Norway is a land of contradictions. The country’s 3,600 hydroelectric dams ensure that more than 90 per cent of the country’s electricity is renewable, while an array of tax incentives have made it the most mature electric vehicle (EV) market in the world: last year, eight out of every ten vehicles sold in Norway was an EV. At the same time, the country has long been Europe’s biggest oil and gas producer, and since the war in Ukraine led many countries to phase out Russian imports, it is now also its biggest supplier of gas. Last year was consequently the Norwegian oil and gas industry’s most lucrative.
The International Energy Agency has made it clear that for the world to be on track for net zero by 2050, there is no need for any new oil and gas fields to come online. Yet despite being the world’s third wealthiest nation by GDP per capita, Norway is still Europe’s most aggressive oil and gas explorer, awarding as many exploration licenses between 2012 and 2022 as it had since it began extracting oil in 1965. Last year set a record for new Norwegian oil project submissions, as companies took advantage of generous Covid tax breaks, and huge new fields in the Arctic are planned. So will Norway ever turn its back on fossil fuels?
Opinion polls carried out by the Norwegian NGO Naturvernforbundet show that oil remains popular among the Norwegian public, says Aled Dilwyn Fisher, from the NGO. A 2021 poll showed that only 23 per cent of Norwegians opposed exploring for more oil (let alone extracting it). On an economic level, it is not hard to understand why: Norway has directed all proceeds from its 78 per cent windfall tax on oil and gas towards building a $1.3trn sovereign wealth fund, or Oil Fund. The fund is now so big that if its assets were to be split between Norway’s 5.4m citizens, it would be worth around $240,000 each. The government is allowed to spend around 3 per cent of the Oil Fund each year, which contributes to everything from developing infrastructure to improving elderly care. (In contrast, tax receipts from the 1980s boom for the UK from North Sea oil were largely used by Nigel Lawson, the chancellor, to fund a cut in the top rate of income tax from 60p to 40p.)
Norway is, however, slowly coming to terms with the need to diversify its economy as the world heads towards net zero. The current government has ended oil and gas exploration in frontier areas (though there remain discovered fields awaiting approval for extraction), while both private and public capital is nurturing a booming start-up scene.
Norway now ranks 24th in the world for the strength of its start-up ecosystem, and 9th specifically for energy and environment start-ups, according to the global start-up tracker StartupBlink. In 2021 its venture capital firms invested €1.3bn in start-ups, up 150 per cent on the previous year. Companies including Otovo (Europe’s largest residential solar market place), SpoorAI (which has developed an AI system to protect birds from wind turbines) and Heaten (which has developed an electric heat pump system to be used by industry) are among the myriad cleantech firms springing up across the country.
The above three companies have all also received investments from Norway’s fully state-owned climate investment company Nysnø Climate Investments. Established in 2018, Nysnø uses state funding (much of which is derived from oil) to invest in early-stage start-ups that contribute towards emissions reductions. Otovo was its first investment and to date its greatest success, becoming its first company to be listed on the Oslo Stock Exchange. “We wouldn’t have made it without Nysnø’s backing and we’re thankful for those investments,” says Andreas Thorsheim, Otovo’s founder and CEO.
This green surge, however, is not as big as it could be. Thorsheim adds that the government’s overall investment in renewables remains “microscopic”, and that “on balance, Norway could and should invest a lot more in offshore wind, onshore wind and solar, at home, in Europe and globally”.
The sense of imbalance is echoed by Bjørn Utgård, cleantech entrepreneur and CEO of the Norwegian electric waterway manufacturer Hyke. The company is an example of how the country’s natural resources combined with oil cash coming from the government creates the perfect conditions for a cleantech business to thrive, but Utgård notes that it is “hard to compete” with oil and gas on a cost basis. He describes the fossil fuel sector's hold on the nation's economy – including tax breaks that ensure it remains in a strong position to attract new talent – as a “poisoned pill”, asking: “How quickly do you let go of what you had to generate something new?”
A recent report from the think tank Oslo Economics confirms these fears, showing how the petroleum industry continues to restrict the development of green industries by locking in ever greater concentrations of capital and skilled workers. Norway is set to lack 100,000 skilled workers in key green industries by 2030, suggest the authors.
Joe Eliston, investment director at Nysnø, has big ambitions for the nation's climate investment company. “If it goes according to our plan, [by 2050] we’ll be the new Oil Fund”, he tells Spotlight. But currently the state contribution to Nysnø remains small; valued at around £200m, Nysnø represents less than 0.5 per cent of the total value of Norway’s state corporate investments, compared with 44 per cent from the oil major Equinor.
According to Christian Melby, partner and chief investment officer at Europe’s largest impact fund Summa Equity, Nysnø is “a positive initiative, but it’s not really making a huge dent simply due to the fact it’s very limited capital”. For Melby, the Norwegian government can afford to think bigger. He argues that the government could have been “much more ambitious” when it comes to climate investment, “given the magnitude of capital they have…and we continue to support the oil industry in a quite active fashion”.
With high energy prices and a buoyant oil and gas sector, Norway currently has the luxury of being able to slowly expand its state climate investments. But prioritising such green growth will become an economic necessity, if – as all net zero models anticipate – oil and gas demand begins to fall and energy prices become a problem, rather than boon, for producer nations.
Accelerating the shift to a green future may also be politically prudent. There is a growing global consensus that richer countries must take responsibility for their historical contributions to climate change, with pressure increasing on governments to take more radical action to finance the transition elsewhere.
Norway’s burgeoning start-up scene is moving in the right direction, but so far Norway has failed to fully answer the much larger economic question of when and how it will move on from oil and gas.
[See also: Who the green movement leaves behind]