Environment, climate and energy political challenges from a Norwegian perspective

Dear friends,

It is a telling sign of changing times when a State Secretary of Foreign Affairs seizes the opportunity to address future leaders of this great country on the twin topics of energy security and climate change.

Purists of foreign policy might say that neither topic belongs in the foreign policy sphere. But as always, the purists are wrong. Energy and climate change go to the core of both national interests and common global interests. So we foreign policy makers need to engage.

British Prime Minister Tony Blair has raised the following question: “Which is the issue that has rocketed up the agenda of most political leaders in a way barely foreseen even three years ago?”

Mr. Blair answered his own question: “Energy policy.” He then proceeded to talk about how China and India need energy to grow and how the damage caused by carbon emissions is now accepted.

I agree with Prime Minister Blair. Moving beyond the Kyoto Protocol, we need a framework – internationally agreed – through which the developing nations can grow, the wealthy countries maintain their standard of living and the environment be protected from disaster. It all amounts to future security for every state and every individual on the planet. It really is everybody’s business.

And consequently, it needs to be the business of the United States. I trust that leaders in Washington will, once again, rise to the occasion and help build that international framework. For the world to deal effectively with energy security and climate change, the United States simply has to be part of the solution - politically and economically as well as technologically.

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What then – at the outset – is Norway’s perspective on energy security and climate security? What characterizes us as a state? 

To put it briefly, our personality as a state is determined both by our role as a major energy supplier, and by our ambition to be a leader in safeguarding the environment – not least through the development of low-carbon and green technologies.

We must and will live up to our international obligations under the Kyoto Protocol. Moreover, the Government has agreed to a 30 per cent cut in greenhouse gas emissions by 2020.

I believe Norway could really make a difference in the field of technological innovation. Here we possess unique opportunities and we intend to take full advantage of them.

Today, Norway is the world’s third largest oil exporter, and the third largest gas exporter. We have an annual oil production of three million barrels per day and an annual gas production of 85 billion cubic meters. Early in the next decade, our gas exports will have risen by 50 percent to 130 billion cubic meters. This means that exports from Norway will account for nearly a third of natural gas consumption in France, Germany and the United Kingdom.

To put these figures into perspective – everything is bigger over here – the US demand for oil is 22 million barrels per day, of which 64 percent is imported, whereas the US demand for natural gas is 626 billion cubic meters. No one consumes as much as you. In fact you consume seven times as much oil and five times as much gas as we produce.

For over 30 years, oil from the Norwegian continental shelf has found its way to US markets. Now the time has come for natural gas. This fall, shipments of liquefied natural gas - LNG - from the Snøhvit field in the Barents Sea will sail to the Cove Point terminal in Maryland – creating yet another strategic bond between the United States and Norway across the Atlantic.

The Norwegian petroleum industry – which was born at the time of the first UN conference on the environment in Stockholm in 1972 – has been well schooled in sustainable development.

Norway was the first nation to introduce a CO2 tax on petroleum production in the early 1990ies. Not surprisingly, industry objected to the CO2 tax. But times have changed. Environmental related regulations and taxation has spurred technological innovation and made our industry more – not less – competitive in world markets. Today, the Norwegian continental shelf is the most energy-efficient producing region in the world. CO2 emissions from Norwegian production amount to less than one third of the global average per unit produced.

But, you may ask, isn’t there a dilemma here? How can we increase our energy production, which involves greenhouse gas emissions and at the same time contribute to global climate security?

Here is our approach. On the one hand, we seek to produce more of the fossil fuels that the world needs – and no matter how successful the breakthroughs may be in alternative energies, the world will continue to rely on fossil fuels for decades to come. In the traditional sense, energy security is about making supplies available, reliable and affordable.

On the other hand, we seek to be among the most advanced and committed countries when it comes to reducing the environmental impacts of energy production and use. Here we need to be ambitious. Our vision is to move towards “decarbonization” through CO2 capture and storage that enables continued use of fossil fuels without damage to the atmosphere.

Speaking in Oslo earlier this year, EU Trade Commissioner Peter Mandelsohn described the Norwegian approach to energy and climate as follows: “It sounds like a paradox, but is in fact profound foresight.” 

