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The writer is professor of sustainable finance at Heriot-Watt University
After Russia began its full-scale military invasion of Ukraine in February 2022, European governments scoured their budgets and borrowing options for funding sources to support Ukraine’s war effort. For most, it was an uphill struggle.
Russia had cut off natural gas supplies to Europe shortly after invading, seeking to discourage countries from supporting Ukraine. As a result, natural gas prices skyrocketed, putting severe financial strain on many companies and households. From a consumer perspective, the effect of the high energy prices was equivalent to the abrupt levying of a very high carbon tax.
Yet while many European economies suffered, one country benefited. It now has an obligation to use the proceeds for the greater good of the continent.
Russia’s cut in gas supplies left Norway as Europe’s largest supplier by far with a captive market for natural gas. As a result, money that could otherwise have been used to support Ukraine ended up on the balance sheet of Norway’s sovereign wealth fund. These funds should now be provided for Ukraine’s defence and reconstruction.
In 2022 and 2023 (until European gas-importing countries were able to build LNG import terminals) Norway received excess natural gas export revenues of €109bn, according to estimates by the Norwegian Ministry of Finance.
Norway’s 78 per cent marginal tax on profits in the oil and gas sector, along with returns on the government’s direct investments in oil and gasfields, and dividends from its ownership share in its parastatal oil company Equinor, ensured that the lion’s share of this windfall went into the country’s coffers while a much smaller share was retained by the companies that produced the gas.
Oil and gas companies operating in Norway responded to the rise in prices by increasing production. Markets did their job of allocating scarce gas supplies to their most efficient use, in many cases mitigated by energy subsidies. But for about 18 months, Europeans lived under an energy regime that benefited only two countries: Norway, which reaped the windfall gains; and Russia, since high energy prices constrained the region’s ability to support Ukraine.
Meanwhile, other European governments had to incur substantial expenses to mitigate energy costs for industry and families. The room to raise taxes to support the war effort was severely constrained by the stresses generated by high energy costs.
There is little doubt that these Norwegian gas supplies were essential in keeping the wheels in Europe turning at a critical moment. But Norway’s government has not recognised its windfall as profits from the war. This year it allocated a measly €3bn to support Ukraine’s desperate war effort.
This means that Norway provides less support to Ukraine, as a share of GDP, than its Nordic and Baltic neighbours. While their support ranges from Sweden’s 0.9 per cent of 2021 GDP to Denmark’s 2.2 per cent, Norway provides only 0.7 per cent. It should now step up and donate its windfall. That could be achieved either by a staggered series of payments or as a lump sum that Ukraine could leverage by issuing bonds against.
Among Norway’s allies, many might have thought that the country’s hoarding of its war windfall would come to an end when Jens Stoltenberg was appointed minister of finance last month. While he was Nato’s secretary-general, Stoltenberg exhorted Nato countries to increase their funding commitments towards Ukraine.
Yet so far, Stoltenberg has stuck to Prime Minister Jonas Gahr Støre’s line that Norway’s excess gas profits are no different from other oil and gas revenue and should be saved for future generations of Norwegians. Any increase in Norway’s support for Ukraine, they argue, should be subject to the national spending rule that stipulates no more than 3 per cent of the value of its sovereign wealth fund can be spent each year.
In a recent interview with the Financial Times, Stoltenberg responded to criticism of this position by saying that Norway was not a “war profiteer”. But in a moment of risk to European security unprecedented since the cold war, and to democracy itself, this is beside the point.
The value of Norway’s war windfall is almost equivalent to all US military and civilian support for Ukraine to date. As the US position on European security becomes increasingly ambiguous, Norway should deploy its windfall to the benefit of the European citizens from whom it came, by allocating it in full to Ukraine’s defence and reconstruction.
