P254 Climate Change & Clean Energy Policy Julio Rivera Alejo

Fall 2015

POLICY ANALYSIS MEMO NORWAY

TO: Erna Solberg, Prime Minister of Norway
FROM: Julio Rivera Alejo, Expert Policy Advisor
DATE: November 6, 2015
RE: Climate Policy Recommendations

EXECUTIVE SUMMARY
Norway has submitted a consistent and ambitious INDC target in line with the UNFCCC
goal and previous climate commitments. However, while different mitigation and
adaptation climate policies have been implemented, these current measures would be
insufficient to meet the INDC target exclusively through domestic emission reductions
and the purchase of international emission reduction credits would be needed. Therefore,
new climate policies that address the sectors with larger emissions (transport and
petroleum) are required in order to avoid making use of the flexibility mechanisms.
Furthermore, these new climate policies would help the country to diversify its economy
and to make progress towards a low carbon economy.

REVIEWING THE PROPOSED INDC TARGET AMBITION AND ITS ALIGNMENT WITH PREVIOUS
CLIMATE COMMITMENTS

Our Intended Nationally Determined Contribution (INDC) commits Norway to reducing its
greenhouse gas (GHG) emissions at least a 40% by 2030 compared to 1990 levels,
which is in line with the European Unions emissions reduction target1.
Nonetheless, our main goal is to reach an agreement with the EU to fulfill this
commitment collectively with the EU Member States. This makes sense since about
50% of the countrys GHG emissions are already covered by the EU Emissions Trading
Scheme (EU ETS)2 and it would be more cost-effective for us.
Under this scenario, Norway would contribute to reducing emissions within the ETS the
same way as the rest of EU Member States (a 43% ETS emissions reduction by 2030
compared to 2005). Likewise, for the sectors not covered by the EU ETS Norway would
be assigned a specific emissions reduction target in line with the rest of EU countries
(taking into account our GDP per capita) in order to achieve an overall 30% reduction for
this sectors by 2030 (compared to 2005 levels).
In the event of this agreement, Norway could make use of the EU flexibility mechanisms
to fulfill the reduction target for the non-ETS sectors, such as purchasing ETS
allowances. But being this the case, we have committed not to make use of international
market emissions reduction credits to count toward our target. However, we will keep
contributing to help developing countries to reduce their emissions through mechanisms
such as the Norways International Climate and Forest Initiative or the Green Climate
Fund (GCF)3. In fact, we recently pledged to contribute USD 258 million to the GFC for
the period 2015-20184.

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However, if a joint agreement with the EU is not reached, our 40% emissions reduction
target will still apply and it will be developed into an emissions budget for the period
2021 to 2030. Under this scenario nonetheless we will continue making use of
international flexible mechanisms under the UNFCCC to fulfill our commitment and we
expect that our participation in the EU ETS will be credited likewise towards our
commitment.
Now, either individually or collectively delivered with the EU, we can assert that the
ambition level of our commitment is in line with the UNFCCC final objective of limiting
global worming below 2C. Furthermore, our target by 2030 is at the high end of the
recommendations for OECD countries.
Besides, this target is consistent with our previous climate commitments. In the past
Norway committed to a 30% emissions reduction target by 2020 compared to 1990
levels, and the 40% reduction target by 2030 provides continuity to the 2020
commitment. Additionally, as a long-term goal, we have committed to become a carbon-
neutral country in 2050, intending to adopt a binding goal of carbon neutrality by 2050 no
later than 2030 provided that an ambitious global climate agreement is reached5.
However, this ambition is overshadowed by the absence of an adaptation and resilience
target. Norway is a key player in international climate financing, and an ambitious target
committing funding for climate adaptation projects in developing countries would be
desirable.

