Ladies and gentlemen,
It is an honour and privilege for me to address this seminar that has gathered so many distinguished people from around the world.

When discussing energy pricing and taxation, my starting point is that energy taxation is an efficient and useful economic instrument for governments to achieve certain policy goals.

Taxes, including taxes on energy, are also the sovereign responsibility of each individual nation.

Most governments – both industrialised and developing countries, energy exporting as well as importing countries – have taxes on energy consumption, although the level of taxes differs a lot.

Governments have sought to justify energy taxes by linking them to specific policy goals, such as:

• to raise government revenues
• to increase energy efficiency
• to improve energy security
• to improve trade balances
• reducing pollution and protecting the environment
• to change income distribution in a country

When discussing pricing of energy and taxes, we should bear in mind that taxes are only one of several instruments by which government intervenes in the energy market place.

Looking back on the last 30 years in the oil market, interventions and actions by governments have played a very important role. Producers mainly via production restraints; consumer countries mainly via strategic oil inventories, in addition to taxes.

These measures have in common that they directly or indirectly, by regulating demand and supply, effect end use energy prices and producer prices.

The level and structure of energy taxes differ among industrialised OECD countries and Non-OECD countries.

As we all know, taxes in OECD countries are much higher on oil than on other energy sources.

Taxes on oil have increased steadily during the last 20 years and are now at a level of about 25 USD/barrel.

Taxes are especially high in Europe and particularly on diesel and gasoline. About 60 % of a composite barrel of oil are made up of taxes in OECD Europe.

Income from oil taxation in European OECD countries is about 250 billion USD annually. This is a considerable amount of money, and could make it difficult for governments to reduce taxes significantly, as expenses then have to be cut.

These figures point to that OPEC and oil producers should not be blamed for high oil product prices, although that is often what happens. When the media, politicians and others debate oil prices, we should be careful to distinguish between product prices and crude oil prices.

In recent years, or rather last year, there has been some scaling back on oil taxes in Europe, on the background of consumer protests. This could perhaps signify that oil taxes now have reached a pain threshold in some countries.

Taxes on natural gas have increased steadily during the last decade, but are still much lower than for oil.

Taxes on coal, the most polluting of fossil energy sources, are negligible. Generally there is no strong link between taxes and the carbon content of the fuel in OECD countries.

In Non-OECD countries energy prices is generally lower than in OECD countries, due to subsidies rather than lower taxes. Subsidies on coal and oil products are fairly widespread.

For oil exporters it is worth noticing that oil product prices are very low in many developing countries.

Norway is the 8 ^th> largest producer of oil and the 9 ^th> largest producer of natural gas in the world. Clearly, increasing levels of oil and gas taxation are not in our interest as producer. Taxes raise end user prices, thereby reducing demand for oil and gas. That in turn will lower the price producers get.

But Norway has also signed the Kyoto agreement and we strongly support initiatives that can restrict growth in emissions of CO ₂ and other "greenhouse gases".

There is a conflict of interest here. For politicians this represents a constant challenge to make sure we balance the different goals and areas of interest.

However, Norway accepts taxes on oil and other fossil fuel for these environmental reasons. A general reduction in the tax level will increase emission of CO ₂.Consumption of oil stands for about 40 % of global emission of CO ₂. I think it is difficult to justify a substantial lowering of taxes on oil, on this background.

In addition, many have advocated that high taxes on gasoline and other transport fuels are economically justified because of externalities associated with transport.

But the real problem with taxes is not the level of oil taxes itself, but rather the structure of energy taxes. The carbon content of coal is higher than for oil and much higher than for natural gas. Measured against the impact on the environment, the tax advantage of coal compared to oil and gas is very large indeed. Thus, the existing tax structure stimulates consumption of coal and by that a wasteful use of the world’s energy resources.

This is not a sound policy, neither on environmental or economic grounds.

I believe taxes should reflect the environmental cost associated with use of energy. This will not necessarily mean lower oil taxes, but it will certainly mean much higher taxes on coal.

Environmentally based taxes will stimulate fuel substitution and make investment in energy efficiency more profitable.

More efficient use of energy promotes both economic growth and a clean environment; this is a win-win measure.

The same is the case for fuel substitution. Studies made by OECD and OPEC have shown that there is a potential for win-win reforms through optimising energy tax structures. By lowering taxes on oil and increasing them on coal, there could be environmental and economic benefits, without increasing the total tax burden on consumers.

When oil taxes are debated, the focus is often on the distribution of the economic rent from oil resources, that is how taxes effect producers' export revenues and consumers' import expenses for oil.

High oil taxes means that part of the oil rent is transferred from oil producer to consumer nations, via a reduction in the producer price that comes about when taxes restrict demand. We don't know by how much, but it is not insignificant.

Understandably, there is much resentment among producers because of this. But I’m afraid there is little producers can do about it. Gasoline is a good tax object, because of the inelasticity of demand in the short term. Efficiency loss is small and revenues from the tax are not much undermined by reduced consumption. Relatively high taxes on oil are probably here to stay.

The distributional effect of this is in my view to be regretted.

Because, with a few exceptions, oil exporting countries cannot be considered to be rich countries.

Thus, when oil taxes increase, the rich OECD countries gain at the expense of relatively poorer countries.

Some argue that developing countries suffer when crude oil prices rise, and that the dampening effect of OECD taxes on demand is a good thing. I myself have many times been asked how Norway can support relatively high oil prices, when this might have negative consequences for poor countries.

Developing countries are more vulnerable to high oil prices than rich OECD countries. On average, oil importing developing countries use more than twice as much oil to produce one unit of output compared to OECD countries.

The poorest countries, those without own oil resources and limited foreign exchange reserves, are most vulnerable.

However, we must be aware of that the economic impact of oil prices differs from one developing country to another. Therefore, one cannot treat developing countries as one homogenous group in this respect.

Many developing countries have some own oil production. In Africa for instance, there are about a dozen of oil producing countries.

There is clearly a need to assist poor countries, to improve their general standards of living. In my mind oil market policies are not the best way to assist these countries. Richer countries should, however, give support in several ways, first of all by developing and participating in good aid programmes.

To sum up:
Taxes on energy can be an effective instrument for government to achieve environmental and other policy goals.

Although oil taxes are negative for export revenues, it is not realistic to believe that they will be substantially reduced for the foreseeable future.

Oil producers should be prepared to accept taxes on oil if all fossil fuels are taxed in a fair and equitable manner.

Thank you for listening.