I accept that Norway is facing a dilemma with regard to energy and climate change. However, our dilemma is also the world’s dilemma, and it is probably best dealt with through a combination of political, economic and technological measures within a framework of international cooperation.

Moreover, the foresight of which Mr. Mandelsohn speaks is based on a few key assumptions about the future of fossil fuels, the nature of energy relations, the role of technology, and the benefits of strong and early action against climate change.

Let me address each of these assumptions in turn.

Assumption # 1: The world will have to produce more fossil fuels before it can make do with less.

According to the International Energy Agency’s World Energy Outlook 2006, fossil fuels will remain the dominant source of energy up to 2030. In the Reference Scenario, oil, natural gas and coal will account for 81 percent of overall energy demand in 2030, as compared to 80 percent in 2004. During this period, global energy demand is projected to increase by just over half.

The share of oil will drop, but oil will still be the largest single fuel in the global energy mix in 2030. Coal will remain the second largest primary fuel, with its share of global demand increasing slightly. The share of natural gas will also rise, although less than projected earlier due to higher prices. Hydropower’s share of primary energy use will also rise slightly, while that of nuclear power will fall. The share of biomass will fall marginally, as developing countries increasingly switch to using modern commercial energy. Non-hydro renewables – including wind, solar and geothermal energy – will grow quickest, but from a small base.

These are estimates. We can, of course, modify or alter this picture of 2030 through collective political action. It is, after all, just one scenario and it is governments that hold the responsibility of setting the course towards an alternative future. While the International Energy Agency (IEA) reference case always serves to insert a dose of realism into the debate about our energy future, it should by no means be an excuse for defeatism in the fight for both energy security and climate security.

Nevertheless, against the background of the latest World Energy Outlook, it is illusory to talk about quick fixes to kick the fossil fuel habit or shake the petroleum addiction. The world neither can nor should turn its back on fossil fuels. 

Turning off the fossil fuel tap or leaving recoverable resources in the ground is not an option for an energy hungry world. At least not in the short to medium term. If anything, the search for additional petroleum reserves appears to be intensifying.

High energy prices, coupled with high and increasing import dependence on the part of the world’s leading consumer nations, are causing concern about the availability and reliability of energy supplies.

Energy security has reemerged as a major issue of international politics. The worldwide search for greater diversity of supply extends to the petroleum resources of the Norwegian continental shelf. The Norwegian energy chapter started in the North Sea, moved north into the Norwegian Sea, and is now venturing into the High North, beyond the Arctic Circle into the Barents Sea.

The optimism regarding the resource potential of northern waters is based on estimates by the US Geological Survey (USGS) indicating that the Arctic holds a quarter of the world’s undiscovered hydrocarbons, as well as the fact that considerable reserves of oil and gas have already been found in the Barents, Pechora and Kara Seas, such as the Snøhvit field on the Norwegian side and the huge Shtokman gas field 500 kilometers north of Russia.

The destination of these resources, once they are produced, will be of strategic importance. The likelihood that the United States will be one of the key markets will further strengthen the strategic links across the Atlantic.

My key message under Assumption # 1 is as follows. Fossil fuels will remain dominant in the energy mix for the foreseeable future. The importance of Arctic waters as a petroleum producing area is likely to increase. And Norway will continue to play a significant role in global energy markets.

Assumption # 2: Managing energy dependence means facing the reality of energy interdependence.

A power shift has occurred in international politics as a result of high energy prices and increasing concern about the availability and reliability of oil and gas supplies. Over the last few years, energy exporting countries have clearly strengthened their bargaining position in relation to energy importing countries.

Control of much of the world’s energy resources is concentrated in the hands of a small number of exporters, many of which operate in volatile and insecure political environments. I understand the uncertainty and concern that this causes in many capitals, from Washington to Brussels, Beijing and New Delhi.

However, the relationship between producer and consumer is often one of interdependence. Energy security is a two-way street. Where the consumer is looking for security of supply, and the producer is seeking security of delivery. The interests of both parties must be taken into account for a stable energy relationship to emerge. Such a relationship exists between Norway and the European Union. It is based on commercial contracts in interlocking producer and consumer markets.

