Blog post November 12, 2020

Europe’s Green Deal – no easy win for Norway

The European Union and Norway agree on the need for decarbonisation. But will Norway benefit from the the EU’s new green deal or not?

A year after the initial announcement the European Union’s Green Deal is moving towards the moment of formal incorporation into the structures and budgets of the Commission. Events have altered the detail of some of the proposals with attention now focused on the revival of the European economy post Covid.  Political pressures have trimmed and changed the distribution of funds particularly through the Just Transition Fund, which has been cut by two thirds. But the direction of change remains clear. Europe is determined to deliver a further major step towards decarbonisation with the eventual goal of net zero emissions by 2050 and to be the global leader in setting regulatory standards around the production and use of energy.

In many ways the European and Norwegian positions are completely aligned. Norway too seeks decarbonisation and has urged the EU to move more quickly towards net zero. Because of the strength of hydro as a source of clean power and the significant penetration of electric vehicles Norway is well ahead of most other European economies in decarbonisation.  

But the Green Deal is, by design, a disruptive set of policies which will change many existing patterns of use and business models. Norway will have to be ready to respond to a changing energy market in which current patterns of trade will be challenged. The potential for Norway to play a major role in delivering the Green Deal is significant but realising that potential will require flexibility and careful preparation.

The first area where change will come is in the gas market.  Gas is now the driver of activity on the NCS and Norway exports almost all of its gas production to the EU, including for the moment the UK. As the policy of decarbonisation takes hold that market will shrink and competition not least from Russia will be intense. In the European power sector gas consumption is likely to fall as renewables helped on by falling costs and by policy incentives take an ever-growing share. The adoption of any form of carbon tax will hasten that shift.  As coal is progressively eliminated from the energy mix at least in Western Europe natural gas will become the next target for campaigners.

Gas is in oversupply across the world and any revival of the US shale industry will bring more gas onto the world market, including the associated gas produced as a by product of oil. Worldwide the International Energy Agency reports that 90 of all new power generation capacity commissioned this year will be from solar and wind. The UK, once considered the most likely buyer of  Norwegian gas, has recently indicated a move to build more nuclear capacity at Sizewell on the North Sea. Less imports of gas will be required. For the first time Norway’s ability to sell any gas it produces is in question.

The second challenge is to the trade in power through interconnectors. At present Norway exports power through the Nordic market and the NorNed link to the Netherlands. A new link now under construction will take Norwegian supplies to Germany. Europe’s new energy policy, however  encourages the development of local resources and of links across borders within the EU which could reduce the need for balancing supplies from outside the 27 members states. As the EU’s own capacity grows the need to import power is far from certain.

The greatest opportunity for export trade and revenue comes from integration of Norway into the new business of hydrogen – one of top priorities within the Green Deal. Norway is better equipped than any country within the EU to manage Carbon Capture and Storage allowing natural gas to be converted into  hydrogen which can penetrate markets such as freight transport, heavy industry and heating.  

The challenge on hydrogen, however, is that the proponents of the hydrogen economy within the European Commission are keen to develop green hydrogen – produced using excess supplies of renewable power. For the moment that technology is more expensive than the hydrogen produced using natural gas but Germany in particular is devoting billions of Euros to the development of green hydrogen technologies with the aim of securing a global industrial advantage. 

If Norway wishes to match the export earnings which have come from oil and gas over the last half century it will need to coordinate its skills and resources to find the next generation of renewables for use not just in Europe but in the wider global market. That includes not just new sources of supply but also potentially advanced grid level storage technologies, practical uses of carbon which would make carbon capture economically viable, the conversion of waste into power and radical advances in the ways energy is used which could dramatically improve efficiency.

Across Norway there are a multitude of companies, scientists and engineers working on different aspects of the transition, but their efforts are too often small scale and isolated. There is a need for a national coordination of efforts and skills backed by investment comparable to the process which in the 1970s succeeded against the odds in making Norway a successful developer of its own oil and gas. Norway needs a substantial low carbon development agency which can take the skills and technology which exist to Europe and the world.

The EU’s Green Deal should send a wake-up call. Norway’s current energy export earnings are not secure and there is as yet no obvious way to replace them. The details of the Green Deal as it has evolved over the last year have been designed explicitly to help the member states of the Union revive their economies after the Covid pandemic and the subsequent recession.  

The EU’s neighbours will benefit from the Green Deal only if they can align themselves with the new energy market which is being created and can offer the technologies which will help the EU meet its goals. Norway can be beneficiary but only if the country acts decisively and soon.

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