4. EU Climate and Energy Policy: New Challenges for Old Energy Suppliers

Natural gas vehicles have lower greenhouse gas emissions and produce less local air pollution than petrol and diesel vehicles (Hesterberg, Bunn, & Lapin, 2009). Regular petrol cars can be modified to run on natural gas, and the cost is easily recouped due to the lower cost of natural gas. Almost all countries in Europe have extensive gas grids, ensuring that natural gas is easily available. If there is one area where natural gas might play a major role as a transition fuel between the oil era and a decarbonized energy system, it is in European road transport.

Paradoxically, however, most European countries except for major gas importersItaly and Poland have been slow to adopt natural gas vehicles compared to countries less well positioned for this, for example, Armenia, China, India and Pakistan. One important reason may be that Europe’s main external suppliers of natural gas—Norway and Russia—were long passive about promoting its use for road transport, failing to seize an opportunity that both countries could have benefitted from.⁴ As sales of electric battery (and in the future possibly fuel cell) cars surge, the window of opportunity for natural gas vehicles may already be closing.

A decisive moment in the failure to promote natural gas for the European transport sector came in 2012, when Equinor sold off its chain of filling stations. The chain included around 2290 stations serving over one million customers daily across Northern and Eastern Europe and is now part of the brand Circle K (Nordea, 2016, p. 2).

The filing stations could have been used as a platform for promoting natural gas vehicles and later for moving into emerging business areas such as hydrogen tanking, charging electric vehicles or rapid exchanging (rather than recharging) of batteries. When the Equinor filling stations were sold, the rationale was that petrol retail was such a competitive sector and the profits so marginal that it had become difficult to make money on anything other than sales of hotdogs and coffee. During this period, Equinor also seemed to be operating on the unstated assumption that climate policy would not have significant impact on the demand for oil and gas. The company argued that the world still needed more energy to eradicate energy poverty and claimed that Norwegian oil and gas were cleaner than those of other countries and therefore represented a lesser evil (Bjørnestad & Barstad, 2017). During the same period, Equinor was investing heavily in Canadian oil sands, having ramped up this business area around 2010. Had Equinor taken climate policy more seriously sooner, it might instead have kept its filling stations and used them to navigate the energy transition.

The combination of natural gas production and renewable energy resources creates interesting opportunities for Norway. Hydrogen could be produced from renewable energy sources and mixed with natural gas before export, raising the calorific value of the natural gas and bundling it with renewable energy (Holst et al., 2016, p. 14). Adding hydrogen to natural gas might extend the lifespan and commercial value of Norway’s 8800-km network of export gas pipelines, raising the return on the considerable sunk costs of those pipelines.

Significant technological and marketing challenges would have to be solved before such a solution could be commercially viable. If the necessary technologies were developed successfully, they could also be sold to other natural gas producers. Some work has been done on this (Lie, 2013b), but effort in this area is miniscule compared to Norwegian investments in petroleum exploration, carbon capture and storage, LNG, American shale drilling, Canadian oil sands or subsea technology (Boasson & Wettestad, 2014).

According to its promotional material, Equinor aims to be a climate-friendly company (Statoil, 2017). However, Irene Rummelhoff, Director of New Energy Solutions in Equinor, has written:

Let there be no doubt: Our [oil and gas] activity in the North Sea is Statoil’s [Equinor’s] backbone. Here we have a proud history—and an exciting future. We are also growing internationally in oil and gas. We will thus remain an energy company focused on oil and gas for a long time (Rummelhoff, 2016).

It is not surprising that a representative of an oil company should make such a statement, but it is striking that someone so central to the company’s renewable energy investments should take pains to make such a point in an op-ed in a major newspaper. It may help explain why only 3.6 per cent of Equinor’s investments between 2012 and 2016 were in renewable energy (Lewis, 2017).

In 2016, Equinor announced that it would create a fund to invest a total of NOK 1.7 billion (EUR 180 million) in renewable energy over a period of four to seven years. Then in October 2017, Equinor launched Hywind, the world’s first floating wind farm, off the coast of Scotland. At the same time, Equinor’s CEO Eldar Sætre published an op-ed, announcing the ‘ambition to invest [a total] of around NOK 100 billion’ (EUR 10.5 billion) in renewable energy over the next 13 years (Sætre, 2017a). This figure may look impressive, but was dwarfed by the company’s investments in its numerous oil and gas projects around the world. For example, the Johan Castberg oilfield alone was slated for investment of around NOK 60 billion over a six-year period—and that was after a 40 per cent budget slash due to the drop in the oil price (Krogh, 2016). It is also worth noting that the NOK 100 billion plan for renewable energy was not launched before 2017 and even then remained at the level of vaguely formulated intentions.

