3. Natural resource management in Norway

The productivity and sustainability performance of the agro-food sector crucially depends on the incentives posed on the use of natural resources. Innovation is a main driver of productivity gains, but it needs the right environmental incentives to ensure that these gains are obtained from reducing pressures on the use of natural resources. The aim of this chapter is two-fold: i) to give an account of recent important developments in Norwegian environmental and natural resource management policies which have potentially significant implications for agriculture, including land management, forestry, water management, and landscape and biodiversity protection; and ii) to discuss Norway’s climate change action and policies towards a low-carbon economy such as taxes, emission trading, bio-economy and circular economy.

Norway plays a leading role in environmental protection and sustainable development in the international arena. Sustainable development is an overarching policy objective. The main objectives for environmental policies, as summarised in national budgets, are: natural diversity; cultural and historical heritage; outdoor recreation; pollution which includes waste and circular economy; and climate.1

The Norwegian Parliament (Stoërting) determines Norway’s overall environmental and climate policy and the government implements and administers the policies agreed. In addition, municipalities and local governments are responsible for the implementation of policies and climate action plans at the local level.

In order to better adapt environmental policies to local needs and requirements a significant decentralisation of environmental responsibilities to the county and municipal levels has been implemented. While the government implements and administers the most important policies and measures (including economic instruments and regulations), local governments are responsible for implementing policies at the local level, such as those related to waste management, local planning and some transport measures.

By virtue of its membership of the European Economic Area (EEA), Norway’s natural resource management approach is strongly influenced by the European Union. With a few exceptions (e.g. fisheries), Norway has transposed EU Directives into national law and its environmental policies are now fully aligned with the requirements of EU legislation. In some areas, such as environmental impact assessment and the provision of information about health impacts of pollution and products, Norwegian requirements are more stringent than required by EU policies.

Norway also plays a leading role in international environmental initiatives and climate negotiations. In particular, Norway has close bilateral partnerships with some developing countries to reduce emissions from deforestation and forest degradation (REDD+), and is the major funder and an active member of the United Nations Collaborative Program on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (UN-REDD).

Regulations on natural resources are central to ensuring the long-term sustainable use of natural resources and biodiversity. They also impose limits on the impact of industrial and agricultural activities on the state of the natural resource (e.g. water pollution, soil degradation, GHG emissions). The design of natural resources and environmental policies can influence incentives for agricultural innovation and sustainable productivity growth.

Norway has a relatively high level of environmental regulation compared to other OECD countries. There is a wide range of laws regulating various aspects of environmental policy and the use of natural resources, including specific regulations on pollution controls, wildlife and freshwater fish, municipal health, environmental protection, buildings and motorised vehicles.

Moreover, the stringency of Norway’s environmental policy has increased significantly since the early-1990s and, in 2012, was above the OECD average as measured by the OECD’s Environmental Policy Stringency indicator, which covers energy and GHG emissions. In this respect, the level of stringency in Norway is the fourth highest after Denmark, the Netherlands and Finland (Figure 3.1).

The most important regulations are the Planning and Building Act and sectoral legislation such as the Water Resources Act, the Watercourse Regulation Act, the Energy Act, the Pollution Control Act, the Svalbard Environmental Protection Act, the Marine Resources Act, the Aquaculture Act, the Petroleum Act, the Forestry Act and the Land Act, applied together with the Nature Diversity Act.

At the sectoral level, agriculture has been subject to several environmental regulations since the 1980s, when specific environmental objectives were incorporated within its agricultural policies. However, other goals of agricultural policies, such as agricultural income, food self-sufficiency and ensuring sufficient of agricultural production across the country, have taken precedence over the environmental objectives as the link between agricultural and agri-environmental policies was rather weak. In recent years, and as an effect of the Paris Agreement on climate, environmental objectives have started to play a stronger role in the development of agriculture and agricultural policies (Mittenzwei and Øygarden, 2020[2]).

Regulatory approaches include standards for environmental outcomes as well as standards for particular activities. Relevant standards for particular activities include, inter alia, standards for manure and pesticide management as well as requirements that ruminant livestock shall be kept outdoors to graze for minimal periods each year. Regulations for management of nutrients, run-off and erosion in agriculture is mostly developed nationally, while regulation on plant protection products implements EU-regulations in this area. Forestry regulations specify many aspects of forestry management activity, for example, the timing of replanting of harvested areas.

