Central Bank Governor Tells Norway Not to Quit Oil Age Early
(Bloomberg) -- The central bank chief in western Europe’s largest producer of oil and natural gas is warning his fellow Norwegians not to prematurely kill the nation’s main economic engine and source of wealth.
In his traditional annual speech to the nation’s political and business elite, Norges Bank Governor Oystein Olsen on Thursday said that the cost of exiting the oil age ahead of time would be “substantial” for the nation of 5.4 million people and have little effect in fighting climate change.
”We may benefit from this industry for many years to come, because the world will continue to demand a lot of oil and gas,” said Olsen in an interview ahead of the speech. “The oil price has recovered to a reasonable level, new projects are profitable, and I warn against making the period when we have the oil and gas industry as an engine and profitable source of income even shorter than necessary.”
Olsen is wading into an increasingly tense debate in Norway over what do with a potential 52 billion barrels of oil and gas still estimated to lie offshore. The country has become one of the world’s richest nations since striking black gold in the 1960s, building the world’s biggest wealth fund. Now more than 10 percent of the population is directly or indirectly employed by the oil industry, according to Olsen.
As the head of the nation’s $1 trillion wealth fund, he also pushed back at a growing chorus of politicians and activists seeking to micromanage its investments, especially on climate issues.
The governor said that the financial sector alone doesn’t have the tools to address the climate issue. “It’s doubtful whether defining emissions from sectors or individual businesses as unethical will make a difference,” Olsen said. ”The responsibility for measures to combat global warming must rest with the authorities.”
The fund is waiting to hear back from the government on a proposal to dump all its oil and gas stocks, not as a climate measure, but as way of protecting Norway as a whole against an overexposure to oil price risk. The fund is also struggling with implementing a climate criterion that was introduced in 2016 to cut the worst emitters of greenhouse gases.
“To take a role where the oil fund is to be used as a means of fighting global warming, then I think it has gone too far,” Olsen said.
Norway’s oil industry is once again raising investments and hiring workers after struggling through a crash in the oil price in 2014.
Olsen said that upswing in the industry will likely continue in the coming years, while reiterating that he’s looking to raise rates “cautiously” and “gradually.” The central bank in September boosted its benchmark for the first time in seven years.
The struggle over the past years have highlighted the need for Norway to diversify its economy, something that has been a key aim of Prime Minister Erna Solberg.
Olsen also argued that Norway must prepare for a time when the oil industry is no longer expanding, saying that Norwegian businesses have shown a “strong capacity to adapt.”
The slowdown in international trade, the prospects of a hard Brexit and a growing debate over the country’s ties to the European Union are some of Olsen’s main concerns.
Being a small open economy on the northern fringe of the European continent, “we need other countries - more than they need us,” he said. Any protectionist measures could spill over into the Norwegian economy even if the country wasn’t targeted, according to Olsen.
The international framework and trade agreements are thus essential to the economy, Olsen said, emphasizing that “the EEA agreement is of particular importance.”
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