Norway has always resisted the temptation to turn energy into more of a political or strategic commodity than it already is. We believe that this has served our interests well, solidifying our reputation in global energy markets as a predictable and reliable supplier of oil and gas. Besides, the reality of interdependence tends to work against producer countries that politicize energy pricing or “play the energy card.”

This reality can be seen in Russia’s relations with Europe. I do not want to diminish the significance of Russia’s disputes with Ukraine last year and with Belarus this year, but is it really an accurate assessment to say that Russia is using energy to exert pressure on Europe?

True, some countries are highly dependent on Russian energy, but Europe as a whole depends on Russian gas for about 30-35 percent of its supplies. Russia, for its part, is dependent on Europe for 80 percent of its export market and has no easy opportunity to shift this gas to any of its other potential buyers, such as the Asians.

As far as I can tell, it makes absolutely no political sense for Russia to cut off gas to Europe and discredit itself in the international energy markets. This would also send a very negative message to China and India, two of the potentially lucrative energy markets that Russia covets.

It is both possible and desirable for major consumer countries to lessen their dependence on petroleum through various supply and demand side measures. But energy imports will remain an unavoidable reality over the next few decades. I believe it is time to debunk the myth of energy independence, which often features prominently in US debates on energy security.

“The central task for the next two decades must be to manage the consequences of dependence on oil, not to pretend the United States can eliminate it.” This is wise advice from the US Council on Foreign Relations, which recently sponsored an Independent Task Force on the national security consequences of US oil dependency.

In its report, issued in October 2006, the bi-partisan task force points out that the United States will depend on imported oil for a significant part of its fuel needs for at least several decades. It also claims that the voices that espouse energy independence are doing the nation a disservice.

Focusing on a goal that is unachievable in the foreseeable future will encourage the adoption of inefficient and counterproductive policies. And, let me add, interdependence between sellers and buyers also provides us with a real opportunity to address key challenges such as energy efficiency and energy security and to establish initiatives to create a value chain of climate friendly measures.

The reality of energy interdependence is reflected in the producer-consumer dialogues under the auspices of both the International Energy Agency (IEA) and the International Energy Forum (IEF). These dialogues serve to promote global energy security by encouraging the efficient and transparent operation of oil and gas markets and the build-up of strategic reserves. Let us continue to build on them.

Then, it must be added, there is growing concern about the nature of the political regimes in emerging energy exporting countries. Transparency is crucial, and should be pushed for at every opportunity. Greater transparency will make it easier to detect corruption, encourage better spending of revenues, and generally lead to better governance and greater political stability. 

The United Kingdom launched an initiative a few years ago called the Extractive Industries Transparency Initiative (EITI). Since then a number of countries with leading extractive industries have joined the initiative, and standards of transparency and accountability have been developed. Norway has actively supported this process, both as part of our energy policy, but also as part of our foreign and development policy. Last fall – at a well attended conference in Oslo – the initiative was further anchored and an international secretariat was established in Oslo.

Yes, we need to further explore the benefits of interdependence. Producing and consuming countries have a common interest in reducing the vulnerability of energy infrastructure, whether to natural disasters or terrorist attacks. Hurricanes Katrina and Rita here in the United States are cases in point. But who remembers the major attack attempted last year on the Saudi oil processing facility at Abqaiq, where two-thirds of Saudi production is processed before export?  

This is what I want you to take away from the discussion under Assumption # 2. Serious supply disruptions are most likely to be caused by accidents, natural disasters or spill-over from social turmoil and political instability – and not from an oil and gas producing country deliberately using energy to exert political pressure on one of its customers. The reality of energy interdependence works against “playing the energy card.”

Assumption # 3: Rapid technological progress is vital to achieving sustainable development.

I admit to being a “techno-optimist”. I feel confident that human ingenuity will enable us to develop the technologies necessary to meet the twin challenges of energy security and climate security. I believe we can make this happen by using a wise and ambitious mix of political incentives and market mechanisms.

But I also acknowledge that we cannot entirely leave the job to technology. The Brundtland report – Our Common Future – published in 1987 made it clear that we in the rich part of the world need to change the way we produce and consume. And we cannot simply say to the developing world, “Sorry, we filled up the waste baskets – there is no more room left for you.” They have a right to develop. And we have the obligation to assist them by sharing technology and making new advances.