Most of the EU’s environmental legislation has been incorporated into Norwegian law through the Agreement on the European Economic Area Agreement (EEA). For example, Norway has implemented the ecosystem-based EU Water Framework Directive, with the goal of achieving good ecological and chemical status in all water bodies by 2021. The EEA Agreement also includes a range of legal acts relating to the climate and environment, and these play a part in reducing pressure on the environment. They include legislation on waste, chemicals and air pollution. However, legislation on nature management, including the Birds and Habitats Directives, is not part of the EEA Agreement. Nevertheless, Norway and the European Union co-operate closely in this area as well.2

Regulations for manure management have been mostly constant over recent years, while standards for pesticide management and animal welfare have been under constant development. Similarly, regulations for environmental protection in areas such as water quality, air quality and wildlife habitat have been developed over recent years.

For manure and organic fertilisers, the regulation requires, inter alia, that farmers must have at least 0.35 ha of agricultural lands per livestock unit (which is the equivalent of a dairy cow) to have enough area to distribute manure, and at least eight months storage capacity, to allow for timing of manure spreading. Management of mineral fertiliser is not covered by this regulation; however, dosage of all types of fertiliser is covered by the regulation to plan the dosage of fertiliser. Farmers’ fertiliser plans must be carried out every cropping season to qualify for full payments. The fertiliser regulation is under review. The agricultural and environmental authorities presented their reports and proposals for a new regulation in 2018. The departments are working on a public consultation on new fertiliser regulations.3

For controlling soil erosion, the general Water Resources Act requires that vegetation be maintained in zones directly adjacent to waterways. However, this requirement is not enforced retroactively, in cases where such zones were cultivated prior to the Act. Instead, there is a cross-compliance requirement – to qualify for the Area and Cultural Landscape programme in accordance with the regulation for production support – that farmers must maintain buffer zones on such cultivated land adjacent to waterways. The latter regulation also specifies that the zone shall minimally have a width of two metres. Additional erosion control requirements can be enforced by regional authorities if justified (i.e. if soils and waters are particularly exposed). Such regional requirements have currently been adopted only in particular cases in southeast Norway.

The regulation on plant protection products implements the EU regulations regarding approval of plant protection products. The EU Directive on sustainable use of pesticides is also implemented in Norway. Further, there are requirements for the practical use of plant protection products, including requirements to follow the principles for Integrated Pest Management. There is also a tax on plant protection products, which is differentiated according to the health and environmental risks related to the product. Plant protection products must be approved by the Norwegian Food Safety Authority before such products can be placed on the market in Norway.

Norwegian agricultural policy with respect to land aims to keep farms in operation in all parts of the country, facilitate family ownership, secure settlement in rural areas and avoid land fragmentation. Judicial measures, such as the Concession Act, the Allodial Act, the Land Act and the Forest Act are essential tools to achieve these goals.

Property holdings are small on average. In 2018, 182 300 properties were registered in the statistical database as agricultural or forest properties, defined as those with at least 0.5 ha agricultural area or 2.5 ha productive forest area. Of these, 29% are for exclusively agricultural use, and 11% are exclusively forestry. The remaining 60% are a mix of agriculture and forestry use (Chapter 1).

The average size of a forest estate for all landowners is 55 ha and the smallest 60% of landowners own only 10% of the forest land (Figure 3.2). For those forest properties associated with an agricultural holding, average size is larger. Harvest activity was carried out on 18 447 forest properties in 2018, and those land owners earned NOK 49 000 (USD 5 300) on average. Most owners of agricultural or forest properties are individuals rather than companies. Ownership consolidation is slowly reducing the overall number of properties, though many owners choose to rent out their agricultural land rather than sell it upon ceasing operations.

When certain properties change hands the Concession Act (LOV-2003-11-28-98) states that the buyer must apply for a concession.4 When a contract is signed, an application for a concession is sent to the municipality where the property is located. The application must give information about the acquirer, the property in question and the purpose and all other conditions for the acquisition. The main purpose of the Concession Act is to protect agricultural land.

There are certain exemptions in the Concession Act for transfers within families, and the Allodial Act (LOV-1974-06-28-58) further protects the historical ownership rights of family members during property transfers. This act allows those with the best allodial rights to claim a property if it changes owner. It also gives heirs the right to inherit the entire agricultural or forest property when the owner dies. An owner of an allodial property retains the right to sell or give the property to whoever they choose, but those with allodial rights may reclaim the property from the new owner.

