As one of the world’s leading exporters of natural gas, Norway faces a unique challenge in a world that is increasingly moving away from fossil fuels.
But as more countries embrace this route to future prosperity, the value of fossil-fuel assets, technologies, and capabilities will diminish, threatening jobs, export revenues, and industrial innovation in petroleum-dominated economies.
The country has all the financial, technological, and human resources it needs to thrive in a decarbonized future; what’s missing is policy leadership.
But, while Norway’s industrial structure and investments are heavily tied to carbon-based industries and services, with hydrocarbons accounting for 36% of total exports in 2019, the country’s domestic energy comes almost entirely from renewable resources .
At the same time, the oil and gas sector’s extraordinary profitability has inflated price and wage growth in the rest of the economy, creating difficulties for other exporters.
As a result, Norway has been one of the OECD’s biggest losers of overall international market shares in non-energy export markets since the late 1990s.
Making matters worse, a recent report from Statistics Norway projects that investments in Norway’s energy sector will dwindle over the next decade.
In a recent report, we outline how it could use the technical and financial resources of its petroleum sector to become a “green giant.” But phasing out petroleum extraction and moving in a greener direction won’t happen on its own.
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Instead, the government should set a clear direction, by making early-stage high-risk investments that will later draw in private actors, rewarding those who are willing to invest and innovate.
A recent report warns that 12 of these projects alone would use up three-quarters of the world’s remaining carbon budget, making it exceedingly difficult to limit global warming to 1.5° Celsius.
The SPU currently operates under fiscal rules mandating that its petroleum revenues be transferred into an oil fund and invested abroad.
Because the current fiscal framework allows for large public investments to be kept outside the normal government budget, it is exacerbating the country’s Dutch disease by creating a petroleum-determined path dependency.
Rather than using petroleum revenues to recapitalize the oil fund, this cash flow could be directed into a new public Green Investment Bank, whose work could be coordinated with that of other public funds and agencies working on the green transition.
Notably, the Norwegian state owns 67% of the Norwegian petroleum industry’s flagship company, Equinor the industrial ecosystem for petroleum production, they have failed to step back into this role to lead the green transition.
The COVID-19 shock has demonstrated the risks associated with depending too much on volatile energy markets.
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Mariana Mazzucato, Professor in the Economics of Innovation and Public Value at University College London, is Founding Director of the UCL Institute for Innovation and Public Purpose.
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