AN OVERVIEW OF NORWAYS CURRENT CLIMATE POLICIES

Mitigation
Since 1990, when climate mitigation policy began to develop, Norway has sought to
adopt a comprehensive and cross-sectoral approach. Today a large number of policies
and measures are in place in an effort to tackle all sources of GHG emissions in the
country.
On the fiscal side, the externality costs that GHG emissions are addressed by the CO2
tax and the EU ETS. The CO2 tax covers about 60% of total GHG emissions and the EU
ETS about 50%. About 80% of the countrys total GHG emissions are subject to either
the EU ETS or the carbon tax. Besides, other taxes (electricity, mineral oil, waste
disposal) indirectly also tax carbon emissions.
Likewise, fiscal incentives and economic subsidies are in place to promote low-energy
housing, district heating development, the purchasing of energy-efficient vehicles,
renewable energy and energy efficiency in industry or retrofitting of buildings.
These policies are complemented by regulatory measures establishing energy efficiency
and biofuel standards, renewable energy targets or pollutants controls.
Additionally, we are developing multiple research initiatives on sustainable transport,
renewable energy or energy efficiency. In particular, Norway has placed a great
importance on carbon capture and storage (CCS) technology research and development
and we expect to have by 2020 one full scale carbon capture pilot plant operating6.

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So our country has implemented to date an exhaustive and comprehensive array of

mitigation policies and measures that effectively incentives emission reductions.

Adaptation
The Norway climate adaptation policy has its roots in the Norwegian Climate Adaptation
Programme (2007-2013). Under this program a platform was created to enhance
societys resilience, reduce vulnerability and strengthen the countrys ability to adapt to
climate change. The main goals of the platform were to identify vulnerabilities, generate
knowledge about climate change adaptation, and foster knowledge transfer and
information.
One of the mains outcomes of this platform was the pilot project Cities of the Future, a
pilot collaborative project between the national government and the thirteen largest cities
in the country to develop cross-sectoral action plans on climate change adaptation
involving public and private actors as well as the civil society.
The programme contributed to the development of national adaptation strategies, cross-
sectoral adaptation initiatives, information websites, training programs and climate
adaptation-related research, addressing climate change adaptation as an integrated part
of societal planning7.
Recently, a first White Paper on climate change adaptation was adopted by the
Parliament. This document presents national policies and guidance for adaptation in
Norway, representing the national strategy for climate adaptation. As a result, research
has intensified and multiple capacity and competence building measures have been
implemented, especially at the municipal level8.
Education, training and public awareness have played and keep playing a key role in the
Norwegian climate adaptation policy, in particular the several information resources on
the internet provided by the Ministry of Climate and Environment.
Since climate change projections show increasing urban flooding, sea level rise, and
higher risk of natural disasters (such as floods and landslides) in the coming years, all
this policies are fundamental for our country9.

INSUFFICIENT POLICIES FOR AN AMBITIOUS TARGET

Considering all the different policies already in place both for mitigation and adaptation,
and their broad scope and extent, it is clear that our country has done a very good job in
the climate policy field to date (for a comprehensive list of direct and indirect mitigation
and adaptation policies see Appendix A).
However, more needs to be done if we are to fulfill our new commitment by 2030.
Norways total GHG emissions (LULUCF sector excluded*) have increased by almost a
6% between 1990 and 2012. And while CO2 emissions from most sectors of the

*
With 37% of the mainland covered by forest, the LULUCF sector contributed with net removals of 27.6
million tones CO2 in 2011, approximately half of the total GHG emissions. The average annual net removals
from the LULUCF sector was about 20.4 million tones CO2 equivalents per year for the period 1990 2011
(Norways Sixth National Communication under the UNFCCC).

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economy have increased during this period, other GHG emissions have decreased (see
Figure 1 in Appendix B).
The strong economic growth of our country since 1990, and in particular the expansion
of the offshore oil and gas sector during the last 20 years as well as the transport sector
have led to an increase in the use of fossil fuels and therefore to higher CO2 emissions.
Between 1990 and 2011 Norways CO2 emissions increased by 28%.
Now, according to the projections of future GHG emissions trends under currently
implemented policies and measures, Norways emissions will increase by 8% in 2020
and by 4% in 2030 compared to 1990 levels (see Figures 2 and 3 in Appendix B). Thus,
Norway will not be able to fulfill its commitments for 2020 and 2030 respectively through
domestic reductions.
Under these scenarios, our current national policies will barely allow us to reduce about
two thirds of total GHG emissions domestically, and we will therefore need to purchase
up to about 30 million international emission reduction credits in order to meet our 2020
target under the Kyoto second commitment period10. Equally, in order to meet the 2030
target we will need to use the EU flexible mechanisms (in the event of a joint agreement)
or other international credits.