Equinor has also made significant efforts at lobbying the Norwegian authorities to open up the seas around the Lofoten and Vesterålen archipelagos to petroleum development and to reduce the taxes on its oil and gas activities in the Barents Sea (e.g. Haugan, 2016; Lysvold, 2016). By comparison, Equinor has put little effort into lobbying for better regulatory conditions for wind power investment in Norway. This is despite the fact that petroleum activity in the Arctic is controversial and could have negative impacts on the company’s reputation (Saltvedt, cited in Aadland, 2015; Overland & Krivorotov, 2015, p. 102).

Taking into account Norway’s wind resources, as well as the rapid growth of wind power in neighbouring Denmark, Germany, the Netherlands and the UK, Norwegian wind power is underdeveloped. The Danish and Norwegian cases make for particularly interesting comparison. The two countries were one state for over 400 years and have mutually intelligible languages, the same Lutheran heritage, the same size of population, the same level of economic development and similarly ambitious climate discourses. Denmark is a small, flat, windy country where it is easy to set up wind turbines; Norway has lower population density and a windy and much longer coast with many excellent locations for wind turbines. In sum, the two Scandinavian neighbours have different but comparable starting points for the development of wind energy (Granlund, 2014, p. 6). However, while Denmark has assumed a leading role in the global wind power sector with a generation capacity of 5228 MW, Norway is a laggard with only 873 MW (Weir, 2017, p. 4; GWEC, 2017, p. 11). A glance at some of the major potential players in Norwegian wind power confirms the impression that Norway lags behind other countries.

Equinor has an excellent starting point for developing Norwegian wind power: decades of offshore and onshore experience, a dominant position on the Norwegian continental shelf, a firm grasp of the Norwegian supply industry, close connections with the Norwegian state and high status in Norwegian society. Nonetheless, Equinor has chosen to invest in wind power in the UK and the USA rather than Norway.

Also the Danish wind power giant Vestas had a good starting point for expanding into Norway, considering the geographical and cultural proximity of the two countries. Vestas had a head start in Norway, erecting its first Norwegian wind turbine as early as 1989 and first wind farm in 1991. Nonetheless, Norway has not become an important part of Vestas’ business.

The Swedish energy company Vattenfall owns over 1000 wind turbines producing a total of almost 6 TWh per year of electricity in 2016 in Sweden, Denmark, Germany, the Netherlands and the UK (Vattenfall, 2017). Thus, Vattenfall has been investing heavily in wind power in most countries in the region—except Norway.

General Electric bought Norwegian wind turbine manufacturer ScanWind and planned to open a research centre for offshore wind power in Oslo but gave up after one year. And in 2017 Statkraft, Norway’s state-owned power company, was in the process of withdrawing from offshore wind power, selling its shares in several wind farms (Riisnæs, 2017).

By 2017, there were plans for several new major wind farms in Norway—but still, Norway has been slow to seize the opportunities offered by its climate and geography. While resting on its century-old hydropower laurels, Norway has failed to fulfil its potential as a supplier of wind power to the EU. Reasons for the slow development of wind power in Norway include lack of a favourable regulatory framework, long waiting times for concessions and lack of incentives (Rygg, 2015). Above all, the low price of electricity in Norway has served to limit the development of wind power, a topic I return to later on in the chapter.

Norway alone has around half of Europe’s hydropower storagecapacity, a good starting point for functioning as the continent’s green battery (Killingtveit, 2016, p. 4). A major precondition for fulfilling this potential is the existence of sufficient infrastructure for the exchange of electricity between Norway and the EU countries. Norway already has electricity interconnectors with Denmark, the Netherlands and Sweden. Along with the Nord Pool electricity exchange and the Norwegian–Swedish green certificate system for renewable energy, the existing interconnectors ensure that the Norwegian electricity system is partially integrated with those of its neighbours and already functions as a power bank for Danish wind power. However, the ongoing expansion of renewable energy production in many EU countries opens up the possibility for Norway to function as a green battery on a significantly greater scale.

Germany’s experience in December 2016 illustrates the need for this. A protracted period of dense fog and lack of wind, combined with lack of interconnectors and coordination between electricity market actors in different parts of the country, led to problems with the German electricity supply, exposing some challenges involved in the rapid expansion of solar and wind power (Flassbeck, 2016). Norwegian energy storage can help to safeguard against such events—provided there is sufficient high-voltage transfer capacity between EU countries and Norway.

