Tue. Dec 7th, 2021


At the COP26 climate conference last week, activists Norway awarded their “Fossil of the Day” prize. It is a tribute without which Oslo’s brand new government could have done well on its first global outing. But it highlights the dilemma facing Norway as a major fossil fuel producer, and even more so by the EU, whose economy is deeply dependent on natural gas.

In a tough first interview, Jonas Gahr Store, Norway’s new prime minister, told the Financial Times that Europe’s green transition required its country to continue drilling. A swift end to Norwegian hydrocarbon supplies, he said, “would put an end to an industrial transition needed” to decarbonise.

This is, of course, a self-serving argument. It flies in the face of the International Energy Agency’s roadmap to net zero, which requires no more investment in new oil and gas developments. It is also against the EU’s quixotic question for an end to hydrocarbon mining in the Arctic.

That said, the argument may be right. This is technologically correct, as the replacement of natural gas by coal and oil is the necessary next step in reducing emissions. It captures important truths about the political economy of countries that export oil and gas. Even a population as climate-conscious as Norway’s does not have nearly a majority in favor of phasing out fossil mining. It reflects the geopolitical reality: less Norwegian gas will make Europe even more dependent on Russian President Vladimir Putin’s whims.

Above all, it exposes the political challenge of the EU’s green ambitions. The intention to decarburize is sincere. But the continent remains highly dependent on natural gas, and will become more so by weaning itself off of coal.

And yet the short-term logic comes with a long-term contradiction. If the EU encourages gas investments to meet short-term needs, it could lock itself in its dependence on gas for a long time. The argument for gas as a transitional energy runs counter to the fact that no one is developing a gas field that plans to shut it down in five to ten years. The EU and Norway are thus trapped in a hypocritical embrace, with North Sea gas driving European homes and businesses for the long term.

There is a way out, as all sides acknowledge. Natural gas does not need to be burned for its energy content. It can serve as a raw material for hydrogen. If carbon is trapped and stored in the process (CCS), the resulting “blue” hydrogen is a source of carbon-free energy.

The technology exists to use it to power heavy vehicles that are not suitable for batteries, ships and high-temperature industrial processes such as steel. In fact, some activities are difficult to decarbonize in any other way, and CCS is a sine qua non if net negative emissions are to become possible.

What is missing is infrastructure and a market. Converting gas from a combustible energy source to hydrogen supply requires transportation and storage for hydrogen and CO2, and facilities to sequester carbon. Such investments are difficult to justify unless sufficient demand is expected.

This is a chicken-and-egg problem. For sufficient demand, mass adoption of hydrogen-powered technologies in the relevant sectors is necessary. This in turn is only economically viable if users are confident that there will be hydrogen supply.

It is in the EU’s ability to create a market. It is in the gift of gas-producing countries to secure large-scale hydrogen supplies. But for one to happen, both must jump together.

The EU bears the greatest responsibility for making this happen. It has a hydrogen strategy. But talk to public and private decision-makers in Norway, and skepticism that the EU means business is close to the surface. They question whether Europe has the stomach for the difficult choices that require net zero, such as a biting carbon price. And does Europe fully endorse blue hydrogen and CCS, or is it linked to the less efficient “green” hydrogen made from electrolyzing water? That choice would be as self-destructive as Germany’s turn of nuclear energy, which made it use more coal.

If the EU were to commit itself to blue hydrogen, and put its money where its mouth is, it could demand the corresponding commitment to supply Norway. Rather than a ban on Arctic exploration, it may require a policy to allow further gas extraction only with infrastructure that can be quickly converted to hydrocarbon production with carbon storage.

Politically, or even legally binding, instruments could be found to ensure each side that both supply and demand would be forthcoming. For Oslo, such a policy offers a compromise with those who demand a complete phasing out of fossil fuels. It may even be allowed to return its Glasgow award.

martin.sandbu@ft.com



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