As the effects of carbon emissions on climate change become more evident, Norway is divesting from fossil fuels intending to reduce carbon emissions. As the largest oil and gas producer in western Europe and the third-largest globally, Norway’s government targets to slash net CO2 emissions by 55% come 2030. The sector accounts for 14% of the country’s gross domestic product (GDP), 40% of its exports, 14% of government revenue, 7% of employment.
The country relies heavily on fossil fuels extraction for its economic prosperity. With funds from oil and gas production, it built the largest sovereign wealth fund in the world, the sovereign wealth fund. However, the country still wants to lead in climate change, a contradiction referred to as Norway’s climate change paradox.
Norway started the sovereign wealth fund in 1990 with about $200 million. Its purpose was to keep Norway’s economic gains from its oil and gas industry in the country. The parliament unanimously gave the fund the go-ahead to divest more than $I trillion worth of the country’s investments from coal, oil, and gas exploration firms on ethical grounds, and it finally has. The fund will, in turn, invest in clean energy projects in developed markets, beginning with solar and wind projects.
With this divestment decision, Norway is sending a clear signal to investors in the financial markets that any investment in fossil energy companies is a dead-end. This is the most significant divestment decision yet regarding the amount of money involved. This blow to fossil fuel companies comes when there is increased pressure globally for investors to stop contributing to the climate crisis.
Given that the fund owns an average of 1.3% in 9000 listed companies in 74 countries, this divestment decision will be felt by investors internationally.
Fossil Fuel on Climate Change
Fossil fuels are hydrocarbon-containing materials formed after decomposing carbon-based organisms like dead plants, humans, and animals that died millions of years ago. These fuels (natural gas, oil, coal) are found in the earth’s crust and are used to provide energy used as heat and electricity. Fossil fuels are non-renewable and supply an estimated 80% of the world’s energy.
When you burn fossil fuels, they release carbon dioxide in large amounts into the air. These gasses are the dominant cause of global warming. They trap more heat in the atmosphere, causing global temperatures to increase, altering the ecosystem, and harming our health and the environment. Investing in fossil-free energy is smart, possible, and is needed now more than ever.
Already, average global temperatures have experienced an increase of 1C. Should the warming continue and it hits the 1.5C mark, the result will be extreme weather, rise in sea level, species extinction, food scarcity, poverty for millions of people, biodiversity loss, and worsening health.
Is Norway Cutting All Ties with the Petroleum Industry?
Having the sovereign wealth fund pull its investments out of the oil and gas companies is a big win for climate change. But there is still much that needs to be done since Norway hasn’t cut all ties with the petroleum industry despite making the divestment move. The state recently granted 30 companies offshore oil exploration licenses, in a move that its Petroleum and Energy Minister, Tina Bru, defined as good news for the Norway state, who is a resource owner.
The fund’s divestment decision was more economical by some people instead of addressing environmental concerns. These sentiments were echoed by Bard Lahn from the Center for International Climate Research. Bard said Norway’s move from the oil and gas industry was likely to be influenced the economic concerns, and as it is right now, the fund’s decision seems to be one of protecting its profits by reducing the price.
The incoming center-left government affirmed its commitment to the industry during their election campaigns, saying it focused on balancing the state’s climate change targets with the social and economic considerations. The government didn’t divest from all petroleum firms. It argued that some still had the technological ability and scale necessary to shift towards renewable energy.
The fund still retains a good share of its oil and gas industry investments.
Is Divestment Going to Have an Impact?
Yes, divestment will have an impact on climate change. We can break down the impact like this:
- The divestment move has already impacted the share prices of oil companies, putting financial pressure on them. This impact will raise the capital costs in the petroleum industry, making the exploration and development of oil reserves more expensive.
- The movement puts social pressure on fossil fuel companies. Divestment campaigns stigmatize these companies by highlighting their role in climate change. This helps generate public support to censure these companies.
- Fossil fuel divestment will help level the playing field for all energy companies, including renewable energy ones. The focus on investment shifts from fossil fuels to clean energy (wind and solar power), helping these clean energy companies to expand and invest in capacity building, research and development to reach a broader market.
- Divestment has helped further the climate change debate. Petroleum companies lined up for bailout before Congress, arguing that the reason they needed the bailout was that they had been deprived of capital sources by divestment.
This indicates that more people are looking to invest where their morals are; socially responsible investing. It is no longer just the traders looking to profit that are investing now; regular people working from home due to lockdown restrictions have the time to invest and responsibly so in environment-friendly companies.
The divestment decision is a big step in the right direction towards climate change. While it may have been more psychological, the impact is more significant in companies where the fund held a larger ownership share. However, the divestment is a drop in the ocean of the world’s oil and gas sector, and there is a long way to go towards achieving climate change goals. As long as the world still buys fossil oils, these companies will still make money and continue fuel exploration.