The Conservatives’ Oil Minister Tina Bru and Finance Minister Jan Tore Sanner surprised just about everyone Tuesday evening, when they proposed some climate-friendly changes in Norway’s tax system for the oil industry. The changes, if approved by Parliament, will leave the industry facing much more of the financial risks involved in oil and gas exploration off Norway, making controversial offshore drilling far less attractive.
Several opposition politicians were hailing the proposed oil tax changes, because they’d make oil drilling projects more expensive and risky. Under the current system, oil companies can write off much of their exploration costs in Norwegian waters. That has put taxpayers at risk for covering the costs, while in return claiming a bigger chunk of gains from oil discoveries.
The system has ignited debate because it can prompt oil firms to launch risky exploration projects, especially in the Arctic, that they may not otherwise have initiated if held responsible for all costs. Rising climate concerns have made such stimulus for oil exploration as controversial as the exploration itself.
Debate reached fever pitch last year when the Conservatives-led government reluctantly agreed (under pressure from its former coalition partner, the Progress Party, and other pro-oil parties in opposition, Labour and Center) to offer Corona-related temporary tax relief and aid to the oil industry. The justification, as always, was to preserve jobs in both the oil and offshore industries.
‘Beginning of the end’
Now the Conservatives-led government has decided that instead of going back to the former oil tax system when the current tax relief period ends, it’s time to enter what Bru called “a new phase” for Norway’s oil industry. The government’s proposals come despite defeat of a measure to re-examine and perhaps revamp the oil tax system at the Conservatives’ own national party meeting in May. Bru herself said at the time that the “framework” for oil taxation “was fine as it was,” and provided offshore development “that serves us well.”
Now there’s clearly been a change of heart while Bru, Sanner and government colleagues quietly worked out a new “framework” for oil tax policy. They kept it secret until now because of stock market sensitivity, they claimed. The old system’s stimulus and incentives for exploration apparently are now outdated, and no longer in line with ever-pressing needs to cut emissions and meet Norway’s climate goals.
Norwegian Broadcasting (NRK)’s commentator Lars Nehru Sand called it “the beginning of the end” of the main principles behind the Norwegian oil industry. Bru and Sanner insisted they’re proposing “a better system” that will offer “more predictability” for the industry at a time when the entire energy sector faces huge new demands and the restructuring needed to meet climate goals.
“The changes will be more in line with development of Norwegian oil fields in the years ahead,” Sanner said, adding that tax rules will be tightened and become “more neutral” regarding investments.
Political earthquake shakes up party alliances
There’s little question, though, that the changes will make it less favourable for oil companies to search for more oil and gas. That delights climate- and environmentally oriented left-wing parties like the Greens, the Reds and the Socialist Left (SV).
Greens leader Arild Hermstad claimed the government has “finally realized” that rising climate concerns among Norwegians are real: All the anti-oil parties like his have jumped in public opinion polls heading into the September 13 election, while voter support has plunged for parties like Center and Progress. Labour is also struggling to retain its support.
“The fact that the government is coming with this two weeks before Election Day shows how desperate they are to remain in office,” Hermstad said. “They’ve had eight years to do this.” Both he, the Reds and SV, however, support the government’s changes. “Finally the oil tax subsidies are being removed,” SV leader Audun Lysbakken told NRK. “This looks like what SV has proposed for a long time. It’s high time.” Reds leader Bjørnar Moxnes said his party was “positive to these changes, and has long maintained that the subsidies have contributed towards developing oil fields that will be both unprofitable and generate large emissions.”
The pro-oil Center Party, whose deputy leader Ola Borten Mo works in the oil indusry, was calling the tax change proposals “a stunt,” however, that “should make alarm bells ring.” Center’s spokesman for business issues, Geir Pollestad, wrote on social media Wednesday that he thinks the Conservatives are merely trying to win more voters for their junior coalition partners, the Liberals and Christian Democrats. Both parties have called for curtailing the oil industry.
The Labour Party was in doubt, caught by surprise over the government’s proposals but also agreeing that changes in the oil tax system have been “in the cards” for a long time. Labour’s deputy leader Hadia Tajik also noted a need to make the system more in line with that for other industries. Labour and the Conservatives have long shared support for the oil industry and already agree on many oil policy issues.
The right-wing pro-oil Progress Party was nothing short of furious, though, with party leader Sylvi Listhaug threatening an attempt to bring down the government unless the changes are dropped. “There won’t be any (state) budget agreement with Progress if this (the proposed oil tax changes) is part of it,” Listhaug fumed to NRK. “This is an extremely important issue.”
She went on to claim that she “couldn’t believe a government led by the Conservatives would put forth a proposal that would mean less oil exporation, less welfare and fewer jobs in Norway within the most important industry we have, oil and gas. I think this is just tragic.”
Progress’ votes in Parliament may not be needed, however, if the left-wing pro-climate parties offset them in a rare cooperation with a non-socialist coalition keen on re-election. Labour may go along as well, leaving Center and Progress on the losing side.
Industry unprepared to respond
Several oil companies themselves are less enthusiastic about more oil and gas exploration at a time with both the International Energy Agency and the UN have urged against it. Fossil fuel isn’t likely to be as much in demand or profitable in the years to come, with most oil companies investing at least symbolically in renewable energy projects.
Officials at Norway’s state-owned oil and energy company Equinor confirmed the government’s claims that they were not informed of the proposed changes before they were announced Tuesday evening. Finance Minister Sanner had said at the government’s press conference that “we have not been in contact with the (oil) industry on this,” because of restrictions on sharing “sensitive” information that can affect share prices.
Sissel Rinde of Equinor referred to the proposals as “extensive changes” that the company “needed some time” to study. Norway’s oil lobby organization Norsk olje og gass, now led by the former Conservatives government minister Anniken Hauglie, also described the proposed changes as “extensive.” Hauglie told newspaper Vårt Land that she and her colleagues would “carefully” examine the proposals and respond during the hearing period that lies ahead.