IEA Commends Norways Energy Policy, Stresses The Countrys Key Role In International Energy Security

(Paris) — 7 February 2002

1. Robert Priddle, Executive Director of the International Energy Agency, today released the IEA's new in-depth review of the energy policies of Norway.

2. "Norway is the third largest oil producer in the OECD, after the US and Mexico, and the largest exporter. It is also the third largest supplier of natural gas to the European Union, after Russia and Algeria", Mr Priddle said. "Norway's policies have significant impact on the worldwide oil market and on the European gas market."

Oil
3. Oil and gas account for 40% of Norway's total exports and up to 16% of GDP, depending on world oil prices. Oil and condensate production is expected to be maintained at the current rate until after 2007. About a half of oil production is now from fields already in decline. Investment in these large declining fields is essential.

4. In 1986, in 1998 and again in 2002 the Norwegian government reduced oil production in an effort to bolster oil prices. The IEA review team considers that production regulation to influence the market is detrimental. Norway dissents from this view.

5. The IEA report discusses the flotation of 18.2% of Statoil in June 2001. The Norwegian government plans to eventually reduce its holding in Statoil to two-thirds. The IEA report recommends following up the initial offering as soon as possible.

Gas
6. Norway is in the process of freeing up the marketing of gas. In the past, most contracts were negotiated by the Gas Negotiations Committee, known as the GFU. From 1 June 2001, the government began phasing out co-ordinated marketing of gas. The GFU was abolished on 1 January 2002. Companies are now free to market their own gas. Statoil still provides two-thirds of Norway's gas exports.

7. Policies on gas marketing and gas depletion are closely related in Norway. It is not yet clear how the government intends to manage depletion following the abolition of the GFU.

8. Depletion policies should be developed in consultation with industry. They should be consistent with the new system of private marketing and competition. The review considers that producers should be free to competitively market their own gas.

Electricity
9. Norway has the highest per capita electricity consumption in the world. Almost all Norway's electricity is produced by hydro generation. No new large-scale hydro-electric developments are expected. Licences for gas-fired power plants have been issued. Rules limiting emissions are consistent with requirements elsewhere in Europe except that requirements for nitrogen oxides are stricter than those in force elsewhere.

10. The Norwegian electricity market was reformed in 1991. Adjustments to the basic market design have been made when necessary. In 1997, transmission price caps were introduced to encourage efficiency, and a profit range was established. Customer load profiling was introduced in 1998 to facilitate switching between suppliers.

11. The power industry has not been privatised. Municipalities and county governments own about 57% of generation capacity, the central government about 30%, and private companies about 13%. The state owns a large proportion of the central grid. Private companies, counties and municipalities own the remainder. Municipalities and county governments own the majority of the regional and distribution grids.

12. Prices in the Nord Pool have been rising in recent months, reflecting high demand and limited supply. Higher prices are necessary to provide an incentive for investment in new generating capacity. Investment in new transmission capacity may also be required to avoid price spikes or even failure of supply in a dry year. The Nordic market is becoming increasingly dependent on imports from outside Scandinavia during dry years. Short-term reliability in the Nordic market is at risk.

13. It is still unclear whether liberalised markets can attract sufficient investment in new capacity. In the Norwegian case, the high proportion of public ownership, particularly by municipalities, together with restrictions on foreign ownership, may be an impediment to investment. Environmental standards should be made to reflect what is reasonably achievable at acceptable cost.

14. Economic regulation of the electricity market is the responsibility of the Energy and Regulation Division of the Energy and Water Resources Department, known as NVE. NVE combines many functions undertaken by separate bodies in other IEA countries. The fact that these functions are combined can mean that regulatory decisions are taken with a wider range of interests in mind. But it may diminish the weight given to competition.

15. The report supports recent developments in the international Nordic electricity market, including the development of a single Transmission System Operator and the harmonisation of taxation and other regulations.

Energy-Environment
16. Under the Kyoto Protocol, Norway is committed to limit its greenhouse gas emissions to 1% above 1990 levels by 2008-2012. Emissions fell by 1% between 1999 and 2000, but they could be more than 20% above the target in 2010 if the current rate of economic growth is sustained. Oil and gas production and transport are the main sources of emissions. Carbon dioxide emissions from the oil and gas sector are expected to peak in about 2005, and then fall. The introduction of natural gas-fired generating plants in Norway would further increase emissions, possibly to more than 30% above the Kyoto target.

17. Since 1991, taxation has been the main instrument to limit carbon dioxide emissions in Norway. The tax rates are high compared to those in other countries.

18. In December 1999, a commission of inquiry proposed a system for domestic emissions trading in greenhouse gases to meet the Kyoto target. The commission recommended that a system covering nearly 90% of Norway's greenhouse gases be in place by 2008. It also recommended that the system be part of an international market, and that it should replace the carbon dioxide tax.

19. The IEA report supports continuing evaluation of the economic measures taken to limit emissions, and recommends regional harmonisation of policy, wherever feasible. If an emissions quota system is adopted, decisions will be needed on the relationship of the system to the carbon dioxide tax, and on the mechanism for allocating quotas.

Energy Efficiency and Renewable Energy
20. Increased electricity use has driven up total stationary energy use in manufacturing, services and houses. Energy use in the commercial, service and residential sectors has been climbing steadily as private incomes and the production of services have increased.

21. The Norwegian government recognises that greater effort is necessary to limit growth in the use of energy. Responsibility for this task has been assigned to a new agency for promoting energy efficiency and new renewable energy sources, known as Enova. Enova became fully operational on 1 January 2002.

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