Climate change: learning from Norway

Norway is taking a symbolic lead on tackling greenhouse gas emissions by announcing that it will be offsetting all official air travel. While this is mostly a symbolic move - official air travel is a tiny proportion of emissions - it sends a powerful signal to the public that the government is taking action and that they should too. The obvious question is, why isn't New Zealand doing this as well? And why, given Helen Clark's stated desire to put New Zealand at the front of international action on climate change, weren't we doing it already?

While we're on the subject, New Zealand could learn a lot from Norway on how to manage its greenhouse gas emissions. Like New Zealand, Norway has a strong reliance on renewable energy, and a lot of trees. Unlike New Zealand, it has used these advantages properly to put itself in an enviable emissions position. According to the UNFCCC's compilation of key GHG data [PDF, large], as of 2003 Norway has reduced its net equivalent emissions to 7.8% below 1990 levels, against a Kyoto target of a 1% increase. How has it achieved this miracle? Reading their latest National Communication [PDF], it seems that they have done everything we have not: put a price on carbon, included greenhouse gas emissions in planning requirements, and encouraged better forest management practices to improve sinks.

Norway introduced a carbon tax in 1991, at a variable rate ranging from 337 NOK (NZ$75 - 80) a ton on petrol to NOK 86 (NZ$20) a ton for the pulp and paper industry. This is heresy to policymakers in New Zealand, who have consistently stressed the need for economic instruments to impose a uniform price across the economy so as not to distort the market (and then argued against it because that would result in "leakage" of vulnerable sectors). The Norwegians don't care about that, and happily have different rates for different industries depending on economic importance and the perceived risk of leakage - and it works just fine. The main effect has been a significant improvement in energy efficiency and carbon intensity. Gross emissions have not fallen - but they have certainly risen at a much slower rate as new investments have been pushed towards efficient technology that reduces emissions and therefore costs. In the case of the oil industry (a major emitter, responsible for 28% of gross CO₂ emissions), the tax

...has contributed to reduce emissions from the offshore petroleum sector by 3 million tonnes CO₂ in 2000, equivalent to 5 per cent of total greenhouse gas emissions in Norway. Given the lifetime of these measures and the increase in the sector's activity level, it is believed that the CO₂ tax has reduced the emissions level at least as much after 2000.

More recently, the Norwegian government has started taxing other greenhouse gases such as HFCs and PFCs, as well as waste going to landfills and incinerators. They have also introduced a pilot emissions trading scheme mirroring the ETS; large industries can either pay tax or be issued permits and face the market price. New gas-fired power stations (and many parts of the petroleum industry) are being incorporated into this scheme.

Greenhouse gas emissions are covered under Norway's Pollution Control Act, and require a discharge permit. This is almost always granted, due to the overlap with other policy instruments, but the Act allows the government to require technological improvements, and this has been used to ensure that planned gas-fired power stations are both efficient and will be able to make use of carbon capture and sequestration as it is developed.

The other half of Norway's emissions control miracle has been a 56% increase in forest sequestration since 1990. It is unclear from the report how this has been achieved - it speaks mostly of improved management practices - but coupled with the slower increase in emissions, it has meant a complete reversal. Norway will be a net seller of credits during CP1, with a ready-made market right next door in the EU.

Looking at Norway shows what New Zealand could have done if we had tried. As for why we didn't, there are two basic reasons. The first is that our governments have always been half-hearted about action, seeing it as requiring too great a political cost. The second has been our policy culture. Douglas, Kerr, and the other ideological leaders of the Revolution may be long gone, but their ideas continued to dominate policymaking long after their departure, resulting in an obsession with purist market solutions. New Zealand policymakers considered both regulation and economic instruments during the 90's, but it was always one or the other; we couldn't do both as that would be "double dipping". Likewise the emphasis on the "perfect solution" of a broad economic instrument imposing a universal price across the entire economy resulted in endless policy work over taxes and emissions trading and points of obligation and allocation mechanisms - none of which makes a difference to the actual outcome provided there is a price. Meanwhile, the perfectly workable approach we had in the early 1990's of treating greenhouse gases as pollutants under the RMA and requiring them to gain resource consent was rejected as inferior to the market solution and ultimately nobbled - despite there being no economic instrument in place. As a result, we had a ten-year gap in policy in which emissions were able to grow unchecked; the quest for the perfect was very much the enemy of the good.

Regulation may be inferior to economic instruments; unequal taxes may distort the economy. But the clear evidence from Norway is that they also work. Their policies may be impure, imperfect and compromised - but they get results. And that is what is important - not how closely your (theoretical, never-implemented) policies can mirror the theory in a first-year economics textbook.