Norway doubles down on fossil fuel as rest of the world leans to greening COVID-19 recovery packages

Posted on June, 04 2020

The Norwegian government’s Finance Committee will today make a crucial decision about how it will respond to the COVID-19 crisis. On the table is the issue of whether or not to increase benefits to its fossil fuel sector through increased tax benefits.
The suggested changes include faster depreciation and an additional uplift to an already generous tax regime. The decision, if in favour of the tax benefits, will have effect on oil investments until 2027.
A final recommendation by the Finance Committee is expected to be announced tomorrow, Friday 5 June, while the final government approval will take place on 12 June.
The petroleum industry is Norway's largest industry, and Norway is the 8th largest producer of oil and the 3rd largest producer of gas in the world.
While the Norwegian Ministry of Finance and several of Norway’s leading economists have warned against the changes, saying they will provoke investments in fields that would otherwise be unprofitable. The new tax regime is also likely to increase and extend activity into vulnerable territories in the Arctic.
“The Conservative Party and the Labour Party hold the key to how the oil tax regime will favour oil companies for the next decade, and they are now in the final negotiations, says Ragnhild Elisabeth Waagard, senior policy advisor for WWF-Norway.
“WWF has long been critical of the Norwegian oil tax system for being too investment friendly.”  While the oil companies pay a 78% marginal tax rate on profits, the government takes 88% of the investment costs. This is large part due to fast depreciation (six years) and an uplift (20, 8% over four years).”
Both of these are now likely to be changed (depreciation one year and uplift 20,8% over one year), which will lead to an even more investment friendly tax regime, leading to opening of oil  and gas fields that are not profitable with today’s oil price. This will keep Norway locked into the oil era at least a decade longer than what would be the reality with market signals and a neutral tax system.
“Norway can’t play it both ways: being seen as a global climate champion but then abandons this role when it comes to its fossil fuel industry. We urge the members of the Finance Committee in Parliament to ensure Norway’s COVID-19 recovery packages help advance our efforts to tackle the climate crisis. Therefore they must vote against this tax proposal,” says Waagaard.
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Oil rig in Norway.
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