Norway has a chance to transform climate finance

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The writer is professor of energy and climate change and deputy director at the UCL Institute for Sustainable Resources

The unprecedented heatwaves ravaging the US, Mediterranean and China demonstrate some of the fallout of what seems set to be the hottest year on record. It is also likely to be the year with the highest greenhouse gas emissions of all time. These grim statistics are a testament to humanity’s continuing inability to tackle climate change — some 36 years after the seminal UN report by then Norwegian prime minister Gro Harlem Brundtland highlighted the imperative for sustainable development.

This year, Norway has the opportunity to spearhead, more directly, a massive step towards an effective global response — using some of its windfall profits from the energy crisis to leverage international capital markets into turning the trend of rising global emissions.

Russia’s invasion of Ukraine resulted in vast revenue flows to fossil fuel producers. This has been primarily a gas crisis, centred in Europe, with the fallout reverberating most strongly across European energy markets.

The profits for oil-producing countries have been huge. For the previous two decades, Norway’s net cash flow from oil and gas exports typically reached about $30bn annually. In 2022, it rocketed to $130bn. Extending into this year, Norway will have reaped about $150bn of profits — the net cash flow allocated to its sovereign oil wealth fund — above normal, supplemented by billions more from surging prices for its electricity exports.

At the same time, the global political effort to tackle climate is being stymied by stuttering north-south disputes, most of all over finance. It is not just that the poorest countries, which have contributed least to the problem and are suffering most, are receiving inadequate help. It is also a struggle over funding the global low-carbon energy transition.

Emissions growth is now predominantly from the developing world and changing this requires huge investment in clean technologies. The IPCC estimated a range of $1.5tn-$3tn a year capital investment in non-OECD countries over this decade to meet Paris goals. Meanwhile, the Independent High-Level Expert Group on Climate Finance pinpoints the needs of developing countries outside of China at $2tn-$2.8tn annually, of which at least $1tn a year would need to be in international investment.

The paradox is that clean energy technologies are now potentially cheaper than fossil fuels — but only where capital is cheap and plentiful. In most of the developing world, it is neither. The transition is further being stifled by post-Covid debt, higher interest rates and the huge subsidies of the US Inflation Reduction Act legislation sucking clean energy investors away from developing countries.

In real terms, Norway’s current energy windfall is roughly on the same scale in today’s prices as the entire Marshall Plan of 1948-51. That visionary US investment of $13.3bn helped stabilise the world and laid foundations for a rapid, sustained postwar recovery. If Norway were to entertain something similar, but use its finance smartly to leverage private clean energy investment at scale through risk underwriting, it could completely change the game. 

The recent Paris climate finance summit inched forward on a proposal to underwrite currency risk, but again illustrated the power of recalcitrant countries to stymie real progress. The key is indeed underwriting risk — specifically for low-carbon investment in developing countries. The experience of a few pilot programmes — as well as academic research covered by the IPCC — indicates that public risk guarantees can be expected to leverage up to 15 times as much private capital investment.

Just one-third of Norway’s indirect profits from the Ukrainian war amount to $50bn. If the country committed this to underwriting capital market low-carbon investments in the developing world, it could plausibly leverage half the foreign annual investment that these countries desperately need.

At home, Norway is a clean energy champion, but its enormous revenues during the energy crisis came mainly from exporting carbon. The profits made from fossil fuels are now unambiguously tainted by the cost and suffering inflicted globally by climate change. Tackling such inequity is the greatest international moral imperative since the second world war.

Norway has been given the chance to demonstrate the spectacular potential of risk guarantees for international clean energy investment, at scale. To boost an international clean energy finance complex to the scale required to finally eclipse that of fossil fuels. And to offer a beacon of hope in an increasingly desperate global situation. Brundtland would be proud.