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Must both hit climate targets and ensure profitable NCS production

The goal of increasing the CO2 price must be to reach the climate targets while also ensuring profitable petroleum output from the Norwegian continental shelf (NCS), which safeguards value creation, jobs and the welfare state.
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Photograph: Mats Bakken
“It’s positive that the government emphasises the importance of the petroleum sector for Norwegian society, also in the future,” says Anniken Hauglie, director general of Norweagian Oil and Gas.

A new climate White Paper presented by the Norwegian government today includes a proposal to increase the CO2 tax on emissions also subject to the EU trading system (ETS). That will increase the overall carbon price (tax plus allowance price) to about NOK 2 000 per tonne measured in 2020 value terms by 2030, compared with roughly NOK 800 per tonne today.

 “This represents a substantial cost increase,” says Anniken Hauglie, director general of Norwegian Oil and Gas. “It will raise costs on the NCS and could weaken Norway’s competitiveness globally.

“The petroleum sector in Norway is among the industries which globally already pays the highest overall amount for its CO2 emissions through the combination of tax and allowance prices. We must avoid the NCS being outcompeted through high Norwegian special taxes, so that investment moves abroad.”

Profitable production

According to the new White Paper, the main objective of the government’s petroleum policy is to make provision for profitable oil and gas production in a long-term perspective. Climate policy should make it profitable to develop and adopt technologies and solutions which cut emissions.

The document also notes that oil and gas production has been a cornerstone of the Norwegian economy for several decades and will continue to play an important role in coming years.

“It’s positive that the government emphasises the importance of the petroleum sector for Norwegian society, also in the future,” says Hauglie. “The goal of increasing the CO2 price must be to reach  climate targets while also ensuring profitable petroleum output from the NCS, which safeguards value creation, jobs and government revenues to fund the welfare state.

“That calls not only for competitive operating parameters offshore, but also for a good collaboration between industry and government over policy instruments which can contribute to meeting the climate targets.”

Given that a significant increase in CO2 tax is now being proposed, she believes it will be important to earmark the extra government revenues raised for measures which can help to cut greenhouse gas (GHG) emissions more swiftly in the sectors affected by the tax rise.

“To avoid reducing activity and weakening value creation, government funding agencies and the rest of the policy framework must therefore take account of this increase so that our overall competitiveness isn’t weakened,” she says.

“That will also call for adjustments to government instruments in order to generate the necessary low-emission technology development, such as extending the Business fund for NOx and strengthening relevant programmes in the Research Council and Enova. It’s also important that such mechanisms ensure the most cost-effective climate measures are implemented first.”

Ambitious goals

Reducing GHG emissions is one of the most important undertakings of our time. The Norwegian oil and gas sector therefore agreed upon a collective goal last year of reaching near zero emissions by 2050.

“The industry has set ambitious goals and will contribute to GHG emission cuts and the development of new green industries,” says Hauglie. “Carbon pricing is one of the best measures for meeting these targets and an important incentive for the oil industry to develop technology and reduce emissions.

“Even though this is a well-established tax, however, it’s also unique to Norway. So it’s important that the overall impact of regulation, taxes, duties and support schemes doesn’t worsen, but that the industry has competitive operating parameters.”

Norwegian Oil and Gas will take a more detailed look at the climate White Paper and at how the increase in CO2 tax will play out in the longer term.

“We’ll now sit down together with the companies to calculate the consequences for the industry and assess the overall impact of the White Paper,” Hauglie concludes.

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