Using Norway as a green battery is a win-win arrangement for Norway and the EU. It can increase Norway’s export earnings, mitigate the energysecurity concerns of EU countries related to the intermittency of solar and wind power and make it possible to store rather than waste their surplus of clean energy production. Thus, it can increase the viability of the EU’s own renewable energy production and facilitate increased imports of renewable energy while also bringing significant financial benefits to Norway. As both sides have strong incentives, this may be some of the lowest-hanging fruits in international climate and energy cooperation. EU actors have called for the development of energy storage capacity, indicating that Norway could provide part of the solution (EC, 2011, p. 34; German Advisory Council on the Environment, 2011; Moser, Maaz, Baumann, & Schäfer, 2015). As Gullberg (2013, p. 615) notes, using Norway as a green battery for Europe is certainly technically feasible: the question is whether it is politically and economically feasible. One might add: for the Norwegian side.

Many of the experts who have analysed or commented on Norway’s potential as a green battery have been enthusiastic (Gullberg, 2013, p. 615; Hagem, 2016). However, much of the public debate on the required expansion of electricity interconnectors has been negative, as they are expected to lead to higher electricity prices within Norway. The Norwegian Union of Industry and Energy Workers has been staunchly opposed (Gullberg, 2013, p. 619). Hogne Hongset, former Director of Communications in Equinor, warned in Verdens Gang, Norway’s most widely circulated newspaper, that Norwegian electricity consumers are being conned and that the companies that want to build cables to other countries are more interested in raising electricity prices for their Norwegian customers than in expanding exports. He also stated that the companies ‘use climate arguments that have no substance at all’, without providing further explanation (Hongset, cited in Haugan & Vågenes, 2016). Other examples of the critical, often angry, discourse against the expansion of electricity interconnectors with other countries include Gjelsvik (2017), Sætre (2017b), Handegård (2016, 2017), Braanen (2017), Byrkjeflot (2017) and Klassekampen (2015). An editorial in the newspaper Rogalands Avis (2013) is particularly vitriolic:

The sum of all this is that the [Norwegian] consumers in the coming years will be burdened with colossally overpriced electricity bills, while the Norwegian electricity system will become as costly and chaotic as those of most EU countries. This boundless insolence will be the greatest scam in Norwegian history if the electricity industry has its way for another ten years and its greed is not reined in.

In addition to disregarding Norway’s contribution to ensuring the success of the EU’s energy transition, this discourse ignores the point that raising Norway’s low electricity prices is actually a good thing in its own right, creating incentives to improve energy efficiency. Higher electricity prices for Norwegian consumers could be seen not as a negative side-effect of expanded interconnectedcapacity but as an objective.

Limiting the number of interconnectors would not only restrict Norway’s prospects as a green battery but also help keep Norwegian electricity prices low, thereby limiting the incentives to develop areas such as wind power, small hydro and pumped-storagehydropower. The consequences of low electricity prices are illustrated by the modernization of hydropower. The most cost-efficient way of increasing renewable energy production in Norway is to modernize the country’s existing hydropower plants. Many of them were built between the 1930s and 1960s; some have since been modernized, while others could still attain greater efficiency. However, with the limited capacity for power exports and the consequent low electricity prices in Norway, there have been few incentives for modernization.

In practice, resistance to the installation of electricity interconnectors is a call for the equivalent of large-scale indirect subsidies for Norwegian electricity consumption. Producers are forced to sell electricity at lower prices in the domestic market than they could have obtained in foreign markets, thus keeping domestic prices lower in Norway than in almost any other European country (see Fig. 4.2). This is comparable to countries such as Iran, Saudi Arabia and Venezuela, which have subsidized petrol consumption by limiting exports to the world market, where the oil would have fetched a higher price (Cheon, Lackner, & Urpelainen, 2014; Mundaca, 2017). Although hydropower does not generate significant greenhouse gas emissions, the general principle of de facto indirect subsidization is similar. The categorization of such indirect price-limiting mechanisms as subsidies is also supported by the use of the price-gap method as one of the standard approaches to identifying energy subsidies (Koplow, 2009, pp. 1–2; Kojima & Koplow, 2015, p. 6; Overland, Suryadi, & Win, 2016, p. 9; Overland & Kutschera, 2011).⁵

I set out to appraise Norway’s effort to prepare for and contribute to the EU’s energy transition. However, what yardstick this effort should be measured by is not clear. The difficulty can be illustrated with a public debate that took place in 2017 between Kjell Roland and Torger Lien on the one hand and Per Sanderud on the other.

