IEA (2022), Norway 2022, IEA, Paris https://www.iea.org/reports/norway-2022, License: CC BY 4.0
Norway has set ambitious targets for reducing greenhouse gas (GHG) emissions and establishing a low emissions society by 2050. As an energy-rich country, Norway is in a unique starting position with respect to the energy transition. An abundance of affordable hydropower has enabled the development of energy-intensive industries and a high level of electrification of homes and businesses with limited GHG emissions. At the same time, as a major oil and gas producer and exporter, Norway will need to support an evolution of its energy sector amid a global energy transition.
Thanks to its ample reserves of oil and natural gas, Norway is a net energy exporter: in 2020, 87% of its energy production was exported. From a global perspective, Norway is the seventh-largest natural gas producer in the world, supplying 3% of global gas consumption. Norway is also a significant oil producer, accounting for 2.3% of global oil production in 2020. As a reputable and reliable producer, Norway has played a stabilising role in the world’s oil and gas supply, particularly in meeting European demand.
In addition, its extensive hydropower resources covered 92% of electricity generation, supporting an almost completely renewables-based power sector. Moreover, Norway’s energy demand is highly electrified: in 2020, electricity covered almost half of the country’s total final consumption (TFC), the highest share among IEA member countries. Norway has tremendous potential to further leverage its clean electricity system to decarbonise other sectors of the economy through additional electrification.
Nonetheless, to meet its ambitious target of being a low emissions society by 2050, Norway has considerable work ahead, especially since electricity generation is already zero emissions and the country already has substantial electrification of the buildings sector and almost half of industry, thereby also achieving low emissions in these sectors. As a result, many of the easy wins for reducing emissions have already been achieved and the remaining emissions reductions will be more complex, challenging and costly, notably in transport and industry.
Overall, Norway has many natural advantages that can help it achieve a successful energy and climate transition. In particular, it can be well-positioned to lead the world on new technologies for decarbonising hard-to-abate sectors, such as electric vehicles (EVs), carbon capture and storage (CCS), and hydrogen, if the right policies and incentives are put in place. Leveraging its renewables-based electricity system, Norway can further support its goals by developing detailed, long-term sectoral transition road maps, underpinned by specific policy measures, to lay out a well-defined pathway for sectoral change.
Norway has, through its enhanced nationally determined contribution (NDC) under the Paris Agreement, committed to reduce emissions by at least 50% and towards 55% by 2030 compared to 1990 levels. In June 2017, the Norwegian parliament adopted the Climate Change Act, which establishes by law Norway’s NDC target as well as the target of becoming a low emissions society by 2050. The target is equivalent to reducing emissions by around 90-95% from 1990 levels.
As part of its Agreement on the European Economic Area, Norway participates in the European Union’s (EU) internal energy market and, therefore, co-operates closely with the EU on energy and climate matters. Norway has an agreement with the EU to participate in EU climate legislation for the period 2021-2030, covering the EU Emissions Trading System (EU ETS); the Effort Sharing Regulation (ESR) for non-ETS emissions; and the land use, land-use change and forestry regulation (LULUCF). Under the current agreement with the EU, the EU’s Fit for 55 package will update all three regulations, which Norway plans to continue to follow domestically.
The polluter-pays principle is a cornerstone of the Norwegian policy framework on climate change. Norway was one of the first countries in the world to put in place a carbon tax, in 1991, covering the combustion of fossil fuels and the petroleum sector. Today, approximately 85% of domestic GHG emissions are either covered by the EU ETS or subject to a CO2 tax (or other GHG taxes), or both. The national CO2 tax is currently around 766 Norwegian krone per tonne of CO2 equivalent (NOK/t CO2-eq) (76 EUR/t CO2-eq) for emissions outside the EU ETS.
In January 2021, Norway’s former government presented a white paper to parliament describing an economy-wide Climate Action Plan for 2021-2030 to reduce emissions by at least 50% and towards 55% by 2030. The action plan’s main emphasis is on emissions from sectors not covered by the EU ETS, including from transport, buildings, waste and agriculture. The plan includes policies and measures aimed at cutting emissions from non‑ETS sectors, which account for around half of Norway’s total emissions, by 45% by 2030 from 2005 levels. It also addresses EU ETS emissions as well as CO2 emissions and removals from LULUCF.
The main policy instruments in the Climate Action Plan are GHG taxation, regulatory measures, climate-related requirements in public procurement processes, information for the public on climate-friendly options, financial support for the development of new technologies, and initiatives to promote research and innovation. The white paper announced a gradual increase in the national carbon tax rate to 2 000 NOK/t CO2‑eq (196 EUR/t CO2-eq) in 2030, which would be one of the highest levels in the OECD.