Al Gore’s inconvenient truth has been reaffirmed by the latest reports of the UN International Panel on Climate Change, as well as the UK’s Stern Report on the Economics of Climate Change. Both reports make sobering reading. As a result, public awareness of climate change is rising even faster than the global average temperature. That is encouraging because we will need the push of democratic forces to muster the political will to take decisive action.

Technology will ultimately be vital for reducing the dependence on oil and gas and the carbon content of hydrocarbons, as well as making a transition away from fossil fuels. But the benefits of improved technology in the future depend on investments being made today in research, development, and demonstration (RD&D).

If substantial enough, this RD&D effort could trigger a revolution in how we produce and use energy. However, it will not be sufficient to unleash the strong forces for innovation in the private sector. Governments must also support innovation efforts, especially for technologies that require extensive development to demonstrate commercial potential.

Market forces and incentives will be key. But democratically elected governments must set the course.

For Norway, as a major energy producer, the main sustainability and technology challenges can be summed up in the following two questions:

• How can we help to meet the continued demand for hydrocarbons from the Norwegian continental shelf with reduced emissions of carbon dioxide?
• How can we expand petroleum exploration and production in Arctic waters while maintaining the Barents Sea as one of the cleanest, richest and most productive marine areas in the world?

Companies operating on the Norwegian continental shelf have developed technologies that separate CO2 from the oil and gas produced and reinject it into the reservoir for underground storage. This method has attracted considerable international attention. The question is whether underground storage of CO2 could also be feasible and economical for power stations and other major industrial users of fossil fuels in Europe and beyond. Scientists estimate that there is storage room in the offshore reservoirs for much of Europe’s CO2 for decades to come.

Norway, meanwhile, has ambitious goals for achieving additional capture and storage of CO2. Our long-term goal is to establish a cost-effective value chain for transport and injection of carbon dioxide. This will reduce greenhouse gas emissions and increase oil recovery all at the same time. 

Last fall, Norway embarked on a major new research, development and demonstration project. Our aim is to build the world’s largest full-scale CO2 capture and storage facility in connection with a combined gas-fired heat and power plant at Mongstad on the west coast. The plant will be fully operational by 2014. 

This is a cooperative venture between the Norwegian Government and the oil and gas company Statoil. As Prime Minister Stoltenberg has stated, the Mongstad project is Norway’s Apollo project. Just as the vision of sending a man to the moon spurred major technological progress in the United States, so we hope that the vision of building a full-scale CO2 capture and storage facility will accelerate Norway’s transition onto a low-carbon development path.

But the vision goes further. We expect the Mongstad project to stimulate international technological cooperation, which is critical to coherent, urgent and broadly based action on climate change. Such cooperation enables the sharing of risks, rewards and technology and enables coordination of priorities between nations, both rich and poor.

Succeeding at Mongstad will be important for Norway. But it will also be really important for the rest of the world if the technology can be applied far beyond our country – including in emerging economies – allowing others to leap-frog towards cleaner and more efficient technologies.

We cannot isolate the climate issue. Nor can we isolate issues relating to natural resources. We need an integrated approach. In the vulnerable Arctic waters, Norway subscribes to the highest possible standards for health, safety, and the environment that will allow the future coexistence of fisheries, oil and gas operations and a healthy natural environment.

Last year we adopted an integrated management plan for the area. Its purpose is to preserve the ecosystems of northern waters within a framework that also allows for economic activities such as petroleum operations, fisheries and maritime transport. The plan provides for ecosystem-based management and both presupposes and requires extensive knowledge about the marine environment of the Barents Sea. It is therefore being followed up by large-scale scientific research programs.

To sum up assumption # 3, I would like to reaffirm what the European Commission says in its latest energy policy document. To achieve the twin objectives of energy security and climate security, we must transform our economies, catalyzing a new industrial revolution, accelerating the change to low carbon growth and dramatically increase the amount of local, low emission energy that we produce and use. The challenge, of course, is to do this in a way that maximizes the potential gains and limits potential costs.

Assumption # 4: The costs of inaction on climate change will fall first and heaviest on the weakest shoulders.

Climate change will affect the basic elements of life for people around the world – access to water, food production, health and the environment. Hundreds of millions of people could suffer water shortages, hunger and coastal flooding, and become climate refugees as the world warms.

