Norway manages its significant hydrocarbon resources and revenues in a sustainable way, and remains a reliable supplier of oil and gas, but Norway’s government should prepare for a future with lower oil and gas revenues.
The recommendations were made in the International Energy Agency’s latest assessment of Norway’s energy policies.
“As one of the world’s largest energy exporters, Norway plays a leading role in advancing global energy security,” said IEA Deputy Executive Director Paul Simons, speaking at the launch of the report. “At the same time, Norway is fully committed to environmental sustainability.”
Norway’s remaining oil and gas resources are considerable. Only a third of the country’s estimated discovered and undiscovered gas resources, and half of its oil resources, have been produced. While reducing the global economy’s carbon emissions remains a priority worldwide, the IEA expects that substantial volumes of oil and gas will still be needed for years to come. As such, the report welcomes the government’s efforts to encourage increases in Norway’s production. The IEA’s analysis also recognizes that the government takes into account environmental considerations in managing its oil and gas resources.
The report also highlights Norway’s large hydropower generation as another valuable energy asset particularly at a time when European electricity markets are integrating and variable renewable energy generation is growing. More cross-border connections are coming online and will help realise the full potential of hydropower for balancing variations in demand and supply in the regional market.
Several issues have dominated the debate on Norway’s economy since the 1970s:
- Cost of living. Norway is among the most expensive countries in the world, as reflected in the Big Mac Index and other indices. Historically, transportation costs and barriers to free trade had caused the disparity, but in recent years, Norwegian policy in labor relations, taxation, and other areas have contributed significantly.
- Competitiveness of “mainland” industries. The high cost of labor and other structural features of the Norwegian environment have caused concern about Norway’s ability to maintain its cost of living in a post-petroleum era. There is a clear trend toward ending the practice of “protecting” certain industries (vernede industrier) and making more of them “exposed to competition” (konkurranseutsettelse). In addition to interest in information technology, a number of small- to medium-sized companies have been formed to develop and market highly specialized technology solutions.
- The role of the public sector. The ideological divide between socialist and non-socialist views on public ownership has decreased over time. The Norwegian government has sought to reduce its ownership over companies that require access to private capital markets, and there is an increasing emphasis on government facilitating entrepreneurship rather than controlling (or restricting) capital formation. A residual distrust of the “profit motive” persists, and Norwegian companies are heavily regulated, especially with respect to labor relations.
- The future of the welfare state. Since World War II, successive Norwegian governments have sought to broaden and extend public benefits to its citizens, in the form of sickness and disability benefits, minimum guaranteed pensions, heavily subsidized or free universal health care, unemployment insurance, and so on. Public policy still favors the provision of such benefits, but there is increasing debate on making them more equitable and needs-based.
- Urbanization. For several decades, agricultural policy in Norway was based on the premise of minimal self-sufficiency. In later years, this has given way to a greater emphasis on maintaining population patterns outside of major urban areas. The term “district policy” (distriktspolitikk) has come to mean the demand that old and largely rural Norway is allowed to persist, ideally by providing them with a sustainable economic basis.
The primary purpose of the Norwegian tax system has been to raise revenue for public expenditures; but it is also viewed as a means to achieve social objectives, such as redistribution of income, reduction in alcohol and tobacco consumption, and as a disincentive against certain behaviors. Three elements of the tax system seem to attract the most debate:
- Progressive taxation. At one time one of the most aggressive in the world, the top marginal tax rate on income has been decreased over time. In addition, Norwegians are taxed for their stated net worth, which some have argued discourages savings.
- Value-added tax. The largest source of government revenue. The current standard rate is 25%, food and drink is 15%, and movie theater tickets and public transportation 8%.
- Special surcharges and taxes. The government has established a number of taxes related to specific purchases, including cars, alcohol, tobacco, and various kinds of benefits.
- Svalbard. People living on Svalbard (Spitsbergen) pay reduced taxes due to “Svalbardtraktaten”.
- Environmental concerns. A number of political issues have had their origins in ecological concerns, including the refineries at Mongstad and the hydroelectric power plant at Alta.