The Norwegian economy proves the norm

National economies and their policies are a bundle of paradoxes and contradictions. While one can discern the broad direction of policy-making, simplistic labels like free market capitalist or green economy conceal more than they reveal. As the cliche goes, the world is rarely black or white. 

Norway is an interesting exhibit in this regard. It is perceived as a free market economy, has a special reputation for promoting peace globally, is a vocal supporter of the decarbonisation and green economy movement, and so on. Here is a more complex reality,

Norway, a nation of 5.5 million people, where energy represents about a third of economic output and where, not unlike Saudi Arabia, the government owns not only the oil and gas fields but also large stakes in companies extracting them. By increasing demand for this energy, the war in Ukraine has helped add about $100 billion to Norway’s oil and gas earnings... Energy companies made adjustments that increased gas production at the expense of oil. The result was an 8 percent increase in gas production last year, which made Norway the source of about one-third of the gas consumed in Europe...

Norway has reaped handsome financial rewards for coming to Europe’s aid. Just as energy companies like Shell and BP pulled in record profits last year, Petoro earned about $50 billion in 2022, almost three times what it made in 2021, and Equinor reported record adjusted earnings of $75 billion. Revenues from oil and gas contributed $125 billion to the Norwegian state in 2022, according to government estimates — about $100 billion more than in 2021. That money flows into a $1.3 trillion sovereign wealth fund formally called the Government Pension Fund Global but known to many as the oil fund. It holds, on average, 1.5 percent of 9,000 listed companies worldwide, and the government can tap its expected annual earnings to finance almost 20 percent of the state budget. This arrangement helps shield the Norwegian economy, which grew 3.3 percent in 2022, from the ups and downs of oil and gas prices... In 2020, the government put into effect temporary tax changes to ensure that the pandemic did not halt investment in the industry. These incentives have led to a burst of new drilling and development, worth an estimated $43 billion. An oil and gas company based outside Oslo, Aker BP, plans to invest $19 billion to increase output by a third by 2028... Hilde-Marit Rysst, the leader of SAFE, a union that represents 12,000 energy workers, said working on petroleum platforms was more stimulating and rewarding than the work available in the renewable energy industry. “You use your brain, your education and your experience,” she said. “It doesn’t look like you are going to get that from wind turbines.”

Consider these snippets

1. Norway's SWF contributes about 20% of national budget revenues!

2. All the oil and gas fields are owned by the government, and it also owns major shares in the oil companies!

3. Norway has been increasing its investments and capacities in oil and gas exploration, even as it has been at the forefront of the green movement!

4. For all its green signalling, Norway is as much an oil-gas economy as Saudi Arabia!

5. Finally, it may not be incorrect, in the final calculus, to argue that Norway may be the biggest financial beneficiary of the Ukraine invasion!

These paradoxes capture the messy realities of our world. As Ha Joon Chang and others have described eloquently with examples, examine the policies of any developed free-market economy today and you'll see traces of very active state involvement everywhere. It's disingenuous to prescribe privatisation of the extraction of your primary natural resources (mostly to foreign mining companies) as the only option, instead of encouraging the creation of effective governance arrangements. It can be argued that corruption from failed governance systems may be slightly less worse than corruption by mortgaging the country's natural resources to foreign interests. 

The irony about the reliance on oil and gas and its capacity expansion in the face of all talk about a green economy is stark. This dissonance between talk and actions is emblematic of many things about the energy transition. At a macro and global level, the ESG investing craze and its countless problems are the manifest examples. At the national level, the unrealistic push towards decarbonisation glosses over the bitter realities of social and economic adjustment costs associated with such shifts. 

That Norway may perhaps be the biggest beneficiary of the Ukraine invasion is the most striking irony. Europeans accusing India of buying Russian oil already overlook that the same refined oil finds its way back to Europe from India. This is just another reality check.