According to Roland and Lien (2017, p. 28), Norway has failed to promote products and pricing structures that facilitate payment for its capacity to function as a green battery. As a result, 1 kWh of flexible Norwegian hydropower does not earn a premium over 1 kWh of inflexible Danish wind power. According to Roland and Lien (2017, p. 28), the lack of a more proactive Norwegian approach towards Brussels and the EU countries is an ‘incomprehensible’ paradox. Sanderud, Director of the Norwegian Water Resources and Energy Directorate, disagrees with Roland and Lien, arguing that the Norwegian authorities are working hard to create the conditions for Norway to become a green battery for Europe (Sanderud, 2017).

The decisive question in the discussion between Roland, Lien and Sanderud—and for this chapter—is whether Norway has done enough and, by extension, how much is enough. This question concerns not only the green battery issue and the installation of electricity interconnectors but also all the areas discussed above, including the promotion of natural gas vehicles, mixing of hydrogen into natural gas and facilitating the development of Norwegian wind power. Although it is difficult to find objective criteria by which to resolve such discussions, there are some strong arguments in favour of concluding that Norway has not fulfilled its potential for positioning itself for, or contributing to, the EU’s energy transition.

First, as one of the countries in the world that has profited most from international oil and gas consumption, Norway has a particular responsibility for mitigating climate change (Fuglestvedt & Kallbekken, 2015; Rive, Torvanger, & Fuglestvedt, 2006). Viewed from the perspective of climate justice, Norway’s contribution to mitigating climate change should not be half-hearted.

Second, in climate mitigation, time is of the essence (den Elzen et al., 2017, p. 15; Blok et al., 2017, p. 37). Rapid action is important not only because greenhouse gas emissions need to be cut fast but also because it can provide an infrastructural basis for developing renewable energy in other countries and because it sends market and policy signals to all the actors who are trying to second-guess future developments. As Sanderud and many Norwegian ministers have argued while championing government policy, Norway has managed to get many things right in its climate and energy policies. But have the measures come early enough? In each of the areas discussed above, one can ask, ‘Could Norway have acted earlier than it did?’ In most cases, the answer is probably ‘yes’. In some cases, Norway might have acted a decade earlier.

Third, the EU has been emitting strong climate policy signals since the early 1990s (Oberthür & Pallemaerts, 2010). The 1990 report of the Intergovernmental Panel on Climate Change (IPCC) almost immediately triggered a debate in the European Council; that same year, European leaders agreed to stabilize greenhouse gas emissions at 1990 levels by 2000 (European Council, 1990). From then on, the EU has sought to take a proactive stance in climate and energy policy, within Europe and globally, with initiatives like the ALTENER renewable energy targets (adopted in 1993) and by playing leading role in negotiations and implementation of the Kyoto Protocol (adopted in 1997). A particularly important policy signal was the approval in 2007 of the 20-20-20 targets: by 2020, the EU was to reduce emissions of greenhouse gases by 20 per cent, increase energy efficiency by 20 per cent and achieve 20 per cent of renewables in total energy consumption (Arababadi, Moslehi, El Asmar, Haavaldsen, & Parrish, 2017; Calvin et al., 2014). It is also worth remembering that the EU was originally founded in 1951 as the European Coal and Steel Community, which helped avoid a repeat of the world wars by regulatingcompetition between the European powers in the energy and industrial sectors. EU energy policy signals should therefore carry some weight.

Fourth, as noted above, the EU countries have sent positive signals specifically about Norway’s potential role as a green battery. Germany—probably the most important potential market for Norwegian renewable energy cooperation—has been especially vocal here.

Fifth, in all the issue areas discussed in this chapter, Norway has a national economic self-interest in positioning itself for the EU’s energy transition. Taking a proactive stance should therefore be relatively easy for Norway—compared to the other major external energy suppliers such as Algeria, Nigeria or Russia, or compared to an EU country such as Poland, where phasing out coal is socially and economically painful.

One possible reason for Norway’s tardiness is the perennial challenge of fighting off ‘Dutch disease’, as easy oil income drives up prices in Norway and draws labour and investors away from nonpetroleum activities. In addition, hydropower is abundant. Consequently, Norwegian climate and energy policy, and especially the wind industry, struggle against a dual resource curse: of oil and of hydropower. Although Norway has largely escaped other aspects of the resource curse such as corruption, authoritarianism and internal conflict (Overland, 2018b, p. 217), the easy, rich rents from these two sectors have distracted the country from other possibilities.