NEW CLIMATE POLICIES TO FULFILL OUR COMMITMENTS

Norway needs to continue to implement ambitious national climate policies in order to
achieve larger emissions reductions domestically while at the same time reducing our
dependence from international carbon credits to meet our climate targets.
But when choosing new mitigation policies, we need to take into account our countrys
particular circumstances. Unlike most other countries, we cannot achieve major
emission reductions from our energy sector since this sector is already practically
decarbonized. Over 95% of electricity generation in our country comes from hydropower.
Thus, new energy efficiency measures or increasing renewable energy capacity will
have a very limited effect on emissions reduction in Norway. And while district heating is
developing consistently in the biggest cities of the country while consumption of biomass
and gas for heating is increasing11, measures such as phasing out fossil oils for heating,
as well as policies fostering the use of renewable energies, biogas and electricity for
house heating would undoubtedly contribute to reduce emissions.
Now, in order to achieve major emission reductions, we should focus on the petroleum
and transport sectors, the larger contributors to GHG emissions in the country.

Moving towards a greener transport sector

The transport sector (comprising road transport, civil aviation, navigation and fishing,
railway, and off road vehicles and other machinery) accounted for about 28% of total
GHG emissions in 2011, with 19% coming from road transport12. Under current policies
emissions from transport sector will increase up to 43% by 2020 and 49% by 2030
(compared to 1990 levels) (see Figure 3 in Appendix B). Therefore, strong measures to
curb these emissions are necessary.

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100% electric vehicle fleet

Since most of the emissions in this sector come from road transport, and considering
that the countrys electric sector is almost carbon neutral, a national policy to achieve a
100% electric vehicle fleet should be developed.
Currently several measures are in place to incentivize the purchase of zero emissions
vehicles, such as fiscal exemptions or infrastructure development. However, today only
2.4% of the 2.6 million cars in Norway are fully electric13. Major investments in
expanding public charging points, as well as maintaining or increasing fiscal exemptions
and incentives for these vehicles should be at the center of the policy.

Electrification and expansion of the railway network

A policy seeking the fully electrification, modernization and expansion of the national
railway network should be implemented. In order to achieve this, the current amount of
funding aimed to expand and maintain the railway should be considerably increased.
Likewise, awareness and education campaigns should be develop to encourage major
public use of this means of transportation.

Both policies would entail considerable emission reductions in the sector, but they would
require also a considerable amount of time and resources to be fully implemented. They
should be seen as long term policies. A synergetic effect of these policies would be the
creation of jobs and development of new sectors, such as battery producers and sellers.

Diversifying from oil and gas and shifting towards the green economy
The petroleum sector has played a fundamental role in the economic growth of our
country and the consolidation of our welfare state. This sector has contributed with more
than 1050 billion to Norways economy for over 40 years and in 2013 represented
around 22% of the countrys GDP.
However, while the main source of wealth of the country, the petroleum industry is also
the main source of GHG emissions14. Further, under current policies emissions from this
sector will increase up to 129% by 2020 and 93% by 2030 compared to 1990 levels (see
Figure 3 in Appendix B).
Thus, Norway needs to move beyond its dependence on the oil and gas industry in the
coming decades. In order to do so, a comprehensive and long term policy should be
established based on the following three pillars.

Cutting fossil fuel subsidies

We need to stop subsidizing the sector. It is not coherent and not effective to apply the
highest taxes to the sector, when at the same time we are subsidizing it. Current
subsidies represent about 13% of the oil and gas industrys total revenue15. While
recognizing and welcoming the recent decisions the government has made to divesting
over USD 8 billion of coal-related assets from Norways global pension fund16 and to

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providing developing countries with USD 11 million for removing fossil fuel subsidies17,
at home subsidies still remain in place for our oil and gas sector.