Agriculture and forest lands are subject to the Planning and Building Act (LOV-2008-06-27-71), which aims to promote sustainable development. According to the act, planning will contribute to co-ordinating governmental, regional (county) and local (municipality) tasks, and make the basis for decisions linked to use and protection of the resources. Municipalities may make, or change, their master plans according to the Planning and Building Act and may do so at their own initiative or that of private persons.

The Land Act (LOV-1995-05-12-23) provides that cultivated land may not be used for other purposes. The farmer may build houses that are necessary to run the farm, but not other buildings. Exemptions to this rule may be granted under certain circumstances, most importantly having to do with improving the structure of agricultural operations.

The state owned company Statskog SF is the largest forest owner, holding approximately 6% of all productive forest area. The Norwegian Forest Owners Federation (Norges Skogeierforbund) represents approximately 34 000 owners of forest land representing 80% of the timber market. The Federation represents the interests of forest owners towards the government and other public authorities, politicians and media. The four regional co-operatives assists members, who are mostly farmers that choose to join, to manage their forest holdings. This includes planning, arranging for harvest and sale to mills. They are considered as agriculture co-operatives.

Forestry policy objectives include considerations of economic, climate, biodiversity, landscape and amenity benefits. The current Forestry Act came into force in 2006. Its main objective is to promote sustainable management of forest resources to promote local and national economic development and to secure biological diversity, consideration for the landscape, outdoor recreation and the cultural values associated with the forest. A wide range of measures, including legislation, taxation, economic support schemes, research, extension services and administrative procedures, support the implementation of forest policy, but unlike in the agricultural sector, there is no border support or market regulations to protect price levels.

Norway’s forest policy is summarised in a White Paper that was adopted by the parliament in 2017 (Meld. St. 6 2016–2017), which considers forests and forest industries to be important contributors to a modern bio-economy that can aid the transition towards a more sustainable and green economy that is less dependent on oil and gas.

The Norwegian Bioeconomy strategy identifies policies that allow the extraction of biomass from forests to be increased while at the same time safeguarding biodiversity. It states, among other things, that the government will strengthen environmental considerations in forestry through new instruments in the Nature Diversity Act as well as other forestry instruments (Norwegian Ministry of Climate and Environment, 2015[4]). These measures include environmental regulation, knowledge development and the Norwegian PEFC Forest Standard.

The SKOG22 working group was established by the Ministry of Agriculture and Food in 2013 to develop a comprehensive national strategy to contribute to the short and long term development of the forestry sector (Innovation Norway, 2015[5]). It was composed of a wide array of participants representing all parts of the value chain as well as research and development. SKOG22 reflects the perspective of forest sector participants and so is not official government policy. One noteworthy goal in SKOG22 is finding new uses of forest products to secure domestic value added processing and avoid exporting raw materials.

Long-term objectives of the SKOG22 are to increase the annual harvest to as much as 15 million m3 by 2045. There is also the intention to reduce the share of raw timber materials in exports and increase domestic value added in forest products. In order to achieve the targets for harvesting and increased processing, by 2045 new uses must be found for 5.2 million m3 per year in wood processing, fuel and biorefining.

A central regulation under the act is the obligation for forest owners of all types to regenerate areas within three years after harvesting. Supporting this regulation is the requirement for forest owners to set aside between 4% and 40% of the revenues from harvested timber into a government administered fund. The Forest Trust Fund was established to support long term investment in sustainable forestry. The Fund is owned by forest owners, but it may only be used for specific purposes such as planting, road building, management planning, non-commercial thinning and other activities. When used, the money is treated as income for the forest owner, though up to 85% is exempt from taxation when the money is used for approved purposes. At the end of 2018, the Forest Trust Fund had a balance of NOK 1.9 billion (USD 0.2 billion). The tax treatment of the fund makes it an attractive option for forest owners.

Economic support is given for a range of activities that support sustainable forestry. Support for forest roads and timber terminals has been prioritised in recent years, to address areas with relatively low utilisation of forest resources due to sparsely developed forestry infrastructure. This includes coastal areas in western, mid and northern parts of Norway. In 2018, forest owners received a total of NOK 227 million (USD 28 million) in grants for forest road construction, silvicultural activities, forest management planning and other activities enhancing sustainable forestry and climate mitigation. In addition NOK 45 million (USD 5.5 million) was given in grants for the construction of timber terminals to facilitate transport by sea.

