Not only has Norway’s oil exploration become a major issue in the current election campaign, so has its government’s financial support for it. Norway effectively subsidizes the cost of exploration expenses incurred by the oil companies, and that’s resulting in sudden realizations that Norwegian taxpayers ultimately carry a huge economic risk.
The increasingly popular Greens Party has been calling for a halt to all new oil exploration in Norway, as a first step in phasing out the oil industry over the next few decades. In addition to criticizing the oil industry for the carbon emissions it creates, the Greens have also been raising the issue of how Norway essentially subsidizes the oil exploration aimed at prolonging the industry. The Greens’ lone member of Parliament, Rasmus Hansson, stresses that not only does Norway face declining markets in the future for its oil and gas, it also faces huge economic risk for agreeing to finance exploration that may not lead to new sources of oil and gas.
Support aimed to stimulate exploration
Newspaper Aftenposten reported this week that oil companies received around NOK 70 billion (USD 8.8 billion) in financial support from the Norwegian government to search for oil on the Norwegian continental shelf from 2013 to 2016. The state’s financial aid derives from a refund program in which the state agrees to cover 78 percent of the costs of oil companies that search for oil without generating a profit from it.
In return, the Norwegian state imposes a high tax on oil companies that turn a profit on their exploration activities. In addition to paying Norway’s company tax of 24 percent, they’ve been subject to paying an additional 54 percent on profits, for a total of 78 percent. The companies can, though, still deduct 78 percent of their exploration costs.
In 2005, when the Norwegian government wanted to stimulate oil exploration, companies that were newcomers to Norway’s offshore areas without previous revenues from Norwegian oil fields were also allowed to deduct 78 percent of their exploration costs.
The Greens have long argued against such stimulation and now claim it presents a huge financial risk as companies venture into the unpredictable Arctic, where costs are high and both discoveries and yields unclear. Even Norwegian oil company Statoil hasn’t found as much oil and gas as it expected in its controversial drilling activity this summer. The state, already faced with other risks tied to oil and gas exploration, thus faces more claims for tax deductions.
Labour took up the issue…
The Greens seemed to get some support from the Labour Party last week for their objections to what it considers an oil exploration subsidy. Aftenposten reported that Marianne Marthinsen, a Member of Parliament for Labour and its spokesperson on finance policy, said during a debate at political meetings in Arendal that an “ongoing discussion” was warranted over “how big a risk the state is in fact taking during the exploration phase.”
It marked the first time a top Labour politician had taken up the issue, and it cheered Nina Jensen, who succeeded Hansson as head of WWF Norge. “This is a signal that’s completely correct,” Jensen said. “The Labour Party has been extremely vague on this, so what Marianne Marthinsen says is very positive.”
The Greens, the Liberal party, the Socialist Left party (SV) and even the current conservative government’s own “green tax commission” have recommended phasing out the exploration subsidy. Aftenposten reported that the government’s commission for “green competitiveness” recommended evaluating a phase-out.
Marthinsen also noted that Labour wants to assess the uncertainty surrounding oil’s profit prospects in the years to come, given predictions that demand for fossil fuels like oil and gas will decline as electrification takes over as a greener alternative. “When we get an examination on the table that gives a clearer picture of what kinds of risks we’re taking on, it’s natural that take up a discussion on exploration refunds also,” she said.
…only to later shoot it down
Marthinsen stressed that such a discussion was not part of Labour’s party platform, and her openness on the exploration issue clammed up earlier this week. After criticism that Marthinsen had sent “an unfortunate signal” to the oil industry itself, her party colleague Terje Aasland declared that the exploration refund program was not up for negotiation.
“There is nothing to suggest that we will have any examination that would change it,” Aasland, who sits on the Parliament’s energy and environment committee, told newspaper Dagsavisen on Tuesday, and Marthinsen backtracked as well, saying that nothing would be done with the program now. “This program is a part of the framework for the Norwegian continental shelf, where we’re clear that it will be predictable,” Aasland declared. “I believe it has been important for the Norwegian continental shelf.”
Jørn Eggum, head of one of the main trade union federations representing oil industry workers, all but dismissed Marthinsen’s comments, suggesting she was merely “thinking out loud, and must be allowed to do that.” He hastened to stress that changing or dropping the financial support program for oil exploration “is not approved policy within the Labour Party.” Karl-Eirik Schjøtt-Pedersen, a former top Labour politician who now heads the oil industry’s biggest lobbying group, said he had no worries that the program could be halted and claimed it did not amount to subsidies for the oil industry.
Bellona seeks ESA’s assessment
Politicians in the government’s Progress- and Conservative parties seized on the about-face as a sign of splits within Labour on oil and climate issues. The tax deductions for oil exploration costs, however, are likely to remain a topic of debate. SV vows to propose they be dumped, and SV may end up as a member of a Labour-led government coalition after the election. The Greens clearly want to dump them, and have now emerged as a new power factor in the formation of a Labour coalition.
Aftenposten also reported that the environmental organization Bellona, meanwhile, is asking the EFTA (European Free Trade Association) Surveillance Authority (ESA) to stop Norway’s oil exploration refund program on the grounds it amounts to illegal sponsorship of oil companies. Bellona, like the Greens, want to make it less attractive to search for oil and gas, especially in the Barents and Norwegian seas.
In its request for an assessment from ESA, Bellona showed how oil companies received NOK 91.3 million in direct support from the Norwegian state between 2005 and 2015. “This contributes to the state taking an enormous risk by stimulating increased exploration for oil and gas at a time when it will be less and less profitable to produce,” said Bellona leader Frederic Hauge. He claims Norway’s refund program undermines other forms of energy and the international agreement struck in Paris to reduce carbon emissions worldwide.