Norway, rich in oil, faces a political crossroads in the face of rising climate concerns

On Saturday, the leader of the Norwegian Labor Party said the party would stop pushing for oil exploration in the country's environmentally sensitive Lofoten Islands, according to Bloomberg. Norway is a major oil producer, pumping more than 1.6 million barrels of oil a day into its oil-rich offshore areas.

The authorization to conduct exploration missions in the waters off the Arctic Lofoten Islands is one of the main priorities of Norway's powerful oil industry. It is estimated that the waters contain a reserve of one to three billion barrels of oil, and the national oil company Equinor said that operating the Lofoten was essential to maintaining Norway's status as an oil power.

Norway is particularly invested in oil. The country has one of the largest sovereign wealth funds in the world, built on the profits of the state oil industry. The so-called Government Pension Fund has assets worth more than $ 1 trillion.

Until now, Norwegian parties have kept Lofoten exploration at bay by using it as a bargaining chip in political negotiations. But, given the Labor Party's official opposition to exploration, oil companies see almost no future in Lofoten exploration.

Bloomberg notes that the Labor Party's decision "also adds uncertainty about the support that [oil] The oil industry in Norway is worried that if the Labor Party gains more power, oil could be subject to gasoline taxes or lose some tax refunds for its exploration activities.

The announcement of Saturday was not universally supported by all supporters of the Labor Party; the oil workers union, known as the Energy Industry, criticized the Labor Party's decision.

Permission to invest

While the oil sector had to face nascent opposition at home, the government has facilitated the investment of the Norwegian government pension fund managers in renewable energy projects. The Norwegian Finance Minister announced on Friday that he would allow the fund to invest up to NOK 120 billion (US $ 12.9 billion) in unlisted renewable projects, ie. Projects carried out by companies not listed on the stock exchange. This figure reflects the doubling of the previous limit of NOK 60 billion set by the Government Pension Fund.

"The renewable energy market is growing rapidly," reads a Norwegian government press release. "A lot of the investment opportunities in renewable energy is in the unlisted market, especially in unlisted infrastructure projects."

However, the fund is still required to meet performance expectations and fund managers may not invest the full amount in renewable energy projects if they do not find the projects sufficiently secure. In order to mitigate the risks, the Norwegian government has also proposed a maximum limit of investment in unlisted renewable energy infrastructure at 2% of the Fund.

The bank that manages these investments "said it would proceed cautiously and would begin by considering investments with partners in developed markets and in projects with relatively low operational and market risk," according to the Norwegian government.

For-profit disinvestment

The news follows Norway's proposal in March to divest its government pension fund for oil exploration and production companies, to the exclusion of the government's stake in Equinor. The finance minister said the measure would reduce the sovereign fund's exposure to a possible decline in oil prices and protect it from further volatility in oil prices.

Although environmentalists have announced the news, Norway's finance minister pointed out that the divestment did not reflect Norway's reluctant attachment to oil, but a purely financial move that would unfold very gradually. "The oil industry will be a major and major industry in Norway in the coming years," said a country press release. "State revenues from the continental shelf are, as a rule, a consequence of the profitability of exploration and production activities, so this measure concerns diversification."