A major hindrance to adapting to the energy transition can come from path dependency and societal inertia within the energy-exporting countries, sometimes referred to as ‘carbon lock-in’ (Unruh, 2000). Norway is anchored in the petroleum sector in several ways:

Renewable energy cannot match this in the short run. Even in Norway, where nearly all onshore electricity is generated from hydropower, the lobbying clout of the hydropower sector pales compared to that of the petroleum industry. Hydropower is highly efficient and employs hardly any people; once constructed, dams may last for centuries. Moreover, hydropower generation does not generate tax revenues anywhere near the scale of oil and gas, as most of the electricity is sold cheaply to Norwegian households and industry.

Part of Norway’s carbon lock-in may also rest within the government apparatus for the energy sector, as reflected in the title ‘Ministry of Petroleum and Energy’.⁶ This choice of wording indicates an oil and gas bias in two ways. Firstly, petroleum is mentioned explicitly, whereas all other energy sources are lumped together as ‘energy’. Secondly, ‘petroleum’ comes before ‘energy’. The other government units and government-controlled companies subordinated to the ministry also indicate an emphasis on the petroleum sector, with five organizations related to oil and gas, only three working on other issues, and no organization dedicated solely to wind power. The structure of the government apparatus may reflect the past of the Norwegian energy sector rather than its future.

Another aspect of the Ministry of Petroleum and Energy is that it has often been the purview of some of the country’s most pro-oil politicians. The last three Ministers of Petroleum and Energy—Ola Borten Moe, Tord Lien and Terje Søviknes—have all been staunchly pro-oil and unlikely to spearhead an energy transition. Both Lien and his predecessors have attempted to hinder the EU’s adoption of ambitious energy efficiency targets, fearing that they would reduce demand for Norwegian gas (Barstad, 2014). This has reinforced the silos between climate and energy policy, which are a problem in many countries, including Norway. On the other hand, two of these ministers—Lien and Søviknes—have also been strongly in favour of the expansion of electricity interconnectors with other countries, unlike many other actors (see Lien, cited in Lie, 2013a).

The resistance to the installation of electricity interconnectors can be seen as a form of energy populism. Drawing on central works in the academic literature on contemporary populism such as Mudde (2004, p. 543), Madrid (2008, p. 482) and Acemoglu, Egorov, & Sonin, (2011), energy populism can be defined as a political discourse that pits the supposed interests of ‘the people’ against ‘the elites’, often combined with resource nationalism, suboptimal but popular economic solutions such as subsidies, and promises of an easy life. The element of energy populism in the debate on electricity interconnectors is an obstacle to Norway fulfilling its potential role as a green battery for Europe. It is paradoxical that such a phenomenon should arise in Norway, where, for example, the early introduction of the CO₂ tax could be considered decidedly non-populist (see Boasson & Lahn (2017) for further discussion of the political context).

At least two blind spots in the Norwegian conceptualization of climate policy may also play a role. Many Norwegian actors have seen climate mitigation as a moral obligation, but they have been divided as to whether this responsibility entails a necessity to cut emissions domestically or to spend funds as cost-effectively as possible by investing them in emission cuts in lower-cost countries (Anker, 2016; Hovden & Lindseth, 2004). The latter view has predominated in government policy, but both have featured in the public debate. Between these two main stances in the Norwegian debate, two alternative perspectives have often been lost. Firstly, climate mitigation need not be solely a moral obligation, it can also be a source of industrial opportunity and income. Secondly, although it is in many cases cheaper to spend funds on emission cuts abroad, through domestic measures Norway may be able to create precedents that influence other countries, thus achieving a greater effect.

Norway’s policy on electric vehicles can serve as an illustration. One reason why electrification of transport emerged as a priority was that Norway already had a very high share of hydropower in its production of heat and electricity (onshore). Thus, electric vehicles were seen as relatively low-hanging decarbonization fruit in the specific context of the Norwegian energy mix. The public debate in Norway has focused on domestic aspects of the electrification of transport and not the importance of setting an international precedent by demonstrating the viability of such electrification or contributing to an embryonic world market for electric vehicles that could kick-start competition among car manufacturers for future growth in demand. The public debate has also largely skirted the issue of Norwegian industrial interests. When support measures for electric vehicles were introduced, Norway had its own electric vehicle manufacturing industry, which produced the small car ‘Think’. Yet there was little attempt to link the measures to an industrial policy for the fledgling Norwegian car industry. And political and public interest did not take off until much later, by which time the Norwegian electric vehicle industry had gone out of business.