Norwegian Hypocrisy On Global Warming

I’m excited to be visiting Norway for the first time in May (unfortunately, only a whistle-stop work tour). It’s a country I’ve long admired from afar. Geographic beauty, Nordic ruggedness and inventiveness, a global leader in international relations and aid. And, while I’m not a tax-and-spend kind of guy, I admire the foresight that’s gone into a lot of the country’s policies.

Not all that long after Norway realised it was sitting on a massive endowment of offshore oil, the country’s politicians and people decided that this wasn’t a windfall for one or two generations but a resource that should enrich Norwegians for many generations to come. So oil revenue collected by the country goes into the Norwegian sovereign wealth fund. While there’s some wiggle room for fiscal emergency, the fund should only contribute a maximum of 4% of its assets each year towards the national budget. The fund aims to retain its real purchasing power indefinitely.

Another wise policy was that the fund invest exclusively outside Norway to prevent asset price distortions in the small country. The fund now holds an average of 1.8% of every listed company in Europe and investments just about everywhere, including a large proportion of stocks listed on the ASX.

Can you imagine Australia behaving so rationally with any windfall (such as the one it received the past ten years)? Forget it! Given Norway manages these sorts of issues better than anyone, it feels a little strange to pick on them here. But it’s a good case study. We all compartmentalise our thinking, and if Norway is guilty of the sort of dissonance to be outlined below, then the rest of us best watch out.

The Norwegian government recently set up an expert group to look into the oil fund’s investments in oil, gas and coal stocks, to decide whether those investments should be sold for sustainability reasons, specifically 'climate questions'.

Change has to start somewhere, but the Norwegian oil fund selling its fossil fuel stocks is a little like James Packer refusing to dine at Crown Casino for ethical reasons. Selling its holdings in BP, Shell, BG Group, Total and many others (including local companies Woodside, Santos, Origin Energy, AGL, Oil Search, Beach Energy and AWE) to new shareholders won’t prevent a single barrel of oil being produced and burned.

If the goal is to actually reduce CO2 emissions, there’s a very effective option open to Norway. Slow down oil field development at home, close existing coal mines where possible and stop approving new ones (like the coal mine recently approved on the ecologically-sensitive Arctic islands of Svalbard). But actually cutting emissions is financially painful, it’s much more palatable to be seen to be doing something by selling your oil stocks while actually doing almost nothing.

Norway doesn’t even need to make the global warming argument to justify selling its oil stocks. Diversification is a compelling argument. The country’s finances are already inextricably linked to the oil price. So why hold 8.4% of assets, including 3 of the top 10 equity positions, in oil and gas companies?

The whole hullabaloo is, by accident or design, trumped up PR. Even as far as green-washing is concerned, they could do better. Sure, Shell and BP are an integral part of a chain that fills the tanks of unnecessarily large SUVs in North America, Australia and, increasingly, Europe. But they also provide the gas that heats a pensioner’s home during the frigid European winter and petrochemicals that are key inputs into a massive array of important and sometimes lifesaving devices. What oil companies do is not all bad.

Something that offers no such benefit for humanity is the Formula 1 Grand Prix. I enjoy watching Melbourne and Monaco most years, and my wife is a big fan. But even a tragic like my father in law would concede that the F1 circuit is a monumental waste of precious fossil fuels. Large teams, race cars, parts and machinery are flown around the world, fuel-swilling vehicles chase each other around a track for a few days, and then the circus ups camp and crosses the world again.

So it’s interesting to note that the Norwegian oil fund paid around $300m for a 4% stake in the unlisted Formula One World Championship Limited in 2012. To be fair, the fund is actually currently considering selling the stake. But they cite the failure of the company to list as originally planned and disappointment over Bernie Ecclestone’s coming trial for bribery. No mention of global warming in the deliberations.

Compartmentalisation and self-serving dissonance affect everyone, even well-run Norway. Heaven help the rest of us.