Norway is one of the earliest participants in the Programme for the Endorsement of Forest Certification (PEFC), an independent third-party certification system for forest products. Norway first joined PEFC in 1999, and its standard was first endorsed in 2000 and reviewed every five years after that, most recently in 2016. Norway’s standard covers activities related to forest manager responsibilities and planning, felling and forestry operations and special environmental values (PEFC Norway, 2016[6]).

Norway’s Water Management Regulation (Vannforskriften) incorporated the EU Water Framework Directive (WFD) into Norwegian law in 2007. The WFD was formally taken into the EEA agreement in 2009, granting the EFTA countries extended deadlines for the implementation. Also, under the North Sea Declaration Norway has obligations to limit or reduce nutrient inputs and the local and central governmental authorities are co-ordinating efforts to comply with this obligation.

The main objective of the WFD is to achieve “good conditions” in all waterways as regards to pollution and ecological conditions. The EU WFD divides the country into river basins. The county councils within a watershed are Water Region Authorities and they are responsible for the regional basin management plans including environmental goals and cost indications for the proposed measures for the watershed in focus. The plans must be agreed on by the county government and approved by the Ministry of Climate and Environment. Following this step, individual measures will be processed by the sector authorities.

The environmental conditions in Norwegian rivers and lakes are relatively good compared with those in most other European countries. Around 50% of all Norwegian water bodies probably meet the EU objectives for good quantitative status under the EU WFD, while around a quarter of the Norwegian water bodies are at risk for not fulfilling the requirements of good water quality. In 2019, 76% of the identified Norwegian water bodies had high or good ecological status (Figure 3.3).

Agriculture is an important source of nutrients in some areas and has been identified as the third most important factor behind aquaculture and manufacturing influencing the status of Norwegian fresh water bodies. Most of the eutrophication problems in rivers and lakes are related to phosphorus (P) and the measures implemented in Norway are especially focusing on reductions in P loading (Chapter 2).

Measured by nutrient content, 34% of all nitrogen and 58% of all phosphorus used in agricultural farming come from manure Bye et al. (2020[7]). Since 1980, the sales of nitrogen have been quite stable, while the sales of phosphorus and potassium have decreased (Chapter 1). However, in 2008/09, sales of commercial fertilisers decreased significantly, due to a high rise in prices.

Recent analysis by the OECD Secretariat suggests that, overall, Norway has made some progress in aligning its agriculture and water policies with the OECD Council Recommendation on Water from 2009 to 2019 (Gruère, Shigemitsu and Crawford, 2020[8]). On average, the largest progress was observed with respect to general policy recommendations, followed by water risk and disasters management (Figure 3.4). Norway has upgraded and improved the dissemination of tools to support decision-making on agriculture and water (e.g. implementation of the EU WFD, River Basin Management Plans 2016-2). Within the agricultural policy, mitigation measures entail support payments, legislation on manure management, and regional and local subsidies provided through the Regional Environmental Programme (REP) (Chapter 2). Norway has also implemented policies to manage flood risks through a combination of mitigation and adaptation policies. For example, it has developed national flood risk management plans or frameworks that include plans for the agricultural sector.

Despite the introduction of numerous measures, alignment scores remain low: general considerations (0.5), water quantity (0.37), water quality (0.56), water risks (0.44); and water pricing and charges (0.13). Moreover, in the area of pricing the analysis indicates that no progress has been achieved for policies related to water pricing and, at the same time, the score remains very low. Water charges and pricing do not reflect the full supply cost recovery (operation and maintenance costs, and capital costs) and more efforts may be needed to recover water charges and use pricing instruments, in line with the OECD Council Recommendation on Water. In addition, a gap exists between the water quality targets and the current situation (Øygarden and Bechmann, 2017[9]). Furthermore, some of the measures, such as regionally-targeted support to the livestock sector may have encouraged livestock activities and contributed to the deterioration of water quality.

Nutrients run-off is considered a serious agri-environmental concern in parts of Norway, and its effect on water quality is the most important concern. The amount of nutrient discharges – phosphorous and nitrogen – from agricultural activities into the waterways and oceans vary markedly between the different water regions. Agriculture ranks high in relative contribution of discharges in the southeastern areas of the country. For example, the water regions Glomma and Vest-Viken, are the two regions where agriculture accounts for the largest relative contribution of total discharges with 44% and 46% of phosphorous discharges, and 40% and 27% for nitrogen discharges respectively (Bye et al., 2020[7]).

