with both the high levels of consumption of energy in the developed world, as well as the insufficient energy supply in parts of the developing world.

We have to realise that increased use of fossil fuels poses immense challenges. For instance, coal, oil, and natural gas all contribute heavily to CO2 emissions, thus contributing to increase the level of greenhouse gases and other environmental problems. A major challenge is to focus on energy use and energy efficiency in developing as well as in industrialised countries.

As a developed country and a significant and long term producer and exporter of oil and gas, Norway definitely has an important responsibility when it comes to the issue of global climate change. We have a responsibility both in reducing our own contributions to the greenhouse effect, and in being a driving force in the international negotiations to address the challenge of climate change.

Norway will implement a significant part of its international commitment through domestic action. We are actively seeking to reduce our emissions through a broad set of policies and measures. We believe a broad system for domestic emissions trading, linked to the Kyoto mechanisms, is the best tool available to ensure compliance with the Kyoto Protocol. The Government is planning to introduce a national system already in 2005.

Norway has had an extensive CO ₂ tax in place for a decade. The Government outlines a series of climate-related measures in the period up to 2008. These will include continuing to levy the CO ₂ tax at the current level and introducing a quota-based domestic emissions trading system for enterprises that are not currently subject to the CO ₂ tax.

The main reason for introducing a quota-based emission trading system at this early date is to stimulate further cost-effective action in Norway. It will ensure that we really achieve cuts in emissions and give industries and the authorities useful experience in emissions trading. The Government intends to issue quotas free of charge in the period 2005-2007, a process known as grandfathering, but at the same time ensures that an overall reduction in emissions is achieved. Businesses will thus have incentives to reduce their emissions, but the total costs will not be unreasonably high.

In addition to the CO ₂ tax and the quota-based emissions-trading system, the Government proposes a series of steps to cut Norway’s emissions. The result will be that climate policy instruments will regulate almost all sectors. This will help to meet the requirement to make "demonstrable progress" by 2005, as set out in the Kyoto Protocol.

From 2008, the plan is to link the emissions trading system to the Kyoto Protocol and expand it to include all sectors where this is possible in practice. The system will cover about 80 per cent of the emissions, and become the main policy instrument for fulfilling Norway’s Kyoto commitments for the period 2008-2012.

As a general rule, the emissions quotas should be sold, but in order to avoid carbon leakage, it may be necessary to provide quotas free of charge for some industries for a limited period of time.

The policy line Norway has taken differs from how many other petroleum producing countries have approached the climate change issues. Norway tries to combine its interest as a petroleum producing country with ambitions to be an active participant in reducing greenhouse gas emissions. This is of course not a simple position. Fossils fuels emissions contribute to global warming. We can not continue to increase emissions as we have done in the past. However, the world will for many years depend on fossil fuels as a major energy source. Norway aims therefore to make the fossil fuels more environmentally benign and at the same time develop renewable sources of energy. The Government is currently working with a concept of gas fired power stations, where the CO2 has to be disposed of offshore either as aquifer or used as a means to increase oil production. The technology to extract CO2 from the exhaust emissions is not fully developed commercially. It is complicated and costly to inject CO2 into reservoirs on the continental shelf, but we are seriously looking into this to make our contribution in mitigating the climate problem.

The alarming signals from the IPCC, the international panel of scientists, signals the need to reach an effective global climate regime, where all countries should have an active role. The Convention on Climate Change and the Kyoto Protocol are important early steps. However, I am concerned that the Kyoto Protocol has not yet been ratified by the sufficient number of industrialised countries required for the entering into force of the Protocol. Norway ratified the Kyoto Protocol this spring and I am pleased to see that a number of other important industrialised countries have ratified. However, I would like to emphasise the importance of even more industrialised countries acting responsible so that we can see prompt entry into force of the Protocol.

Concluding remarks
As I have already mentioned, the petroleum industry is Norway's largest industry in terms of value creation and it has every opportunity to continue to be so for many decades to come. We are faced with some important challenges, but I am confident that working together with the industry we will be able to meet the challenges that lies ahead.

Thank you very much for your attention.