Norwegian Offshore Industry Faces Carbon Tax Hike

Norway's government plans to steadily increase the overall tax on CO₂ emissions to kroner 2,000 ($235)/metric ton (mt), according to a climate action plan published on January 8. The oil and gas industry has warned that the move could undermine the competitiveness of offshore production.

Norwegian oil and gas companies already pay kroner 800/mt of CO₂ emitted from production, consisting of levies under the EU's emissions trading system and Norway's own taxes. Authorities in Oslo want to see this burden increased to 2,000 kroner by the end of the decade, with Norway supplementing EU taxes with its own to meet this ceiling.

"This represents a substantial cost increase," Anniken Hauglie, director general of the Norwegian Oil & Gas Association (Norog) said. "It will raise the costs on the Norwegian continental shelf and could weaken Norway's competitiveness globally."

Norway's petroleum sector is already among the industries globally that pays the most for CO₂ emissions, Hauglie said. "We must avoid the NCS being outcompeted through high Norwegian special taxes, so that investment moves abroad."

The government's paper recognises that oil and gas production is a bedrock of Norway's economy and will continue to play a key role in years to come. While this emphasis is positive, Hauglie said, "the goal of increasing the CO₂ price must be to reach climate targets while also ensuring profitable petroleum output from the NCS, which safeguards value creation, jobs and government revenues to fund the welfare state."

Norog called for sectors affected by the tax rise to get priority in receiving the extra government revenues raised for measures to reduce greenhouse gas emissions. 

"To avoid reducing activity and weakening value creation, government funding agencies and the rest of the policy framework must therefore take account of this increase so that our overall competitiveness isn’t weakened," Hauglie said. "That will also call for adjustments to government instruments in order to generate the necessary low-emission technology development"

Such adjustments could include extending the business fund for NO_x reduction, and strengthening relevant programmes in Norway's Research Council and Enova, a state-owned enterprise that promotes the environmentally friendly production and consumption of energy, she said.

While posing a challenge to Norway's oil sector, the tax hike is good news for the Equinor-led $2.9bn Longship carbon capture and storage scheme, which will need much higher carbon prices to operate at profit. Norway's parliament approved initial funding for the project last month.