The major threats to biodiversity include land use change, climate change, invasive alien species and pollution. Changing land use is considered to be the most significant factor impacting Norwegian biodiversity and is estimated to have a negative impact on 87% of the threatened and near-threatened species (Norwegian Ministry of Climate and Environment, 2014[10]).5 However, as noted earlier, Norway has restrictive legislation for the movement of land out of agriculture.

The main national biodiversity objectives, as set out in the 2015-16 Biodiversity Action Plan, are: to achieve “good ecological status” in ecosystems; safeguard threatened species and habitats; and maintain a representative selection of Norwegian nature (the conservation of areas covering the whole range of habitats and ecosystems) (Norwegian Ministry of Climate and Environment, 2014[10]).

Norway just meets the Aichi 2000 target to protect at least 17% of their land as 17.9% of the country’s land area is designated as protected areas (Figure 3.5).6

The 2009 Nature Diversity Act introduced three key principles for biodiversity protection: the precautionary principle, the ecosystem approach, and the polluter pays principle. The Act applies both on land and at sea. The 2009 Planning and Building Act seeks to better protect the shore zone from construction and to safeguard nature and open spaces for outdoor recreation. It introduces the concept of zones that require special consideration, where restrictions on land use can be imposed. It also provides for climate-related concerns to be addressed in municipal land use planning (e.g. environment-friendly transport in connection with new development).

Norway and the European Union co-operate closely in global and regional biodiversity initiatives, including projects relating to the implementation of the Convention on Biological Diversity, and to mapping and assessing the status of Norway’s ecosystems. Norway’s large remote areas and extensive coastline present particular challenges in monitoring and tackling biodiversity loss. One challenge for the Norwegian authorities is the lack of clear, agreed management objectives for “good ecological status” in most ecosystems, even though “sustainable” management is specified as a goal and a legal requirement including in the Forestry Act.

In its 6th National Report to the Convention on Biological Diversity (CBD), and post-2010 National Biodiversity Strategy and Action Plan, Norway identifies invasive alien species as one of the major threats to biodiversity (Norwegian Ministry of Climate and Environment, 2018[12]), and has undertaken several legislative, policy and governance actions to control its spread which collectively provide an overarching framework.7 According to CBD’s evaluation entitled “Analysis of Targets Established by Parties and Progress Towards the Aichi Biodiversity Targets”, Norway is on track to achieving its national target to combat invasive alien species by 2020.

In situ conservation of genetic diversity is part of the overall effort of Norway to safeguard biodiversity. The international framework for this work is set by the Convention on Biological Diversity and the Nagoya Protocol on Access and Benefit-sharing under the Convention, and the International Treaty on Plant Genetic Resources for Food and Agriculture. The Norwegian Environment Agency is responsible for co-ordinating initiatives for in situ conservation of genetic diversity.

Norway is involved in international co-operation with the FAO, e.g. through the adoption of global plans of action for genetic resources in food and agriculture. The Svalbard Global Seed Vault is the world’s largest seed repository for plants and is vital to global food security.

Programmes for conservation and the sustainable use of genetic resources for food and agriculture have been organised by the Norwegian Genetic Resource Centre, which is part of the Norwegian Institute of Bio-economy Research. The Centre is responsible for implementing and updating Norway’s national action plans for the conservation and sustainable use of genetic resources in farm animals, forest trees and crops, including the wild relatives of food plants. Grant schemes for environmental measures in agriculture and forestry provide important support for these efforts.

Norway’s climate policy is founded on the objectives of the UN Framework Convention on Climate Change (UNFCCC), the Kyoto Protocol, the Paris Agreement, and the Norwegian Climate Change Act. It is based on agreements reached in Parliament in 2008, 2012 and 2017, which are the result of a broad political consensus that Norway should take responsibility for the reduction of greenhouse gas emissions (GHG). These agreements define targets for emission reductions towards the long-term goal of making Norway a low-emission society.

Norway’s key commitments on climate change policy as stated in the 2017 Climate Change Act comprise of (Norwegian Government, 2019[13]):

  • 2030 target: An overall target of at least 40% reduction of GHG emissions from 1990 by 2030, as defined under the country’s nationally determined contribution (NDC) to the Paris Agreement.8 Norway will co-operate with the European Union to fulfil this commitment and already participates in the Emission Trading Scheme (ETS). Under an agreement with the European Union, Norway will also participate in the EU’s Effort Sharing Regulation and the regulations on land use, land use change and forestry (LULUCF) for the period 2021-30. Norway updated its national determined contribution under the Paris Agreement in February 2020, the enhanced target is to reduce emissions by at least 50% to 55% by 2030 compared to 1990-levels.9

  • Climate neutrality by 2030 was adopted as an objective in 2016 by Parliament. This implies that from 2030, GHG emissions must be offset by climate action in other countries through Norway’s engagement with the EU-ETS and through international co-operation on emission reductions, emission trading, and project-based co-operation.

