E-Lab October - December 2000

For almost a decade, international attention has focused on designing a form of the Kyoto Protocol that is both equitable and effective in reducing global emissions of GHGs. The next phase of the process involves individual countries finding ways to meet their obligations-a challenge that has received far less attention. Most countries need to make dramatic cuts in their GHG emissions within this decade. Yet most countries also foresee a need to meet constantly growing demand for energy. Even if a country makes emissions reduction a top priority, it may not be clear what steps should-or can-be taken to accomplish both goals simultaneously.

As a case study of this policymaking process, MIT graduate student Guillaume Quiviger, under the supervision of Howard Herzog and in consultation with Hans Jørgen Dahl of Statoil in Norway, examined the recent political upheaval in Norway. In March 2000, Norway's government was voted out of power, in large part as a result of controversy about proposed climate-change policies. Norway has been committed to environmental protection for decades. Its experience therefore demonstrates how hard it is to get off carbon fuels and how complicated the climate-change policymaking process can be.

At first glance, Norway would seem to be in a good position to handle its energy future. It has enormous reserves of both oil and natural gas and now ranks as the second largest oil exporter in the world. Its abundant hydropower resources generate more than 99% of the electricity used domestically plus additional power that is exported to neighboring countries. However, despite its stabilized population, Norway's electricity consumption is constantly growing by about 2% per year. Demand is also increasing for fossil fuels used in the oil and natural gas industry and for transportation and industrial processes. Additional carbon-free sources of energy are not available; yet under the Kyoto Protocol, Norway must reduce its GHG emissions to 1% above its 1990 levels by 2010.

The precariousness of Norway's electricity supply was brought home in 1996 when Norway experienced a severe drought. Hydropower generation temporarily plummeted, and Norway had to import electricity from abroad, much of it from Denmark's high-emitting coal-fired power plants. This situation revived controversy over a proposal first made by a consortium of energy companies in 1994: to build two state-of-the-art natural gas-fired power plants. The Labour Party argued that this project, called Naturkraft, would most effectively fulfill Norway's needs. The minority coalition government-in power from 1997 to 2000-deemed Naturkraft unacceptable and repeatedly denied its approval.

To understand these opposing points of view, Mr. Quiviger examined published materials from many sources and interviewed a long list of individuals involved. He pieced together a complex story in which attitudes, values, and political history were major forces in the decisionmaking process-forces that no doubt exist in other countries now trying to devise their own domestic energy and environmental policies.

One factor contributing to the dissention is perspective. Does one evaluate the Naturkraft proposal from a national perspective or from the broader perspective of the whole Scandinavian region? The minority government takes the national view: operation of the natural gas plants would simply increase Norway's emissions. The figure below shows several projections of GHG emissions in Norway. Under the Kyoto Protocol, Norway would limit its GHG emissions in 2010 to 52.6 million tonnes (mt) of carbon dioxide (CO2) equivalent. Projections based on past trends suggest that by 2010 emissions will be some 10.25 mt-or 19%-above the Kyoto target. Operating the two plants would emit about 2.1 mt per year, adding another 4 percentage points to that overrun-not a lot but enough to make an already difficult situation even worse.

Under the Kyoto Protocol, Norway has agreed to limit its emissions in 2010 to 1% above its 1990 level. By 2010, therefore, its emissions (shown by the solid line) should be about 52.6 mt of CO2 equivalent. However, projected growth shows Norway's carbon emissions in 2010 to be about 10.25 mt-or some 19%-above the Kyoto target. Building the natural gas-fired plants now being proposed would add another 2.1 mt, or 4 percentage points, to the 2010 level. Controversy is raging in Norway about whether adding those emissions is an acceptable policy move. (Data source: GRID-Arendal.)

In contrast, the Labour government takes a regional view. If Norway feeds electricity from the new natural gas plants into the Scandinavian power grid, other countries on the grid can shut down their older, dirtier plants. Electricity supply will be unchanged, and emissions will decrease. Furthermore, the addition of 2.1 mt CO2 from the Naturkraft project is insignificant, considering that all the oil and natural gas exported by Norway causes the generation of some 650 mt of CO2 worldwide.

Another force at work here is economics. The Labour leaders argue that building the gas-fired power plants is almost certainly the best choice from an economic point of view. Meeting the Kyoto target by reducing demand within Norway will be difficult. Norway's oil and natural gas producers already use the cleanest and most efficient practices available; and Norwegians persist in buying gasoline, even though they face the highest gasoline prices in the world (due to domestic taxes). Although electricity is cheap and therefore used abundantly and inefficiently, changing residential and industrial equipment to use another type of fuel would be difficult and expensive. Therefore, the cost of complying with the Kyoto restrictions should be lower if Norway acts cooperatively with its neighbors. By shutting down "dirty" generators, Norway's trading partners will receive emissions permits, which they can sell to Norway to cover Norway's increased emissions. Further economic gain for Norway would come from exporting a higher-value product (electricity) rather than a raw material (natural gas).

Countering the economic argument is another force: the so-called "deep ecology" that characterizes Norwegian society. Integral to Norwegian culture is a belief that people have a moral obligation to protect nature, regardless of the cost. That belief is so strong that members of the minority coalition argue that at least 50% of a country's emissions reduction should be done "at home," even though the Kyoto Protocol specifically sets up emissions trading as a viable tool for meeting emissions targets. Thus, the monetary factor is less important than taking responsibility for one's own actions.

The minority government therefore proposes to encourage efficiency and reduce demand by raising prices, imposing new taxes, and offering subsidies to promote clean energy sources. Incentives will be strong for developing new technologies such as CO2 sequestration. While most countries quickly reject sequestration as being too expensive, the technology has a lot of appeal in Norway. Indeed, Norway already practices carbon sequestration. The oil and gas sector sequesters 1 mt of CO2 per year under the North Sea to avoid Norwegian taxes levied on every tonne of CO2 emitted. (The per-tonne tax ranges from $22 for coal to $46 for gasoline.) Furthermore, Norway owns vast amounts of additional storage capacity-perhaps two thirds of the geologic sequestration sites in Europe.

Another consideration in the argument about building new natural gas-fired plants (with or without sequestration) is timing. Right now, electricity from the gas-fired plants even without sequestration would be too expensive for the Scandinavian market. However, building such plants takes three years; and no one knows how prices will move during that time. They may go down if the Scandinavian grid imports more of Russia's inexpensive electricity. But they may well go up if Germany shuts down its dirty coal plants and Sweden phases out its nuclear power plants, as planned. As a result, deciding when to start construction of new power plants and predicting when sequestration might be economically viable are both difficult challenges.

A final force influencing the policymaking process is Norway's political-industrial structure-as in many European countries, a result of events of the past. After World War II, the industrial sector in Norway was essentially rebuilt from scratch. Political and industrial interests became inextricably intertwined; and close ties remain among leaders in the Labour Party, industry, and the industrial unions. Their combined strength was too much for the minority government to resist, and-in spite of its noble goals-it was voted out of power in March 2000. Although the Labour Party is back in power, the controversy continues, with the government supporting the Naturkraft project with reduced emissions constraints and environmentalists challenging that approach in the courts.

Analysis of recent events in Norway point out some of the pitfalls that countries may encounter when they try to develop policies at home to meet their pledged emissions reductions. National leaders must ask a variety of questions. Can we work on a regional basis to fulfill our obligations? Are there values in our society that must be respected? Are there political alliances or institutional structures that will prove critical? Developing an acceptable and effective approach to reducing emissions will require probing well beyond the energy and environmental challenges that already seem so daunting.