Carlos Joly, a finance-and-climate consultant, has a piece today on the upcoming election in Norway, one of the world’s major exporters of oil and gas. To its credit, Norway puts its earnings in a fund to support future generations after its deposits are exhausted, known to economists as the Hartwick Rule. That’s great for economic sustainability in Norway, but what about the threat its fossil fuel industry poses to the entire world?
Joly notes that the mainstream parties consider only domestic fossil fuel consumption, with the Labor Party proposing to go “carbon neutral” on that front by 2050. (The neutral qualifier is highly problematic, as I show in my forthcoming book, Alligators in the Arctic and How to Avoid Them: Science, Economics and the Challenge of Catastrophic Climate Change.) The Greens want to shut down Norway’s North Sea oil and gas operation over the coming 25 years. Joly wants to go further and have the government instruct its oil revenue fund to divest from fossil fuels globally.
I have a different idea. First, while the unilateral dismantling of its fossil fuel industry would be a well-intentioned step, I doubt it would have much impact on overall decarbonization. 25 years is too slow, and more importantly, the consumption of oil and gas is demand-driven, not supply constrained. If Norway takes its fuels off the market, there will be other producers eager to take its place. Second, simply abstaining from investing in other countries’ fossil fuel industries is unlikely to make a significant difference, largely for the same reason. If producing oil and gas remains profitable, a shortfall in investment from some quarters will induce more from others.
What I propose instead is that Norway regard its sovereign wealth fund (officially designated as a pension fund) as an endowment whose main purpose is to finance initiatives to forestall a climate disaster. This means devoting a fixed share to funding activist groups in key countries organizing for emergency laws to quickly reduce carbon consumption, and the rest to R&D in decarbonized energy sources.* Meanwhile, keep the oil and gas flowing so that as large a share as possible of global fossil fuel supply is generating carbon mitigation finance. If and when a host of national measures impose decarbonization and fossil fuel demand finally plummets, then it will be time to turn off the North Sea tap for good.
*And no, Norway’s predominate financing of REDD+, the international program for promoting forestation offsets, does neither of these and is little more than a charade—for details, again see Alligators.