  • A low-emission society by 2050, with the target to achieving a reduction of GHG emissions of the order of 80-95% from the 1990 level. The government has enhanced the 2050-target to represent an emission reduction of 90–95%.

The 2017 Climate Change Act has an overarching function in addition to existing environmental legislation. In particular, the Act introduces: i) five-year reviews of Norway’s climate targets, following the Paris Agreement; and ii) an annual reporting mechanism on the status and progress in achieving the climate targets.

The Ministry of Climate and Environment has the overarching cross-sectoral responsibility for the co-ordination and implementation of climate change policy and commitments. The Ministry of Finance is responsible for tax schemes and the other ministries are responsible for policies in their respective sectors. The Norwegian Environment Agency was appointed by the Ministry of Climate and Environment as the national entity for official reporting. Statistics Norway is responsible for the official statistics on emissions to air. The Norwegian Institute of Bioeconomy Research (NIBIO) (Chapter 4) is responsible for the calculations of emission and removals from Land Use and Land Use Change and Forestry (LULUCF). Three main mechanisms have been used to reduce emissions: carbon taxation; emission credits from participation in the EU ETS; and emissions reductions under other international actions such as the Clean Development Mechanism.

Norway has been a part of the EU ETS since 2008. About 50% of Norwegian emissions are covered by the ETS. More than 80% of domestic emissions is subject to mandatory emissions trading, a CO2 tax, or both. In October 2019, the European Union, Iceland and Norway formally agreed to extend, for the period 2021-30, their climate co-operation by including the Effort Sharing Regulation and the Regulation on GHG emissions and removals from land use, land use change and forestry (the LULUCF regulation), in the EEA agreement. By this decision, Norway takes part in all three pillars of the EU climate policies.

Under the Effort Sharing Regulation, Norway will need to reduce 40% of GHG emissions from the non-ETS-sectors (agriculture, transport, waste and heating) by 2030 compared to 2005. Under the LULUCF-regulation, Norway will commit to ensure that emissions do not exceed removals in this sector according to the accounting rules set out in the EU's Land Use, Land-Use Change and Forestry (LULUCF) Regulation.

According to EU's accounting rules for the LULUCF sector, deforestation is the largest source of LULUCF emissions (2.4 million tonnes of CO2 per year), partly offset by removals from afforested land (0.6 million tonnes of CO2 per year). Emissions and removals from forest management are derived from a forest management reference line (FRL) that was finally adopted by ESA on 16 December 2020. Preliminary calculations show that Forest management is likely to end up with emissions (0.9 million tonnes of CO2 per year), due to the fact that the harvest rate is expected to increase compared to the situation in the reference period (2000-2009). There is, however, flexibility for compensation under the EU forest management accounting rules, that is excluding these emissions (if the European Union has net removals and for countries with plans for increasing removals in forest management). Agricultural lands have only a small impact on the LULUCF net total. Preliminary calculations shows that the projected net emissions from the LULUCF sector are approximately 2.7 million tonnes of CO2 per year above the reference line for the period 2021-25, and 1.8 million tonnes of CO2 per year if emissions from forest management qualify for compensation.

Since under current trends LULUCF is expected to be a net emitter, Norway will have to take action to avoid being in violation of the regulation. As a result, among other measures currently under consideration, the conversion of peatlands to cultivation was restricted in June 2020, potentially saving 450 000 tonnes CO2-equivalent for the 2021-30 period, based on an assumption that the restrictions prevent cultivation of 200 ha per year.10

Agriculture emissions in 2019 were 4.4 million tonnes of CO2 equivalents, a decrease of 6.4% since 1990. In total, GHG emissions from the agricultural sector represent 8.8% of total Norwegian emissions and 16.5% of non-ETS obligations. Objectives for agriculture are to reduce GHG emissions’ intensity in production, increase the uptake of CO2 and adapt production to a changing climate. The role of agriculture in Norway’s climate change reduction plans was outlined in a voluntary agreement concluded between the government and the main farmers’ organisations, Norges Bondelag and Norsk Bonde- og Småbrukarlag.

