Fossil Fuels: At What Cost? Government support for upstream oil activities in Norway

This analysis provides the first detailed accounting of oil and gas subsidies in Norway. The report finds that Norwegian government provided 25.5 billion Norwegian kroner (US$4 billion) in subsidies for upstream oil and gas activities in 2009.

The report uses the internationally recognized definition of a “subsidy” established by the World Trade Organization (WTO) as a starting point for identifying subsidies for upstream oil and gas activities. These subsidies include a tax reimbursement for exploration expenses, accelerated deductions on investments, research and development grants, the provision of seismic investigations by the Norwegian Petroleum Directorate, the provision of infrastructure and facilities by Gassco (a state-owned enterprise that operates the gas pipeline grid), and special treatment of the Snøhvit natural gas field in Northern Norway. The subsidies constitute around 13 per cent of the oil and gas industry’s total revenue.

The report analyzes the gross impacts of the largest subsidies on government revenue, employment and carbon emissions.  The authors estimate that removing the investment deductions (worth NOK 20.8 billion in 2009) and exploration reimbursement worth (NOK 4.0 billion) could reduce government revenue from petroleum taxes by 8.1 percent and reduce employment within the oil and gas and supplying sectors by 0.5 percent.  A positive reduction in national carbon emissions of 1.5 percent would also result.

Whether such changes would make the Norwegian economy better off over the long-term was not evaluated by the study team.  Doing so would have required a broader evaluation of how the subsidy savings would likely be reinvested into other sectors of the economy.[fn]Editor: While subsidy reform often results in short-term dislocations, most subsidy researchers expect that more accurate pricing of production inputs will result in higher productivity over the mid- to long-term.[/fn]

A main objective of this analysis is improved transparency regarding subsidies provided to the oil and gas industry in Norway.  This is a pre-requisite to having a more informed debate on whether the subsidies constitute a good use of public funds.

The Norwegian subsidy report is part of a GSI-sponsored series on government subsidies to the oil and gas sector.  Assessments of Canada and Indonesia have already been released; an assessment of Russia is pending.