Norway’s approach demonstrates that carbon price alone will not drive change
The climate debate within the industry is over – petroleum-producing nations and upstream companies must act to reduce their carbon emissions, according to analysis by Wood Mackenzie.
Wood Mackenzie assesses the lessons that can be learned from Norway’s long-standing cost on carbon.
In the wake of the Paris Agreement, Norway has emerged as a potential role model for other petroleum-producing nations. Having introduced its first carbon tax in 1991, the country is well ahead in terms of developing world-leading legislation and policies that challenge upstream companies to cut carbon emissions.
Norwegian production has remained at around four million barrels of oil equivalent per day since the carbon tax was implemented 25 years ago. In the same period, carbon emissions have increased by 40 per cent, from 10 million tonnes of CO2 equivalent in 1997 to 14 million in 2016.
Based on these trends, the impact of carbon taxes on emissions could be considered underwhelming. But this is due to the maturity of the Norwegian sector. The carbon intensity of maturing fields increases as production declines and emissions remain relatively flat.
Indeed, Norway’s emissions on a unit of oil and gas basis are much lower than other petroleum-producing countries. In the past five years, Norway’s emissions per unit of production has averaged 9.7 tonnes of CO2 equivalent per thousand barrels of oil equivalent (t CO2/mboe) compared with the global average of 18 t CO2/mboe – almost half as carbon intensive.
But tax alone isn’t enough. One of the most important policies to reduce carbon emissions is the requirement for upstream companies to take account of emissions in every field development plan on the Norwegian shelf, according to Wood Mackenzie..
The authorities can, and often do, challenge them to find lower carbon development solutions. Power-from-shore from hydroelectric generation is already in place at six fields on the Norwegian shelf, avoiding approximately 10 million tonnes in carbon emissions to date.
The most recent example of changing upstream company behaviour is the electrification of field developments in the Utsira High area of the Norwegian North Sea.
There was rigorous debate among stakeholders around the associated costs and benefits but it was eventually decided that the Johan Sverdrup, Edvard Greig and Ivar Aasen field will all be powered from shore by 2022.
The Utsira High will be the production hub of the future and more than three billion barrels of oil and gas will be produced from seven fields in the area over the next 50 years. By powering existing projects from shore, almost 20 million tonnes of CO2 will be avoided, reducing the carbon taxes to be paid by upstream companies by almost US$2 billion over the life of the projects.
On a purely economic basis, the investment costs of power-from-shore outweigh the benefits of lower carbon taxes. But, as more projects are tied into the power-from-shore infrastructure, the cost-benefit could shift so that eventually, aggregate savings outweigh the costs.
Power-from-shore, from hydroelectric generation, will be difficult for other nations to emulate but lessons can still be learned.
Norway’s approach demonstrates that carbon price alone will not drive change. A combination of carbon price, policy and technological development is required.