On Saturday, the leader of Norway’s Labor Party said the party would stop pushing for oil exploration in the country’s ecologically sensitive Lofoten Islands, according to Bloomberg. Norway is a major oil producer, pumping more than 1.6 million barrels of oil per day from its oil-rich offshore areas.
Permission to conduct exploration missions in the waters off the Arctic Lofoten Islands has been at the top of the wish list for Norway’s powerful oil industry.
Norway is particularly invested in oil. The country maintains one of the largest sovereign wealth funds in the world, built on the profits of the state’s oil industry. The so-called Government Pension Fund has assets worth more than $1 trillion.
Thus far, Norway’s parties have held Lofoten exploration at bay by using it as a bargaining chip in political negotiations. But with the sizable Labor Party’s official opposition to exploration, oil companies see almost no future in Lofoten exploration.
Bloomberg notes that the Labor Party’s move also “adds uncertainty about how much support the [oil] industry can expect from Norwegian politicians in the future.” The oil industry in Norway worries that if the Labor party gains more power, oil might face gas taxes or lose certain tax refunds for exploration activity.
The Saturday announcement was not universally supported by every backer of the Labor Party; the oil industry workers’ union, known as Industry Energy, criticized Labor’s move.
Permission to invest
As the oil industry has faced burgeoning opposition at home, government has made it easier for managers of Norway’s Government Pension Fund to invest in renewable projects. Norway’s Minister of Finance announced on Friday that it would permit the fund to invest up to NOK 120 billion (USD $12.9 billion) in unlisted renewable projects, that is, projects carried out by companies not listed on a stock exchange. That number reflects a doubling of the Government Pension Fund’s previous limit of NOK 60 billion.
“The market for renewable energy is growing rapidly,” a Norwegian government press release read. “A major part of the renewable energy investment opportunities is found in the unlisted market, especially in unlisted infrastructure projects.”
However, the fund is still required to meet performance expectations, and fund managers might not invest the full amount in renewable energy projects if they don’t find projects that are safe enough. In order to mitigate risk, the Norwegian government also proposed an upper limit on unlisted renewable energy infrastructure investments, at two percent of the Fund.
The bank managing these investments “stated that it will proceed with caution and start out by considering investments with partners in developed markets, and in projects with relatively low operational and market risk,” according to the Norwegian government.
Divesting for profit
The news follows Norway’s proposal in March to divest its Government Pension Fund from oil exploration and production companies, excluding the government’s stake in Equinor. The Minister of Finance said the move would reduce the sovereign wealth fund’s exposure to a potential drop in oil prices, and it would shield the fund from any further oil price volatility.
Despite environmentalists heralding the news, Norway’s Minister of Finance stressed that divestment was not a reflection of Norway’s wavering dedication to oil but a purely financial move that would take place over a very gradual period of time. “The oil industry will be an important and major industry in Norway for many years to come,” a press release from the country stated. “The state’s revenues from the continental shelf are, as a general rule, a consequence of the profitability of exploration and production activities. Therefore this measure is about diversification.”