Norway has one of the world’s highest carbon tax rates (1991-ongoing)

In 1991, Norway became one of the first countries to pass a national carbon tax, joining Finland, Denmark, Poland, and Sweden. Almost thirty years later, Norway now has one of the highest carbon tax rates as they and the international community work towards decreasing 43 percent of global greenhouse emissions by 2030, agreed upon through the Paris Agreement in 2015. As a primary source of funding for Norway’s national climate policies and programs, the carbon tax is a vital part of the national Climate Action Plan.

After the first Intergovernmental Panel on Climate Change’s assessment report in 1990 raised the urgency for global action on the detrimental effects of a rapid increase in carbon emissions and greenhouse gasses, countries have used different mechanisms to reduce emissions, including tax measures on carbon, or carbon taxes. Norway was one of the first countries to pass a national carbon tax (along with Finland, Denmark, Poland, and Sweden) in 1991, which applies to mineral oil (i.e., auto diesel, petrol, natural gas, and liquified petroleum gas) in addition to a specific tax on emissions related to offshore oil and gas activities.¹ Since then, Norway has strengthened its commitments to reduce emissions and work towards further climate action, with the approval of their Climate Action Plan 2021–2030 in addition to creating a Green Alliance with the European Commission to strengthen “join climate action, environmental protection efforts, and cooperation on clean energy and industrial transition” in April 2023.² 

The initial carbon tax rate was introduced at NOK 437. 87 (USD 39.98) and NOK 186.3 (USD 17.01) in 1991,³ and has since risen to an estimate of NOK 2.72 (USD 0.26) per liter of gasoline, NOK 3.17 (USD .30) per liter of mineral oil, NOK 1176 (USD 112.35) per ton of CO2  (tCO2,), NOK 2.534 (USD .24) per standard cubic meter of natural gas emissions, and NOK 3.53 (USD .34) per kilogram of liquified petroleum gas for 2024.⁴  Norway’s present-day carbon tax rate is the fourth highest, after Switzerland, Liechtenstein, and Sweden.⁵ Sectors required to pay the carbon tax include heavy emitters such as the petroleum sector and domestic aviation (in addition to other requirements under the European Emissions Trading System [ETS] for other greenhouse gasses), along with other non-ETS sectors (mineral oil, greenhouse industry [at a reduced rate]).⁶ 

Implementation

Following the ratification of the Kyoto Protocol  in 2002, Norway implemented the carbon tax as one of their policy measures to not exceed their 1990 greenhouse gas emissions by more than 1 percent from 2008–2012.⁷ They have since made additional commitments via the Paris Agreement in 2015, and have outlined their latest target of having 55 percent emissions below their 1990 levels in early 2022.⁸ 

Cost

From 1991–2022, Norway has raised over USD 33.77 million in tax revenue through a carbon tax, with an average of USD 1,055 million per year and 2023 revenue projections to be around NOK 7.4 billion (USD 6.75 billion).⁹ The tax revenue collected from the carbon tax is managed by Norway’s sovereign wealth fund, the Government Pension Fund Global, which contributes to approximately 20 percent of the national budget annually. Further, helping to fund the national pension fund, has positive impacts on inequality as it offsets financial burdens for low-income households along with reducing emissions.¹⁰ The average Norwegian can receive a minimum of NOK 223, 717 (USD 21,776).

Assessment

According to the Tax Foundation, “a carbon tax is a form of carbon pricing and, as a market-based approach, it is generally seen as a cost-effective way to reduce greenhouse gas emissions.”¹¹ With one of the highest tax rates globally, Norway’s carbon tax rate covers about 65 percent of their national carbon emissions (as of 2023),¹² and the country “is expected to emit around 41.2 tCO2 annually by 2030, 20 percent below the 1990 level,”¹³ which still leaves a gap between their 2030 targets. However, recent announcements include increases to the tax rate to NOK 2000 per tCO2,¹⁴ equivalent to a 21 percent increase annually, to reach the 2030 targets. Further, a new tax on natural gas and liquid petroleum gas used in greenhouses (previously exempt) was introduced in 2022, which would be taxed at NOK 77 (USD 7.34) per tCO2.¹⁵

While experts applaud the current efforts, they urge the Norwegian government to go beyond the current climate action plan to map out how taxing carbon would practically function, such as  “to motivate technological shifts to cut emissions and consider supplementary incentives and support for sectors that may need them.”¹⁶ While carbon taxes are an important initial step in making it costly to emit carbon, it is a limited policy, as a full transition away from sectors (i.e., oil and gas) that heavily contribute to greenhouse emissions is a necessary step for a green transition.¹⁷

A photo of the industrial landscape. ©Adobe Stock/Jittapon

Tags

• Climate & Environment
• Europe
• High-Income Country
• Income & Wealth
• Norway
• Public Spending
• Tax