CO2 pricing levels are robust from an international perspective and can drive meaningful emissions reductions in relevant sectors. However, even such a high carbon price is unlikely to achieve the level of emissions reductions needed to meet Norway’s climate targets. The government would benefit from more detailed projections of the levels of carbon prices needed to motivate technological shifts to cut emissions, and consider supplementary incentives and support for sectors that may need them.
As in all countries, energy efficiency has an important role to play in Norway. In the past decade, economic growth has been decoupled from energy consumption. The government has set a target to lower the overall energy intensity of the economy by 30% in 2030 compared to 2015. However, from 2015 to 2019, energy intensity fell by only 4%.
Enova is Norway’s main provider of financial support for energy efficiency projects across various sectors, as well as projects targeted toward households and consumers.
In the industry sector, which has the highest share in TFC, from 2003 to 2018, Enova provided support to projects for energy efficiency and for the replacement of fossil fuels with renewable energy. In 2018, Enova’s focus changed to innovative measures more specifically targeting emissions reductions and the shift to a low emissions society. Since 2019, therefore, Enova’s mandate no longer directly targets energy efficiency in industry.
In the buildings sector, which accounts for 34% of TFC, Norway has a target to reduce energy use in existing buildings by 10 terawatt hours (TWh) by 2030 relative to 2015 levels. The main energy efficiency measure in the buildings sector is the adoption of building codes. Since 2010, energy performance certificates are required when buildings are built, leased or sold. The government also banned the installation of fossil fuel-based heating systems since 2016 and the use of heating oil since 2020. Most buildings nowadays have electric heating systems.
In the transport sector, which accounts for 21% of total demand, Norway is pursuing an ambitious policy on EVs. Fossil fuel cars are subject to a high registration tax on purchase as well as to a CO2 tax and road use tax on gasoline and diesel. Meanwhile, zero emissions vehicles are heavily subsidised. Support includes no value-added tax (VAT), exemption from a one-off registration tax as well as reduced toll roads, ferry and parking fees. As such, Norway had the highest share of zero-emission vehicles in both car stock (16%) and car sales (64.5%) in 2021.
Though Norway has been blessed with affordable energy for a long time and has largely decoupled economic growth and energy consumption for many years, substantial cost savings could be made by reducing consumption. Improving the efficiency of energy consumption warrants even greater attention in the current context of high electricity prices that prompted the government to issue across-the-board price reductions. These sizeable outlays could have instead focused on efficiency measures with longer-lasting results. To underpin its energy efficiency target, the government should establish a national energy efficiency strategy that includes cost-effective sectoral targets as well as policy measures to help end users lower consumption.
Norway has an almost entirely renewables-based electricity system, with renewable resources accounting for 98% of generation in 2020, of which hydro is the dominant source at 92%.
Norway is also historically a net exporter of electricity to neighbouring countries, reaching a record 20.5 TWh of net exports in 2020, making it one of the largest exporters in Europe. Norway is therefore well-integrated in the Nordic and European electricity markets.
Moreover, as electrification forms a central part of any country’s energy transition, Norway finds itself in an enviable starting position. Its energy demand is already highly electrified: in 2019, electricity covered almost half of the country’s TFC, the highest share among IEA member countries.
Still, more electrification will be needed across sectors to meet Norwegian climate targets, which will require additional renewable generation capacity, such as continued expansion of hydro capacity (including upgrades of existing plants).
The share of wind in Norway’s electricity system has increased tenfold in the last decade, accounting for 6.5% of total electricity generation in 2020, making it the second-largest electricity generation source in the country. However, Norway has faced local opposition to onshore wind power projects, based on the perceived impact on landscapes and ecology. Following a pause on new licences for onshore wind in 2019, the government announced in April 2022 that it would resume licencing for new projects where local municipalities are supportive.
The Norwegian government also has ambitions to build-out offshore wind capacity and supply chains. Norway is currently building the world’s largest floating offshore wind farm (Hywind Tampen), based on Equinor’s floating wind technology, with a total installed capacity of 88 megawatts (MW). Beyond this project, two areas have been assigned for offshore wind power development to date, one on deep waters with high-cost floating technology and one with a bottom-fixed solution. However, the government is still in the process of creating a licencing framework for offshore wind. It is working to make the licencing process more efficient, to facilitate offshore wind projects in operation before 2030. As such, offshore wind will not make much of a contribution to Norway’s power mix this decade.