Reinvesting in greening the sector and mitigating impacts

The gains from phasing out the petroleum sector subsidies should be used to fund the
electrical connection of the offshore oil platforms with the mainland, so they can use
carbon free electricity for their activities. Likewise, measures to counter the negative
impacts derived (such as increase of transport and fuel prices) should be implemented.

Shifting towards a green and competitive economy

Our economic model, excessively reliant on the oil and gas sector, is not sustainable in
the long term. The costs of exploiting oil and gas resources will increase as they become
scarce and less accessible, and in the long run they are doom to be exhausted. Besides,
the exploitation of these resources is not coherent with our ultimate goal of becoming a
low carbon society by 2050. Therefore, we need to start investing in diversifying our
economy and creating new sustainable jobs and sectors in the green economy.

This policy, while controversial and difficult to implement, would lead to major emission
reductions in the sector with larger emissions of the economy. Additionally, it presents
synergetic effects with the transport policy, since this one could help to the creation of
new jobs in the different sectors (energy, batteries, automobile). Likewise, in the long
term it would improve the resilience of the economy.

CONCLUSION
New climate policies are needed if we are to meet both our targets by 2020 and 2030 by
ourselves. Furthermore, the policies proposed for the transport and petroleum sector
would pave the way to reach our long term goal of a low carbon economy by 2050.

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Appendix A

NORWAY CLIMATE TARGETS AND POLICIES

Main Targets in INDC:

Mitigation Adaptation/Resilience

At least 40% reduction of greenhouse gas No Adaptation/Resilience target

emissions by 2030 compared to 1990
levels
To be developed into an emissions
budget for the period 2021 to 2030
Final choice of land use change
and land use, land-use change and
forestry sector (LULUFC)
accounting will not affect the 40%
target ambition level
If possible, intention to fulfill
through collective delivery with the
EU and its Member States (if not,
individually)

Existing Direct Climate Policies:

Mitigation18 Adaptation/Resilience19

Political
Norwegian Climate Policy and political
climate agreement in the Parliament
from 2012 (Innst. 390 S 2011-2012)
2008 Agreement on Climate Policy
Norway Carbon Neutral by 2050
Agreement
Multi-lateral Agreements to Reduce
CO2 Emissions: Slovakia
Contribution to the World Bank
Prototype Carbon Fund
Participation in the Carbon
Sequestration Leadership Forum
Ratification of the Second
Commitment Period under the Kyoto
Protocol
Ratification of Kyoto Protocol
Political
Norwegian Climate Adaptation
Programme 2007-2013
Climate change adaptation in Norway
(Meld. St. 33 20122013) (White
Paper) (National climate change
adaptation policy)
Norwegian Water Resources and
Energy Directorate climate change
adaptation strategy
Regulatory
Cities for the Future (Local Action
Plans)

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Regulatory
EU Directives on Energy Efficiency
(energy efficiency codes and
standards)
EU Regulation no. 842/2006 on
certain fluorinated greenhouse gases
(f-gases)
Standards for Gas-Fired Power Plants
National Renewable Energy Action
Plan (NREAP) (2020 renewable
energy targets)
Act on Offshore Renewable Energy
Production
Informative Electricity Bills (standards
for electricity bills)
Biofuels for Transport Standards
Fiscal
CO2 Tax
Tax on import and production of HFCs
and PFCs
Grant for Capturing CO2 Generated
by Combustion Source (fiscal
incentive)
Strategy for Small-scale Hydropower
(tax exemption)
Investment aid for energy efficiency
and renewable energy in industry
Innovation
KLIMAFORSK (Research program
on climate change and impacts in
Norway)
NORKLIMA (Research program on
climate Change and its Impacts in
Norway)
Informative
Official Norwegian report on Climate
Change Adaptation to the
Government
Klimatilpasning.no (government
website on climate adaptation)
Norwegian Environment Agency
report: Climate Change - Nature
Management Measures
Norwegian Water Resources and
Energy Directorate report:
Hydrological projections for floods in
Norway under a future climate in
2011
Guide: Climate Change Adaptation
Training and education resources

