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Giving up this source by phasing out offshore fossil fuel production—a step consistent with the world’s transitioning to a net zero economy – is a hard sell. Norwegian politicians from different parties all seem to share the position that relying on oil and gas is necessary to support the technological investments needed for a green transition to occur.
Another reason why fossil fuel exploration is advancing in Norway’s Arctic is the Norwegian tax regime. While the petroleum industry is taxed heavily, it also gets very generous deductions in the early phase of hydrocarbon exploration and development.
In fact, companies involved in exploration activities on the Norwegian shelf are guaranteed a 72 percent payback of their capital expenses, even without any taxable income.
An additional incentive to develop more oil and gas fields in the Arctic may be also created by the proposed long-term energy collaboration between Norway and the EU prompted by the Europe’s energy security crisis. In the last months, Norway has become one of the most important energy suppliers to Europe.
Currently, Norway and the EU are in the processes of negotiating long term gas contracts that may be announced as part of the green industry agreement at the COP-27 meeting in Egypt. These commitments may lead to long-term price signals that will enable more investment opportunities in oil and gas reserves in Norway’s Arctic waters.
To avoid this, a new agreement between the EU and Norway should send a clear message that oil and gas extracted in the Arctic will not be part of it. To this end, the EU can refer to its own commitment made in 2021, “not to allow any further hydrocarbon development in the Arctic,” articulated in the EU Arctic Strategy.
A new Norway-EU energy cooperation deal should be based on the vision of building renewable energy, creating transitional opportunities for workers in the fossil fuel sector, and protecting the Arctic’s areas from further oil and gas activity.
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