The government’s position is that efforts to reduce GHG emissions from agriculture must be balanced with the goal of increased food production and should not lead to carbon leakage with production moved out of Norway (Meld. St. 11 (2016-2017)). For agriculture to continue to be exempt from carbon taxation and other measures applied elsewhere, the sector must make a good-faith effort to reduce emissions.11 The agreement and plan made by the Norges Bondelag is intended to address this and sets out an 8-point plan for emissions reductions over the next decade (Box 3.1).

The plan is under the responsibility of the farmers’ union and sets voluntary targets for the abatement of GHG emissions and removals from agriculture between 2021 and 2030. The plan has eight focus areas that if fully implemented can reduce GHG emissions from agriculture by 4 to 6 million tonnes of CO2 equivalents over the next ten years, equal to about 10% of 1990 emissions on an annual basis.

The main greenhouse gas emissions from the agricultural sector are methane (CH4) from livestock and nitrous oxide (N2O) from manure management and agricultural soils. In Norway, agricultural methane emissions come exclusively from animals, in particular from ruminant enteric fermentation and manure management. Therefore, the size of dairy and beef herds, the way they are fed, and the amount of N fertiliser applied to fields are the main drivers of the volume of GHG emissions.

Improved feed efficiency can reduce emissions per animal. Higher productivity also reduces the number of animals required, usually with net benefit in overall emissions efficiency. Milk yields in Norway average around 7 000 kg per dairy cow, which is already quite good and well above the OECD average of 4 300 kg per cow. However, it is still below the most efficient producers such as the United States and Canada (both over 10 000 kg) and Japan (8 600 kg), indicating there may still be room to increase yields.

In Norway, most economic sectors other than agriculture are either obliged to take part in the EU Emissions Trading Scheme or pay the basic tax on CO2 emissions, which in 2020 was NOK 544 per tonne (USD 54.3 per tonne) of CO2-equivalent emission. The PEM model was used to hypothesise what the result would be if the agricultural sector was also subject to this tax on its emissions (see Annex 6.A for modelling details). To construct this experiment, the CO2 tax is applied as a new tax on animals for milk and beef, and on land for crops, amounting to NOK 450 per tonne of CO2 equivalent emitted by each commodity.

This experiment estimates an overall reduction of GHG emissions of about 7.9%, allowing agriculture to contribute to the effort to reduce emissions. At the same time the value of production of grains, milk, and beef declines by about 3.1%, demonstrating an increase in the carbon-efficiency of production on a value basis. The efficiency gains are more pronounced in the southern valleys and northern Norway, which show a smaller effect on beef production.12 Milk production is the main driver of the change in carbon efficiency. This is because the milk quota system ensures that milk producers can tolerate some cost increases before output is affected. Regions with a higher share of milk production therefore tend to show more improvement in carbon efficiency.

Paying a carbon tax can be costly for producers. In this experiment, farmers pay NOK 1.5 billion (USD 0.2 billion) in lost producer surplus. The point of an environmental tax is to change the incentive on goods with environmental externalities; however, the resulting income transfer out from producers can be a barrier to implementation. One solution is to compensate producers for the cost of the carbon tax by providing a matching income payment unrelated to emissions. A decoupled payment based on area was combined with the carbon tax to look at some of the resulting trade-offs (Chapter 2). This compensatory payment is revenue neutral, paying out the same amount as raised by the CO2 tax. But the decoupled payments are less distorting of production, and so more efficient at transferring income. As a result, producers are better off with the compensated carbon tax than they would be without it, even though production levels do not increase (Table 3.1).

A consumption-based tax on carbon emissions in agriculture can help reduce carbon leakage, which happens when reduced domestic emissions are offset by emissions implicit in additional imports.13 The production-based carbon tax does indeed lead to increased imports as production declines while consumption remains constant. A consumption-based carbon tax has the opposite effect: consumption declines while production remains constant, lowering imports. It is assumed that domestic price-setting arrangements are not affected by the consumption tax, so that all the adjustment happens in the consumer side of the market. The lack of domestic price response is key to the results; if the tax on consumers does not affect the way producer prices are set through market regulations then domestic production is little or not affected, and so domestic GHG emissions do not change. This is the opposite of carbon leakage: all emissions reductions from the consumer tax take place abroad. In principle, a combined consumption- and production-based carbon tax could be designed which would lower production and consumption equally, leaving imports unchanged and eliminating carbon leakage.

