Norway’s Opportunity to Revolutionize Climate Finance

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The writer is a professor specializing in energy and climate change as well as the deputy director at the UCL Institute for Sustainable Resources.

The unprecedented heatwaves devastating areas like the US, Mediterranean, and China are direct consequences of what appears to be the hottest year on record. Furthermore, this year is expected to witness the highest greenhouse gas emissions ever recorded. These alarming statistics highlight humanity’s persistent failure to address climate change, even after 36 years since the influential UN report by former Norwegian prime minister Gro Harlem Brundtland emphasized the urgent need for sustainable development.

This year, Norway has a unique opportunity to play a leading role in achieving an effective global response. By utilizing its windfall profits from the energy crisis, Norway can leverage international capital markets to reverse the upward trend of global emissions.

Russia’s invasion of Ukraine has generated substantial revenues for fossil fuel producers, particularly in the form of a gas crisis centered in Europe. This crisis has had significant repercussions on European energy markets.

The profits derived from oil-producing countries have been massive. For the past two decades, Norway has typically received around $30 billion annually from oil and gas exports. In 2022, this figure skyrocketed to $130 billion. In total, Norway stands to profit around $150 billion this year, which will be allocated to its sovereign oil wealth fund, along with billions more from the surging prices of its electricity exports.

Simultaneously, the global efforts to combat climate change are hindered by disputes, especially concerning financing, between developed and developing nations. Not only are the poorest countries, which have contributed the least to the problem and are suffering the most, receiving inadequate assistance, but there is also a struggle to fund the transition to low-carbon energy on a global scale.

The majority of emissions growth currently stems from developing countries, necessitating substantial investment in clean technologies. The Intergovernmental Panel on Climate Change (IPCC) estimates that non-OECD countries require capital investments ranging from $1.5 trillion to $3 trillion annually throughout this decade to achieve the goals set in the Paris Agreement. Additionally, the Independent High-Level Expert Group on Climate Finance identifies the needs of developing countries outside of China to be between $2 trillion and $2.8 trillion annually, with at least $1 trillion requiring international investment.

The paradox lies in the fact that clean energy technologies are now potentially more affordable than fossil fuels, but only where capital is abundant and inexpensive. In most developing nations, both factors are scarce. The transition to clean energy is further impeded by post-Covid debt, higher interest rates, and the generous subsidies offered by the US Inflation Reduction Act, which divert clean energy investors away from developing countries.

In terms of real value, Norway’s current windfall from the energy crisis is roughly equivalent to the entire Marshall Plan of 1948-51 when adjusted for inflation. The Marshall Plan, a visionary US investment totaling $13.3 billion, played a pivotal role in stabilizing the world and facilitating a swift recovery after World War II. If Norway were to embark on a similar endeavor and strategically leverage its funds through risk underwriting, it could completely transform the global clean energy investment landscape.

The recent Paris climate finance summit made slight progress in proposing the underwriting of currency risk, but it also highlighted how resistant countries can impede significant advancements. The crucial aspect is indeed risk underwriting, specifically for low-carbon investments in developing countries. Evidence from pilot programs and academic research referred to by the IPCC suggests that public risk guarantees can leverage up to 15 times more private capital investments.

Just one-third of Norway’s indirect profits from the Ukrainian war amount to $50 billion. If Norway decides to allocate this sum to underwrite capital market low-carbon investments in developing countries, it could potentially secure half of the much-needed foreign annual investments required by these nations.

While Norway is already a champion in clean energy domestically, a significant portion of its enormous revenues during the energy crisis was derived from carbon exports. The profits obtained from fossil fuels are now undeniably tainted by the global costs and suffering inflicted by climate change. Addressing such inequity represents the greatest moral imperative since World War II.

Norway now has the opportunity to showcase the immense potential of risk guarantees for international clean energy investments on a large scale. By establishing a robust global clean energy finance complex that surpasses the fossil fuel industry, Norway can serve as a beacon of hope within our increasingly desperate global situation. Gro Harlem Brundtland would undoubtedly be proud.