The country will also benefit from expanding the national grid (or assisting Sweden in enforcing its grid) to ensure that surplus generation in the north of the country can more easily make its way south. Increased use of flexibility mechanisms to balance the grid will also be needed, and existing hydro storage capacity provides a good base.
The oil and gas sector is Norway’s largest one based on value added, revenues, investments and export value. As such, the sector plays a critical role in the Norwegian economy and in financing the Norwegian welfare state. The country’s export revenues from the petroleum industry are estimated to be over NOK 800 billion (EUR 80 billion) in 2021 and expected to double in 2022. The Government Pension Fund Global, financed by the revenues from oil and gas production, finances public pension expenditures, provides benefits to both current and future generations from petroleum revenues, and protects the country’s long‑term economy from volatility in oil and gas revenues.
The Norwegian government remains confident that Norway can compete on a smaller global market for oil and gas over time. With relatively low production costs and emissions intensity of upstream operations, Norway is well-positioned as a provider of oil and gas to the world market. Nonetheless, the government should plan for a scenario in which oil demand falls faster than expected as a result of many countries having net zero by 2050 targets.
Moreover, in terms of national emissions reductions, the oil and gas industry is one of the leading sources of GHG emissions in Norway, accounting for around a quarter of the country’s total emissions. The industry has ambitions to further reduce emissions in the upstream petroleum sector up to 40% by 2030 compared to 2005, and to achieve net zero emissions by 2050. While some of the planned emissions reductions will be achieved through Norway’s participation in the EU ETS, steeper emissions cuts will be needed to meet 2030 and 2050 targets, implying that the next tranche of emissions reductions in the sector to meet climate targets will be more challenging and costly. Results can come not only from the escalating carbon price, but also from additional electrification and technologies such as CCS in the longer term. However, these options need to be thoroughly and holistically assessed with an eye to not only cost competitiveness, but also the development of planned new industries – including batteries, hydrogen and data centres – that will also need to draw power from shore.
Energy technology and innovation will play an important role in Norway’s energy transition, in particular to leverage the existing strengths of its energy sector in new areas, such as CCS and hydrogen.
Building on the 2030 Climate Action Plan, in June 2021, the government presented a white paper on energy policy and long-term value creation from Norwegian energy resources, including through new industries such as hydrogen and offshore wind, strengthening the power grid, and a future-oriented oil and gas industry with low emissions from upstream activities.
Innovation in Norway’s energy sector is spearheaded by Enova, an entity owned by the Ministry of Climate and Environment. It supports new energy and climate technology in industry and transport, and the introduction of new technologies.
CCS is a priority area for Norway’s climate action, and is identified as an important measure in Norway’s NDC. The Langskip (“Longship”) project, currently under construction, is a central part of the government’s policy for CCS. The project comprises state support to two full-scale capture facilities and one storage facility in the North Sea. Langskip aims to facilitate learning and cost reductions for subsequent projects in an international perspective. The carbon tax introduced in 1991 has also been one of the key drivers of CCS on the continental shelf. In addition to several pilot projects, there are currently two large-scale CCS projects operating in Norway and one under development. As such, Norway has established itself as a leading country for CCS deployment and is home to a number of companies with CCS expertise. The technology can notably play a role in decarbonising the industry sector (such as upstream oil and gas production, cement, and waste incineration) and also facilitate the production of low‑carbon hydrogen, along with offering vast CO2 storage capacity for other countries.
The Norwegian government also offers several R&D-related support measures for the development of low-carbon hydrogen. The government published a Hydrogen Strategy in June 2020, followed by a white paper in 2021 that assessed the entire energy sector and included a road map for hydrogen. The road map includes signposts for the production and use of hydrogen in the 2025, 2030 and 2050 horizons. An important point in the government’s vision is to develop a coherent value chain where production, distribution and use are developed in parallel.
The government of Norway should:
- Establish national emissions reduction strategies for key sectors to 2030 and 2050 that include specific targets and define supporting policy measures.
- Assess various scenarios for future global oil and gas demand as part of a longer-term strategy for transformation from oil and gas revenue dependency, including diversification into low-carbon energy carriers.
- Consider measures to supplement carbon pricing to achieve harder to abate, costlier emissions reductions, especially in the industry sector.
- Prioritise energy efficiency as a policy area, including through sectoral targets, action plans and supporting measures, especially in the buildings and industry sectors.
- Promptly advance a robust regulatory framework that provides long-term investment signals and supports strong deployment of offshore wind generation.
- Increase ambitions to jump-start clean technologies where Norway may have competitive advantages and means, such as hydrogen, green shipping, carbon capture and storage, and offshore wind.