An exhausting war on emissions

In 1991, Norway became one of the first countries in the world to impose a stiff tax on harmful greenhouse gas emissions. Since then, the country's emissions should have dropped; instead, they have risen by 15 per cent, says the Wall Street Journal.

Norway's carbon tax was born in 1990, and even though the Norwegian industries argued that the levy would cripple their ability to compete internationally and threaten jobs, they complied. With some concessions, says the Journal:

Fisherman complained that their catches would become unattractive if they were forced to raise prices; since the fish industry was too central to the local economy, it got a full exemption.

Some of the heaviest pushback came from oil and gas companies. Drilling on the Continental Shelf has been the primary engine of economic growth in Norway since the 1960s, generating some 24 per cent of the country's annual gross domestic product (GDP).

The government, however, didn't budge, levying a $65 tax per ton of carbon emitted. In contrast, the cost of a permit to emit the equivalent of one ton of carbon in Europe's current cap-and-trade system is $35.

After the tax was passed, domestic oil and gas giant StatoilHydro was forced to rethink nearly every aspect of its drilling cycle.

However, the government's plan has backfired. StatoilHydro's overall emissions have more than quadrupled, reaching 8.9 million tons annually. Moreover, the number registered cars rose 27 per cent over 10 years. Even though a gallon of gas costs around $10, Norwegians keep paying to drive since two-thirds of them live in the country and work in the city.

It wasn't supposed to be this way, though. By making it more expensive to pollute, carbon taxes should spur companies and individuals to clean up. Norway's sobering experience shows how difficult it is to cut emissions in the real world, says the Journal.

Source: Leila Abboud, An Exhausting War on Emissions, Wall Street Journal, September 30, 2008.

For text: http://www.wsj.com/article/SB122272533893187737.html

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FMF Policy Bulletin/ 07 October 2008