Sustainable Development and the role of the Ministry of Finance

I appreciate the invitation from the Nordic Investment Bank to open this conference about investments in a time of crisis. NIB finances projects that strengthen competitiveness and enhance the environment. As deputy minister of finance, both issues are close to my heart.

In Norway, The Ministry of Finance is responsible for coordinating the Government’s work on Sustainable Development.  Green investments - investments in energy efficiency, renewable energy and the development of new technology for capture and storage of CO2  - are crucial for a sustainable development.

To follow up our ambitious goals on sustainable development we have integrated sustainability into the most important political and economic steering documents - the annual national budgets. All ministries report to the Ministry of Finance about their efforts.

Global population growth combined with increased production per capita in all countries will reinforce the pressure on scarce resources and further increase the challenges of climate change. This development also increases the need for large investments in energy technology. We need to start using energy smarter! This is why my Government has more than doubled the support for energy saving and renewable energy through the state financed Enova program. The Enova program was established to promote the transition to sustainable use and production of energy in Norway. It provides support for private companies, municipalities and individual citizens who want to make an investment – small or large – in sustainable energy solutions. One of the latest results of the Enova program was announced a few days ago: 90 million NOK in support for a silicon plant in mid-Norway, will trigger more than half a billion NOK of energy investments. The re-used electricity from this large project alone will amount to the annual consumption of about 9000 Norwegian households.

Enova also provides substantial support for environmentally friendly heating and energy saving systems in households. This year, the number of households that have received a grant for energy investments has passed 10 000. More than 300 local authorities have applied to Enova for support to develop a local climate- and energy plan. 

To secure stable finances, the Enova program is financed partly by a small fee on electricity and partly by the revenues from a large fund created by my government. As from 2010, the program will distribute more than 1,5 billion NOK annually.

Norway’s sovereign wealth fund plans to commit about 3,5 billion USD dollar over a period of five years to companies it deems environmentally sound and engaged in sustainable growth in emerging markets. This amount represents almost 1 percent of the present fund. It will be debated in the Parliament when the budget is approved this autumn. 
 
Norway is a large producer of oil and gas, and has been a significant net exporter of energy since the 1970s. Investments on our Continental Shelf are at record levels during the recession. Despite oil prices have been halved compared to one year ago, we have to remember that they still are several times the prices just a few years ago. We know that production and use of petroleum leads to greenhouse gas emissions. We also know that – even with an ambitious international climate agreement - oil, gas and coal will remain an important part of the World’s energy mix for many decades to come.

This is why the Norwegian Government has increased its investments in technology for Carbon capture and storage (CCS). In 2009 we invest almost 3 billion NOK in developing this technology. The United Nations has stated that CCS technology will be an important part of the solution to global warming. Norway is now in the process of actually building a technology centre for capturing CO2 at the Mongstad power plant. Full scale capture is planned from 2014.

Let me add that environment considerations have always been an integral part of the Norwegian petroleum activities. Norway introduced an offshore CO2-tax in 1991. This tax has led to development of technology and triggered initiatives that led to considerable emission reductions. Emission per produced unit of Norwegian petroleum is about one half of the world average.

Still, what I see as the most important factor for green energy investments in the future is that we set the price of carbon right. We need a broad and ambitious international climate agreement that makes all polluters in the world pay for emissions of greenhouse gasses. The price must correspond to the damage caused to the climate. In order to prevent global temperature from increasing by more than 2 degrees, this global price on carbon must be significantly higher than the current price in the EU Emission Trading System. A high price on carbon will be above all the most important way to trigger sufficient investments in alternatives to fossil fuels and new technology such as carbon capture and storage.

The majority of loans from NIB to projects in Norway are related to energy and environment. A few days ago, The Orkla group company, Elkem Solar, opened a factory based on new technology for the production of solar-grade silicon in Kristiansand, Norway. The factory is partly financed by a loan from NIB. This shows that the Bank can be an important provider of financing for sustainable development.

International financial crisis and Norway
No country integrated in the global economy has been left unaffected by the financial crisis and the global economic downturn. The crisis has its origin from an insufficient regulation of the financial sector.

Norway has also been affected by the crisis, but I believe it is fair to say that the impact on our economy has been less severe than in many other countries. Norway’s GDP (Mainland-Norway) fell in the fourth quarter of 2008 and the first quarter of 2009, by some 1 per cent each quarter. In the second quarter of 2009, the Norwegian Mainland economy experienced growth again, although slow. Unemployment currently stands at 3 per cent, and has in fact been rather stable during the last six months or so. I believe sound regulations. Relative solid banks and a different industrial-sector from that of many other countries, are important explanations to why Norway is not so hard hit by the crisis.

Implemented measures
In addition a wide range of measures have been introduced by the Norwegian authorities in order to dampen the effects from the global downturn and stimulate growth. I would like to elaborate on a few of these measures.

The Government presented in October a swap arrangement whereby banks can exchange covered bonds for government securities in amounts up to a total of 350 billion NOK. The purpose of this swap arrangement was to secure banks’ long-term funding. The government securities can be used as security for loans from other banks or from Norges Bank, or be sold. 203 billion NOK has been exchanged under this arrangement thus far.

Norges Bank has reduced its interest rate on banks´ deposits which is its key policy rate by a total of 4.50 percentage points since October last year, to currently 1.25 per cent. Since some 90 per cent of Norwegian mortgages have floating interest rates, changes in central bank policy rates have a large and immediate impact on household demand.

The Government has undertaken very strong fiscal measures to meet the challenges stemming from the international crisis, and the focus has in particular been on public infrastructure and construction work. The use of petroleum revenues in 2009, as measured by the structural, non-oil budget deficit, is estimated at 130 billion NOK. This is equivalent to a demand impulse of 3 per cent of GDP for Mainland Norway. The stimulus is historical strong and strong also when compared to measures introduced in other countries.

In February, the Government presented two measures to ease credit access for companies and households. First, The State Finance Fund was established with a capital of 50 billion NOK. The aim is to offer core capital to strengthen individual banks and improve their ability to uphold lending activity. So far, only four banks have applied for   supply of core capital from the Fund, but we expect more banks to follow. Together with the State Finance Fund, the Government established a State Bond Fund of 50 billion NOK. The fund’s objective is to contribute to improved market liquidity by investing in a diversified manner at fair market prices in fixed income instruments issued by companies domiciled in Norway. This will also make it easier for industrial companies to get funding in the bond market.

General outlook
At present, there seem to be several bright spots in the global economy. The situation in money and credit markets has improved, risk premiums have fallen and long-term interest rates have increased in many countries. Furthermore, growth was positive – or at least fell at a markedly slower rate - in the second quarter in a number of economies. Confidence indicators among households and businesses have generally moved up.

These positive tendencies are, however, highly uncertain, and new data may change the picture. There is also considerable uncertainty regarding how fast growth will pick up, and to what extent the crisis has affected the general growth potential. We must also keep in mind that two important factors contributing to the crisis,  namely current account-imbalances and inefficient regulation of the capital markets, remain unsolved.

Summing up
I would nonetheless like to round up by stating that I am a conditional optimist as to the developments ahead.  Any way, I strongly believe that the financial crisis should not stop us from investing in clean and safe energy for the future. While we already see some signs that the world economy may have started to recover from the financial crisis, we know that the global climate crisis will be with us for a long time after the current financial crisis has ended. The world responded to the financial crisis quickly and resolutely. The efforts to respond to the climate challenge have to be much stronger.

In the battle ahead, you and the Nordic Investment Bank are a small but important part of the solution.