The fact that the costs of global warming will fall heaviest on those who bear the least responsibility for the current state of affairs, makes climate change a central issue of justice and morality in world politics today.

I am reminded here of a popular bumper sticker among US evangelical Christians who favor action on climate change and oppose gas-guzzling SUVs. The bumper sticker reads: What Would Jesus Drive? Or simply WWJD?  The implication, of course, is that to preserve God’s creation, the Earth, you need to drive a fuel-efficient car.

The UK’s Stern Report on the Economics of Climate Change concludes that the benefits of strong and early action far outweigh the economic costs of not acting. The costs of action – reducing greenhouse gas emissions to avoid the worst impacts of climate change – can be limited to around 1 percent of global GDP each year. The costs of inaction, on the other hand, would be equivalent to losing at least 5 percent of global GDP each year, now and forever.

I agree with the Stern Report that tackling climate change is the pro-growth strategy for the longer term, and that it can be done in ways that do not cap the aspirations for growth of rich or poor countries. However, it will require the best of markets and, above all, the very best of politics.

As the Stern Report points out, three elements of policy are required for an effective global response to climate change:

• The first is the pricing of carbon, implemented through tax, trading or regulation.
• The second is policy to support innovation and the deployment of low-carbon technologies.
• The third is action to remove barriers to energy efficiency, and to inform, educate and persuade individuals about what they can do to respond to climate change.

The High North - which extends beyond the 70th parallel and covers land and sea in the Arctic from Greenland in the west to Novaya Zemlya in the east – provides early warning of climate change. The High North offers front-row seats for the study of the cumulative effects of greenhouse gases and environmental toxins.

Norway’s archipelago of Svalbard serves as a natural laboratory for research in these fields, and the international community is showing increased interest in utilizing the scientific infrastructure there. In 2004, Senators Clinton and McCain visited Svalbard to see for themselves some of the effects of climate change. And only a few months ago, Norway and India signed a cooperation agreement on research in the High North.

A few years ago, the Arctic Council, an international organization comprised of the eight circumpolar states, commissioned a climate impact assessment.

The Arctic Climate Impact Assessment (ACIA), published in November 2004, concluded that the Arctic is getting warmer and wetter; snow, ice and permafrost are melting; ocean levels are rising and seawater is becoming less saline and more acidic; and the ozone layer is thinning and ultraviolet (UV) radiation is increasing.

For all these reasons, climate change is happening twice as fast in the Arctic as elsewhere on the globe. This could have a number of consequences for commercial activities both in Norway and the United States – and here are a few:

• Climate change will alter the flora and fauna of the Arctic. This could make it more difficult to sustain traditional reindeer herding and the living conditions of indigenous peoples.
• Climate change will lead to longer and warmer growth seasons, and more precipitation. This could make agriculture in the Arctic more commercially viable.
• Climate change will impact the location, distribution and migration of fish stocks. This could have significant effects on commercial fisheries. Stocks may move from the coastal jurisdiction of one state to that of another. Other stocks may move outside the jurisdiction of any state, which could complicate sound fisheries management and lead to uncontrolled harvesting.
• A small increase in water temperature may be good for the aquaculture industry and increase growth rates for salmon. However, fish can only accept a modest increase before the temperature exceeds their tolerance level. Fish farms may therefore have to be moved to cooler waters.
• Less sea ice will increase maritime transport in the Arctic. As the sea ice continues to recede, the likelihood of profitable, year-round traffic along Russia’s northern sea route from Europe to Asia increases.
• Less sea ice will likely also open new areas of the Arctic to the development of petroleum and other natural resources.
• The receding ice also poses a threat to the polar bear. This great symbol of the Arctic faces starvation now that it has to swim over great distances in the open sea in order to catch food.

The Arctic Climate Impact Assessment is but one in a series of scientific clarion calls. The world needs to heed these calls, and Norway again implores its American friends to assume leadership in the global effort to halt climate change. Developments in the Arctic are important in themselves, of course, but also because they tell us what is happening or about to happen further south.

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I have made numerous references to Norway’s policy in the High North throughout my address. The key external drivers of this policy are, simply stated: energy, climate change and Russia. It is also the combination of these three factors that is drawing increased international attention to the High North.

