A hypocritical climate policy

More and more economists are critical of the prevailing climate policy and believe that Norway must consider leaving its oil where it is. 'This is a very controversial view, because Norway has become so dependent on its oil revenues,' says Professor Gunnar S. Eskeland.

10.01.2013 - Sigrid Folkestad

Climate economist Professor Gunnar S. Eskeland has dropped a bombshell into the climate debate. He believes that there is more than a little hypocrisy about Norway's climate policy.

Oil sands in Canada

Linda Nøstbakken, associate professor at the Alberta School of Business in Canada. Photo: Eivind Senneset

Linda Nøstbakken, PhD candidate from NHH, agrees. She is one of the speakers at NHH's conference on climate and energy policy (BEEER).

'Norway can't go around the world telling Canada to shut down its oil sands industry when we are pumping up oil and recovering gas ourselves,' Nøstbakken believes.

She is associate professor at the Alberta School of Business in Canada. Nøstbakken submitted her PhD thesis 'Essays on the Economics of Fisheries Management' in 2005.

Lives in Alberta

After having lived in Alberta for some years, the area that is at the heart of the world's oil sands debate, she feels provoked by Norway's attitude to the oil sands industry.

'What are we doing in Norway? Our oil sector is subject to enormous taxes, but this is actually money that comes straight from our own oil fund. That is self-defeating. I am not sure that others take us very seriously in this context.'

Nøstbakken disapproves of what she sees as double standards.

'We Norwegians go around the world telling other nations what to do. But we are doing very little ourselves. The Minister of the Environment recently presented a white paper on Norway's climate efforts. He was asked how they would affect people. We were told that they would benefit us. The measures largely involve reshuffling funds that the state already has. That is the Norwegian way of being more environmentally friendly. We will become even more prosperous. I have a problem with that,' Nøstbakken says.

Telling off the rest of the world

Professor Gunnar Eskeland from the Department of Finance and Management Sciences. Photo: Eivind Senneset

Nøstbakken is supported by Professor Eskeland from the Department of Finance and Management Science. He believes we would benefit from a debate that challenges the Norwegian distinction between oil policy andclimate policy.

'Until now, Norway has managed to shield the development of the offshore sector from its big promises about climate policy, but we might not be able to continue this line in future.'

He too believes that talk about reducing carbon emissions is hypocritical.

'Those who own oil or gas in this century risk losing a lot of their wealth if the world stops using fossil fuels before we run out of them. That means that it is becoming more urgent to sell our oil. It seems hypocritical to tell the rest of the world to reduce emissions while we ourselves are selling our oil as fast as we can.'

Dependent on oil revenues

Professor Bård Harstad, one of the guests at the BEEER conference, also argues that we should do something about the supply side rather than the demand side if climate measures are to be effective. The world would then actually have to put aside fossil reserves, says Harstad.

'That is a controversial proposal that changes the debate,' says Eskeland, 'because what is happening in Norway is influenced by our dependence on oil revenues.'

'But we are seen as a successful country in terms of how we manage our oil assets,' says Nøstbakken.

An oil nation to the last drop?

'If we believe that owning so much oil is no longer such a good idea, then perhaps we should sell it. While leaving the oil under the sea involves a certain economic risk, Norway as an oil nation should be happy if something differentmand environmentally friendly could take us forward.'

'Others believe that we should save the oil because it will be more valuable in future. So there are many different arguments here,' Eskeland believes.

'Well,' Nøstbakken interjects. 'Perhaps, in future, we can use the oil with hardly any emissions. We cannot know that at present.'

Energy-intensive residual oil

The biggest Norwegian climate project is the 'moon landing' at Mongstad. The test centre for carbon capture and storage opened in May. The carbon capture plant can be fully operational from 2020. By that time, the cost of the plant will have reached almost NOK 25 billion.

Carbon capture is the only solution that can justify continued use of fossil fuel, Eskeland believes.

'It should come as no surprise that big oil nations and coal companies are investing a few billion in such projects, since a solution of this kind could prove very valuable to them. Norway is one of very few natural candidates for a project like this.'

Many Norwegian oilfields are nearing the end of their lifetime, and extracting what is left is far more energy-intensive. The emissions from oil and gas activities will therefore remain at about the same level until 2020, even though production will gradually decrease. A bigger percentage of production will consist of gas, which requires a great deal of energy whether it is transported in pipelines or frozen for shipping.

If the experts are right about future climate changes, the world will need carbon capture, or, at the very least, we need to be absolutely sure that it does not work, Eskeland believes. This journey of discovery is worth a great deal to the world.

Cheap carbon credits in developing countries

'Let's say that we're carbon neutral in 2030,' says Eskeland, 'and that the rest of the world is wondering how we managed it. If the answer is that we planted a lot of trees in Guatemala, the reaction will be: "You're so stinking rich!" How impressive is that? Prime Minister Stoltenberg may be right when he says that these are the cheapest emission reductions, but what we are doing in this field is perhaps mostly of symbolic value,' Eskeland argues.

The climate economist draws a comparison with the Reformation and Martin Luther.

'We have to stop buying indulgences. It's not OK to commit adultery because you're rich or friends with the Pope. That's just not acceptable. Luther probably believed that rich people should be direct role models.'

Economists say it's better to reduce emissions where it is cheapest to do so?

'Precisely. That is why my view is going against the flow. I'm dropping a bombshell here. This is not an opinion everyone shares. Some wise economists think I'm committing sacrilege here.'

'We can achieve cheap reductions by buying them abroad. But it's just a drop in the ocean,' says Nøstbakken.

'If we were to reduce the oil recovery rate, that would have an immediate effect on the world's carbon emissions. To avoid the disastrous climate changes that are now looking very likely, much of the fossil carbon must be left where it is.'

This article is taken from the English version of NHH Bulletin for 2012.