Market
EU ETS (2013-2020)
Norway-Sweden Green Certificate
Scheme for electricity production
Public Carbon Dioxide Offsetting
Scheme (system for buying carbon
offsets for individuals and companies
wishing to neutralize their greenhouse
gas emissions)

Innovation
TRANSPORT 2025 (Research
program on sustainable transport)
ENERGIX program (Research
program on renewable energy and
energy efficiency)
Centers for Environmentally-friendly
Energy Research
National Strategy for Research,

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Development, Demonstration and

Commercialization of New Energy
Technology (Energi21)
Carbon Capture R&D Funding
CLIMIT Programme: Financing for
Carbon Capture & Storage

Informative
Enova (Information and advice on
energy efficiency and renewable
energy services)

Others
The Business Sectors NOx Fund
(voluntary agreement)

Existing Indirect Climate Policies:

Mitigation20 Adaptation/Resilience

Regulatory
Pollution Control Act
Forestry Act (include measures to
increase carbon sinks)
EU Directives on Energy Efficiency
(energy efficiency codes and
standards)
Energy Performance of Buildings
(Directive 2002/91/EC)
Standards for Energy-Related
Products

Fiscal
Electricity tax
Motor vehicle registration tax
Mineral oil tax
Tax on Waste Disposal
Reward scheme for public transport
Investment aid for existing buildings
Investment aid to innovative energy
technology in buildings
Incentives for Low-energy Housing
Promotion of District Heating
Infrastructure (fiscal incentives)
Automobile Fuel Economy (incentive
to purchase energy-efficient vehicles)

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Innovation
TRANSPORT 2025 (Research
program on sustainable transport)

Informative
Labelling for Energy-Related Products

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Appendix B

NORWAY GHG EMISSIONS

Figure 1. Norways total greenhouse gas emissions between 1990 and 2012,
without and with LULUFC

Source: UNFCCC Secretariat. Summary of GHG Emissions for Norway. Accessed November 5, 2015.
Available from https://unfccc.int/files/ghg_emissions_data/application/pdf/nor_ghg_profile.pdf

Figure 2. GHG emission trends up to 2030 (million tones CO2 equivalent)

Source: Norwegian Environment Agency. Projected emission trends up to 2030. Accessed November 5,
2015. Available from http://www.environment.no/Goals-and-indicators/Goals-and-indicators/Climate-
change/Cutting-greenhouse-gas-emissions/Norwegian-emissions-of-greenhouse-gases-CO2-CH4-N2O-
HFC-PFC-SF6-measured-in-CO2-equivalents-/Projected-emission-trends/

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Figure 3. GHG Emissions and Projections up to 2020 and 2030 by sector (million
tones of CO2 equivalents and per cent change)

Source: UNFCCC. Submission by Norway to the ADP: Norways Intended Nationally determined
Contribution, 2015. Accessed November 5, 2015. Available from https://unfccc.int/files/national_reports
/annex_i_natcom/submitted_natcom/application/pdf/nc6_nor_resubmission.pdf p. 111