For other countries – including, I believe, the United States – the significance of the High North is related to:

• geo-economics because of the reemergence of energy security concerns,
• “geo-green” issues because of the urgent need to address the climate crisis, and
• geo-politics because of Russia’s remarkable change of fortune, power and prestige over the last seven years.

Let me conclude, therefore, with a few words about Norwegian-Russian relations.

“We can only ensure sustainable use of resources and sound environmental management in the Barents Sea with Russia’s engagement and Norwegian-Russian cooperation.”

This direct quote from the Norwegian Government’s High North Strategy is both a statement of fact and a guide to action.

Norway and Russia share the Barents Sea and many of the sustainability challenges of the High North.  If we are to maintain the northern seas as some of the cleanest, richest and most productive marine areas in the world, our two countries must cooperate - on the harvesting of fish stocks, exploration, production and technological developments in the petroleum sector, and on the adoption of health, safety and environment standards in petroleum operations and maritime transport.

And let us not forget the people factor. In 1990, around 3000 people crossed our common border in the north. Last year the figure rose above 100 000. New ties are being created in a region that has been more severely frozen by the cold war than by the polar climate.

This is the basis upon which Norway seeks to engage with Russia. Our approach is one of pragmatic realism. We welcome the fact that Russia appears to be finding its place in European and regional cooperation. We also welcome Russian membership of multilateral institutions such as the WTO and the OECD.

However, it is still not clear how Russia will evolve in a number of key areas such as the rule of law, freedom of expression and human rights. Russia is far better off than 10 or 20 years ago. The changes that are taking place in Russia’s economy, society and politics do not affect the objectives of Norwegian policy, but developments will be followed closely and measures adapted accordingly. We will maintain a candid dialogue with Russia and be clear about Norway’s views on human and political rights, and the principle of the rule of law.

On the Russian side, President Putin has called for a strategic energy partnership between our two countries in the High North, and successive Norwegian governments have accepted the invitation.

The question is what it takes to realize this ambition and achieve a quantum leap in economic and industrial cooperation between Norway and Russia. It is really a question of testing Russia’s readiness to engage in real win-win partnerships.

Let’s review some of the key success criteria for the relations between Norway and Russia in the High North.

First, prospects for energy cooperation will, of course, be linked to resource potential. The more plentiful the resources and the bigger the discoveries, the greater the potential mutual attraction.

Second, the prospects for cooperation will also be determined by the investment climate. Foreign investors must have access to licenses and reserves on terms that are favorable enough to compensate for technological, financial and political risks.

Most industry observers would agree that there are still conducive conditions for investment in Russia today. There is no denying, however, that there is increased resource nationalism and state control, coupled with examples of what appears to be the selective application of existing laws. This has increased the overall risk associated with investing in the Russian energy industry.

Third, political agreement between Norway and Russia on a delimitation line in the Barents Sea would release considerable potential for cooperation in the petroleum sector. Today’s area of overlapping claims, which covers a total of 175 000 square kilometers, would then likely be opened for exploration and production.

Fourth, the combination of industrial complementarity and geographic proximity also constitutes potential for energy cooperation between Norway and Russia. Both sides stand to gain from cross-utilization and co-development of skilled labor, specialized offshore technologies, logistical networks and other infrastructure in the High North.

We are currently looking at the feasibility of establishing a Norwegian-Russian economic cooperation zone in the border area. The purpose of the zone would be to attract industrial activity in connection with expected future petroleum production in the Barents Sea.

Irrespective of what becomes of the cooperation zone, we need to apply a generation perspective to fully realize the potential for a strategic energy partnership in the High North.

Thus, I take a long-term view of Norwegian-Russian relations in the field of energy. I do not think that the future of this relationship is determined by a single decision about a particular field development or access to reserves on a particular oil and gas field in the Barents Sea.

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I thank you for listening to these reflections on energy, climate change and technological innovation and to our vision for better global management of future challenges.

It will require an unprecedented effort to set a common course – for governments, industries, research institutes and us all as citizens and consumers – to seize new opportunities and shoulder the burdens.

Doing that right will call on the very best of democracy. And for that – and all the other reasons – it will call on the best of America.