Norway Takes Hard Look at Climate Risk for Vast Oil Riches

(Bloomberg) -- What is 47 billion barrels in oil and gas really worth in an age where renewable sources are increasingly filling the world's energy needs?

That's what Norway, western Europe's biggest oil and gas producer, is asking itself as it prepares to take a hard look at the risks climate change poses to its economy and its petroleum resources even as it moves exploration and production farther into the Arctic.

After being re-elected last month, the Conservative-led government is now setting up a commission to study climate-related risks, ranging from physical threats to the impact of changes in energy consumption on the value of its oil and gas resources, Climate and Environment Minister Vidar Helgesen said.

Martin Skancke, an economist and former Finance Ministry top bureaucrat, will lead the seven-member commission composed of academics, which will present its conclusions by Dec. 14, 2018, the Finance Ministry said in a statement on Friday.

“We're seeing both accelerating climate change that can lead to large costs as a consequence of infrastructure destruction, and accelerating technology changes, especially in energy and transportation,” Helgesen said in a phone interview on Thursday. “That's coming very fast, and that has an impact on the value of fossil resources over time.”

Oil Fund

Petroleum production, led by Statoil ASA, has made Norway one of the richest countries in the world, helping it amass a 8 trillion-krone ($1 trillion) sovereign wealth fund. But Norwegians are now increasingly questioning whether it makes financial or moral sense to invest in more exploration and output as energy sources such as solar and wind become cheaper. There's also a debate swirling over whether the wealth fund, known colloquially as the oil fund, should sell off oil-related stocks, after divesting most of its coal share.

Norway still has the equivalent of an estimated 47 billion barrels left in discovered and undiscovered oil and gas resources after production started at the Ekofisk field in 1971.

But the recent election campaign saw a fierce debate over the future of Norway's petroleum industry, which lost about 50,000 jobs during the recent market downturn. A key lawmaker from the opposition Labor Party, typically a staunch support of the oil industry, came under fire from labor unions as well as the government parties for suggesting a review of climate-related risks to the economy should include scrutiny of tax breaks on oil exploration expenses. 

Nothing is now sacred for the commission set to be announced next week. It will have a broad mandate and be able to define relevant climate risks, including the petroleum-tax system if it wants to, Helgesen said. Still, the commission's mandate doesn't include proposing measures to reduce emissions or changes in the tax system, the Finance Ministry said.

“The commission will consider climate risk broadly, and that means they can make considerations of different risk factors for Norway, nothing excluded,” Helgesen said. “But it's not a commission that will make recommendations for climate or tax policy or other things.”

To contact the reporter on this story: Mikael Holter in Oslo at mholter2@bloomberg.net.

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Stephen Treloar, Jonas Bergman