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REFERENCE LIST

1
UNFCCC. Submission by Norway to the ADP: Norways Intended Nationally determined
Contribution, 2015. Accessed November 5, 2015. Available from http://www4.unfccc.int/
submissions/indc/Submission%20Pages/submissions.aspx
2
Norwegian Ministry of Climate and Environment. Norways sixth National Communication under
the Framework Convention on Climate Change, 2014, p. 9. Accessed November 5, 2015.
Available from https://www.regjeringen.no/en/dokumenter/Norways-sixth-National-
Communication-under-the-Framework-Convention-on-Climate-Change/id752820/
3
The Norwegian Mission to the EU, News, A new and more ambitious climate policy for Norway,
February 4, 2015. Accessed November 5, 2015. Available from http://www.eu-
norway.org/news1/A-new-and-more-ambitious-climate-policy-for-Norway/#.VjgOnNWrRD8
4
Norwegian Ministry of Foreign Affairs, Press Release. Norway pledges NOK 1.6 billion to the
Green Climate Fund. December 5, 2014. Accessed November 5, 2015. Available from
https://www.regjeringen.no/en/aktuelt/Norway-pledges-NOK-16-billion-to-the-Green-Climate-
Fund/id2343170/
5
UNFCCC. Submission by Norway to the ADP: Norways Intended Nationally determined
Contribution, 2015. Accessed November 5, 2015. Available from http://www4.unfccc.int/
submissions/indc/Submission%20Pages/submissions.aspx
6
Norwegian Ministry of Climate and Environment. Norways sixth National Communication under
the Framework Convention on Climate Change, 2014, pp. 61-108. Accessed November 5, 2015.
Available from https://www.regjeringen.no/en/dokumenter/Norways-sixth-National-
Communication-under-the-Framework-Convention-on-Climate-Change/id752820/
7
Ibid., pp. 140-146
8
Norwegian Ministry of Climate and Environment. Climate change adaptation in Norway. Report
to the Storting (white paper), Meld. St. 33 (20122013). Accessed November 5, 2015. Available
from https://www.regjeringen.no/en/dokumenter/meld.-st.-33-20122013/id725930/
9
Norway - Climate ADAPT. European Climate Adaptation Platform. Accessed November 5, 2015.
Available from http://climate-adapt.eea.europa.eu/countries/norway
10
Climate Action Tracker. Norway. Accessed November 5, 2015. Available from
http://climateactiontracker.org/countries/norway.html
11
Norwegian Ministry of Climate and Environment. Norways sixth National Communication under
the Framework Convention on Climate Change, 2014, pp. 33-34. Accessed November 5, 2015.
Available from https://www.regjeringen.no/en/dokumenter/Norways-sixth-National-
Communication-under-the-Framework-Convention-on-Climate-Change/id752820/
12
Ibid., p. 36
13
James Ayre, 23% Of New Cars In Norway Now Electric Cars, Clean Technica, July 16, 2015.
Accessed November 5, 2015. Available from http://cleantechnica.com/2015/07/16/23-of-new-
cars-in-norway-now-electric-cars/
14
Norwegian Ministry of Climate and Environment. Norways sixth National Communication under
the Framework Convention on Climate Change, 2014, pp. 31-32. Accessed November 5, 2015.

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Available from https://www.regjeringen.no/en/dokumenter/Norways-sixth-National-

Communication-under-the-Framework-Convention-on-Climate-Change/id752820/
15
Econ Pyry, Frian Aarsnes and Petter Lindgren, Fossil Fuels: At What Cost? Government
support for upstream oil activities in Norway, Earth Track, January 2012. Accessed November 5,
2015. Available from http://www.earthtrack.net/documents/fossil-fuels-what-cost-government-
support-upstream-oil-activities-norway
16
Damian Carrington, Norway confirms $900bn sovereign wealth fund's major coal divestment,
The Guardian, June 5, 2015. Accessed November 5, 2015. Available from
http://www.theguardian.com/environment/2015/jun/05/norways-pension-fund-to-divest-8bn-from-
coal-a-new-analysis-shows
17
Norwegian Ministry of Foreign Affairs, Press Release. NOK 100 million for efforts to remove
fossil fuel subsidies. April 17, 2015. Accessed November 5, 2015. Available from
https://www.regjeringen.no/en/aktuelt/remove_subsidies/id2407022/
18
International Energy Agency. Policies and Measures Databases. Accessed November 5, 2015.
Available from http://www.iea.org/policiesandmeasures/
19
Norway - Climate ADAPT. European Climate Adaptation Platform. Accessed November 5,
2015. Available from http://climate-adapt.eea.europa.eu/countries/norway
20
International Energy Agency. Policies and Measures Databases. Accessed November 5, 2015.
Available from http://www.iea.org/policiesandmeasures/

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