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The following OECD assessment and recommendations summarise chapter 3 of the Economic Survey of Norway published on 8 March 2010.
The sustainable development strategy establishes useful principles for promoting green growth…
Norway has long been a key promoter of environmental and social sustainability as well as sustainable economic growth as essential objectives of economic policy. The incorporation of the current strategy for sustainable development into the 2008 budget documentation was partly intended as a sign that it should be central to all policy making. The strategy sets out a number of indicators for judging progress as well as some key principles that are to be applied in policy making. In addition, the strategy makes clear that policy options should also be subject to a test of cost-effectiveness, once these principles have been applied. This test could usefully be incorporated into the principles themselves, to foster maximum progress for given use of resources.
…though the objectives and potential trade-offs could be clearer
These indicators should not be treated as objectives. As objectives the indicators may suffer from two important defects: a narrow focus on certain problems to the exclusion of others; and the inclusion of indicators which represent policy inputs rather than policy outcomes; for example, the level of official development aid. The list of indicators should be kept focused, but would benefit from a clearer and explicit separation of input from output indicators. As an approach to policy in all sectors, rather than specific sectors, sustainable development may not need the same level of attention in every budget. However, if the government wishes to maintain sustainable development as a central policy objective, the budgetary and policymaking process should periodically start with an assessment of progress and needs from the sustainable development perspective, in line with the four-yearly revision of the Sustainable Development Strategy.
Greenhouse gas emissions (1990 to 2005)
Million tonnes of CO2, equivalent using GWP-100 (Index 1990 = 100)
1. Includes the effect of the EU burden-sharing scheme.
Source: IEA (2009b).
Climate change is a key priority; Norway’s ambitions can be a valuable example to other countries
Blessed with enormous hydroelectric and petroleum energy resources for its small population, Norway is also cursed with responsibility for significant and growing emissions of greenhouse gases from the petroleum industry itself. Moreover, the substantial use of hydro power means that, for domestic purposes, Norway already has a very high share of renewable energy and that further cuts in greenhouse gas emissions will come at a relatively high cost. In any case, Norway plans ambitious emissions cuts, in part to encourage other countries to follow its lead. It has announced a target for 2008-12 10% below its commitment under the Kyoto Protocol and a 30% cut compared with 1990 by 2020. Norway has declared its ambition to become carbon neutral (taking into account Norway’s contribution to emissions reductions abroad) by 2050 at the latest and, as part of a global agreement in which sufficient other countries also take on major obligations, it would bring this target forward to 2030. However, despite reductions in some industries, domestic emissions have risen and, as planned, Norway will use offset schemes such as emission trading and the clean development mechanism (CDM) to meet its short and medium-term commitments. To keep down the cost of meeting its future objectives, and to better demonstrate to other countries how to effectively cut emissions, Norway should rationalise its domestic policies.
Norway could get more out of the CO2 tax and the emission trading system, and could address leakage at lower cost
More than 70% of GHG emissions are covered by emissions trading or the variable rate CO2 tax. The remaining sectors should be brought into the post-2012 trading system; emission allowances should be auctioned or sold, not issued for free. The CO2 tax could logically be abolished for sectors covered by the trading system if Norway were content with the emission targets implicitly reflected in the price in the EU trading system. Stronger action could be achieved with a supplementary domestic trading system or a flat-rate CO2 tax applying to all emissions. While there is concern about potential leakage from certain industries, research shows that the likelihood of significant leakage is rather small. In Norway, the real concern is often regional, as some vulnerable plants are located in remote areas. Allowing such concerns to distort climate change policy does not set a good example. Norway will almost certainly be a big user of the clean development mechanism, and thus has a strong interest in verification and enforcement. In part to demonstrate its commitment in this area and to promote improvements, Norway should consider making extra efforts to improve and develop UN procedures to validate and monitor the effects of CDM projects.
Other policies to reduce emissions, ranging from waste management, urban and transport planning to building standards and educational programmes, also have important roles. The KlimaKur programme should be used not to specify sectoral targets but to provide information on cost-effectiveness to guide priorities in these areas. In parallel, cost-benefit analyses of public investment, and of other programmes designed to reduce emissions, should all use the same, explicit assumption on the cost of emissions (i.e. the price of emission allowances plus any general tax) over their lifetime. For example, given the increasing urgency of action on climate change, consideration could be given to a comprehensive assessment of constraints on cost-effective increases in the supply of hydropower and other renewable energy, which could for example supply European electricity markets, thereby reducing the cost of emission reduction there and earning significant economic returns for Norway.
Sustainability is an essential part of fisheries policy and depends on international cooperation
Following periods of stock collapses and very poor stock levels in a number of important fisheries, sustainability has become a key preoccupation of fisheries policy. The treatment in this Survey is insufficient to draw comprehensive conclusions on what policies make for successful stock management, but it is clear that, in addition to setting maximum limits on the fish catch, some regulation of the fishing technology used, such as net design, remains indispensable. Also indispensable is effective cooperation between the different countries fishing the same stocks; such cooperation needs to cover both agreeing the policy setting, such as maximum catches, and effective enforcement.
Cooperation seems to be easier when few countries are involved than when there are many: the two key stocks that are shared largely between Norway and Russia, with other countries relatively insignificant, have recovered quite strongly over the last decade; but those in the North Sea, shared more equally with a number of countries (the European Union has a common fisheries policy but implementation is delegated to individual countries), are generally still struggling. But Norway too sometimes subordinates the interests of longer-term sustainability to the interests of coastal communities, such as in the case of the coastal cod fishery. Extending and widening the use of a discard ban by the European Union, as experimented with in the North Sea, could be a fruitful area for discussion between Norway and its European partners.
The fishing industry has been weaned off most subsidies but is largely self-regulated and exempted from parts of competition law
In the past, the fishing industry was quite heavily subsidised. As some fisheries have recovered and prices have generally remained high, average profitability is now quite high and the remaining subsidies, though substantial, are through exemptions on fuel and pollution taxes and income taxes for fishermen. In line with the recommendations above, fuel tax exemption should be phased out, if possible in co-operation with neighbouring countries, all of which have similar tax breaks. One reason for improved profitability is that the system of vessel-specific quotas, self regulation and exemption from competition law allow the supply side of the industry to collect a combination of monopoly and resource rents and protect them from new entrants. Such an organisation of the fishing industry may be helpful for resource management purposes, but should not go unchallenged. Without prejudice to the current exemptions, the competition authority should be asked to investigate the operation of the quota system and the governance structure to verify that constraints on competition are no more than is necessary to manage the stocks effectively. Untying quotas from specific vessels and removing restrictions on quota trading would allow competition to improve the economic efficiency of the industry.
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The OECD Secretariat's report was prepared by Paul O'Brien, Romina Boarini and Robert Price under the supervision of Patrick Lenain. Research assistance was provided by Steinar Juel, Annette Panzera, Valery Dugain and Liliana Suchodolska.