Climate Policies in a Petroleum Exporting Country – The Case of Norway

OECD Side-Event at UNFCCC COP13, Bali
12 December 2007

Kristin Halvorsen
Norwegian Minister of Finance

Thank you for the opportunity to participate in the OECD side event and to make a few introductory remarks. My purpose here today is to argue that ambitious climate goals are important, also from the perspective of a petroleum producing country.

In Norway we recognise that it is in our own best interest to fight climate change even if our income from petroleum exports could be hit. Long run sustainability cannot be traded against short run profits.

• Even more than we rely on petroleum exports, do we rely on the prosperity of countries all over the world. Their wellbeing will channel into our economy through trade and other positive effects of globalization,
• Norway has accumulated foreign assets corresponding to about 100 per cent of our GDP. Our investments have a long term perspective. Fighting climate change also means protecting these investments.

So, in our minds, for Norway to encourage and contribute to a forceful global response to climate change makes sense. It is not a contradiction, but a precondition for our country’s development.

OECD is among the most respected international organizations, and its statements are highly recognized. OECD has started a new project, of which Norway is a cosponsor. This very important project will seek to quantify the global costs of mitigation policies to outline the most effective ways to meet the challenge of global warming.

Norway has signaled ambitious climate policies. The Norwegian government believes that our long-term goal should be to avoid temperature increase above 2 degrees Celsius. It will be no easy target, but we have already reached a stage where significant impacts on our planet cannot be avoided.

Norway wants an international agreement:

• that includes as many countries as possible,
• that is ambitious and fair,
• and that reduces emissions in cost effective ways.
  We have committed to over-fulfill our obligations under the Kyoto protocol. And we aim for carbon neutrality by 2050.

We will contribute to develop new and climate friendly technologies, such as technology for capturing and storing carbon (CCS).

All scientific knowledge points to the benefits of early action against climate change. Norway attaches great importance to efforts aimed at reducing emissions from deforestation and Norway is prepared to increase its support for preventing deforestation in developing countries.

We will do this because it is the right thing to do, but also because it is economically sound.

The petroleum industry is Norway's largest industry. Norway is the world’s 3rd largest exporter of both oil and natural gas. Petroleum exports is therefore a significant source of income, but it will not last. So we cannot allow ourselves to spend this fortune during one or two generations.

Rather, the cash flow from petroleum activities goes into a pension fund. Our fiscal rule allows us to spend only the real return on the fund. The fund’s capital, however, should not be touched.

The fund is exclusively invested abroad, spread over many countries and many companies. We have ethical guidelines for the fund which ensures that we are not invested in companies that e.g. create serious environmental damage.

To secure a diversified economy and support a stable development, the use of petroleum income is disconnected from the revenue stream. As you can see from the diagram, the net cash flow is expected to decrease rapidly. The return on the fund, however, should last.

At the moment we spend petroleum revenue over the government budget corresponding to some 4.5 percent of GDP. This spending gives us the possibility of increased welfare for this and future generations, provided we behave as economically and thrifty as before, and don’t waste the good fortune.

The return on the fund, that may be spent, gives only a modest supplement to the nation’s income, however. For the most part, Norwegians have to live from other sources of income.  In fact, the major part of both production and employment is in the non-oil, private sector.

Currently, the Norwegian economy is running close to full capacity. For four consecutive years, growth in mainland GDP – which excludes petroleum and shipping – has been above 4 per cent.

We recognise that it is in our own best interest to fight climate change. The alternative is no alternative at all.  To care for our common resource, the atmosphere is not a contradiction, but a precondition for sustained economic and social development.

Norway is advocating strong climate policies because it is the right thing to do, and because it makes sense economically.
By waiting,

• mitigation becomes more expensive,
• the damages get worse.

There is an urgent need for strong international action to mitigate climate change.

• It is a huge task.
• It is a daunting task.
• And it will cost.

It is therefore crucial that we solve these problems together and in cost effective ways. Here we can benefit from future OECD analysis and findings.

Mitigation, including its costs and consequences for the economy, needs to color all political decisions. The Ministries of Finance therefore have a job to do, and we need to cooperate.

This is why I have come to Bali.