Lessons for Australia from Norway's petro-wealth debate

As Norway is slowly realising, it makes perfect financial sense for an economy heavily exposed to fossil fuels to hedge its bets and start tilting towards the low-carbon sector.

As the Minerals Council of Australia launches its latest defence against the fossil fuel divestment campaign and Prime Minister Abbott directs the Clean Energy Finance Corporation to cease financing renewables, on the other side of the world Norway is considering whether to divest its Sovereign Wealth Fund of fossil fuels and invest more of its oil-driven fortune in green technology.

At $840 billion, the Norwegian Sovereign Wealth Fund is the largest shareholder in Europe and owns 1 per cent of all publicly listed companies worldwide. Its investments are spread across more than 8000 companies in 82 countries so, as World Wide Fund for Nature Norway chief executive Nina Jensen points out, “every decision Norway makes on this fund sends signals around the world.”

Comprising Norway's surplus tax revenues from oil and gas production, the wealth fund was established in 1990, partly to manage the impacts of volatile oil prices. It now faces a new challenge – those petroleum resources are starting to peak.

But rather than detach from reality, as the Abbott Government seemingly wants to do, Norway is engaging in a comprehensive debate about what to do about its petro-wealth. Fossil fuel divestment is one option on the table – timely, considering the latest IPCC report which claims that $30 billion must be divested from fossil fuels each year over the next two decades to give us a shot at staying below 2 degrees of global warming.

However, contrary to popular belief, fossil fuel divestment is not all about ethics. Economists have argued that it makes perfect financial sense for an economy which is already heavily exposed to fossil fuels to hedge its bets and start tilting towards low-carbon sectors in the event of a carbon bubble bust. This move would be a game-changer, signaling to other countries with high-carbon economies, like Australia, that it’s time to get out fast.

In 2004, an independent “ethics council” was established to inform the Sovereign Wealth Fund’s investment decisions. Under its direction, the fund’s manager – the Norwegian central bank – has already screened out 63 companies on environmental, health and human rights grounds. A parliamentary-appointed expert panel must now determine whether that screen should be applied to all of the fund’s fossil fuel holdings.

If the review committee votes in the affirmative, the decision will send ripples throughout the entire energy sector. It’s no surprise then that Australian resource companies, like Whitehaven Coal, are nervous. Whitehaven is currently constructing Australia’s largest new coal mine at Maules Creek in NSW’s Leard State forest. The oil fund is a significant Whitehaven shareholder which is why, last month, dozens of Australian NGOs wrote to the fund, citing the extensive damage that the Maules Creek mine would inflict upon the climate, environment and human health, and urging the fund to divest from Whitehaven.

Already the oil fund excludes a number of mining companies. However, a recent decision by Norway’s Finance Minister, Siv Jensen, to scrap the independent ethics council unnerved many hoping that the fund’s list of “sin stocks” could be extended to the coal, oil and gas companies responsible for driving dangerous climate change. Even the United Nations has weighed in, recommending that the ethics council retain its independence.

The fossil fuel divestment review and changes to the ethics council are just two measures in a wider reform agenda for the fund, including increased investment in green technology. Just last week, Minister Jensen announced that the fund would double its investment in renewables to around $8 billion.

Such an announcement wouldn’t go astray in Australia, where support for renewables is being slashed right, left and centre. But the reception in Europe has been less supportive, with renewable energy advocates pointing out that $8 billion is less than 1 per cent of the fund's coffers. Responding to the announcement, WWF-Norway’s Nina Jensen (also the sister of Finance Minister Jensen) called the proposed changes “peanuts”, stating: “Norway can make a huge difference in the world ... this announcement falls short of meeting expectations of the people of Norway and of the world.”

To further complicate matters, the new renewables investment would not be made directly into clean energy infrastructure but via companies listed on the stock exchange. As WWF’s wry YouTube video points out, this is like trying to sate your appetite for mangoes (renewable energy) via a tropical fruit salad (the stock exchange). It’d make more sense to just eat the mango straight.

Clean energy advocates are now calling on Norway to follow in the footsteps of its neighbour Denmark, the ‘queen of green’, by committing to invest 5 per cent of the fund in renewable energy infrastructure – which they say would be a game-changer for renewables globally.

Questions of '1 per cent versus 5 per cent' aside, Norway’s green investments mean little while the fund continues to invest in vast quantities of fossil fuels. As global investment in renewable energy continues, it is still less than a quarter of the trillion dollars currently invested in new fossil fuel projects. Meanwhile, experts point out that the majority of fossil fuel reserves must remain in the ground if we are to avoid dangerous climate change. At least in Norway though, the discussion of how to respond to this situation is on the national agenda, while back home, the federal government has seemingly buried its head in the sand.

And so, as the mercury rises and the carbon bubble inflates, we look with interest to Norway as it deliberates over whether to divest from the fossil fuels that we, as a planet, cannot afford to burn. Meantime, the Abbot Government, approves dredging of the Great Barrier Reef for massive new coal terminals, lauds a 5 per cent emissions reduction target and considers scrapping the Renewable Energy Target. Amid such moves, it’s tempting to wish we could trade Norway’s dilemmas for our own.

Charlotte Wood is Australia campaigns director of 350.org, an international movement dedicated to solving the climate crisis.

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