The scenarios point to the mechanisms by which agriculture can make a larger contribution to Norway’s 2030 emission reduction goals without simply reducing production in equal proportion to emission reductions. The model identifies the key factors that determine how a carbon tax would affect the sector. Those factors include the extent to which domestic prices would adjust to a tax, and the capacity of producers to increase output per animal. A carbon tax would have a strong impact on animal numbers, however, it is not the only policy to do so. Payments based on animal numbers are already provided to milk and beef producers and have an impact of increasing emissions. Moving these payments to other forms of more decoupled support could have a similar impact on emissions as would a carbon tax14 as shown in the “carbon tax with compensation” as hypothesised in the model, increasing the productivity per animal rather than the number of animals.

Forests contribute significantly to reducing the net emissions of greenhouse gases in Norway. A huge amount of carbon is stored in biomass and soil. Annual carbon sequestration in forests is more than 50% of the total annual anthropogenic greenhouse gas emissions in the country, a share that is matched in few other countries (Figure 3.7).

This uptake of carbon is not counted as part of Norway’s climate commitments as it is a result of past policy and market actions. Fertilisation of managed forests is currently the only implemented forestry measure that can achieve a significant emissions reduction effect before 2030 that can be counted as part of reduction commitments. A grant scheme for fertilisation of forest as a climate mitigation measure was started in 2016. In 2017, NOK 15 million (USD 1.8 million) was allocated to the grant scheme for fertilisation of forest land. With 5-10 000 ha of forests fertilised yearly, uptake can increase by between 0.14 and 0.27 million tonnes of CO2 per year after ten years.

Forests take up carbon from the atmosphere (carbon flux) as they grow, and sequester the carbon in forest biomass (carbon stock). Maintaining a certain level of harvests from the forest is important in order to maintain levels of carbon uptake and sequestration, and to provide climate-friendly raw materials for a range of applications. This is because older forest stands grow more slowly and take up less carbon. The carbon stored in mature stands is also at risk of being released into the atmosphere as older stands have a higher risk of fire or disease outbreak. Converting harvested wood into durable products can increase the amount of carbon sequestered while ensuring high uptake of carbon in the long term.

There are many policies that directly and indirectly affect the carbon mitigation potential of forests. In addition to ordinary support schemes for silviculture and forestry, support schemes for increased seedling density on regeneration sites, enhanced breeding of forest seedlings and fertilisation of forest stands specifically target climate change. In addition, a pilot-project on afforestation has been carried out.

The Ministry of Agriculture and Food offers funding for investments in small-scaled bioenergy projects primarily based on forest biomass. Funding is provided through grants for investments, studies and training measures. The main objective is to encourage farmers and forest owners to produce, use and supply feedstocks for bioenergy or heating.

Using higher seedling densities for forest regeneration increases the growing stock and CO2 removals. In 2016, a grant scheme was launched to increase the seedling density used for regeneration after harvesting. This measure forms part of ordinary planting after harvesting, and thus does not involve any afforestation.

Norway carries out public research on forest genetics. This involves making use of the genetic variation in forest trees to produce seeds that are more robust and give higher yields. This research has improved tree survival rate, timber quality and rate of growth in volume. It may ultimately be possible to increase the rate of growth in volume by 20% or more, thus increasing CO2 uptake.

In the period 2015-18, the government tasked the Norwegian Environment Agency to work with the Norwegian Agriculture Agency to carry out a pilot project for planting trees on new areas. Calculations indicate that afforestation of 5 000 ha per year over 20 years (100 000 ha total) has the potential to increase annual removals by 1.8 million tonnes by 2050.

There are several barriers to scaling up harvest levels. Market demand is a fundamental limiter, and innovation spending has rightly focussed on development of new products that can expand the market. The structure of ownership is also an issue, where the large number of smallholdings increases transaction costs and reduces incentives for optimal management of forest stands. For many owners of small woodlots, the income provided from harvesting trees is not substantial compared with overall household income. Encouraging consolidation of ownership of forest land can make market signals more effective and bring economies of scale to stand management.

After harvest, wood outtakes are usually not instantaneously oxidised, but carbon remains stored as harvested wood products (HWP) for a period that varies for several months (paper) to many decades for timber used in buildings. The role played by the global HWP pool can be significant. Innovations in long-lived HWPs and a shift away in demand from pulp and paper to HWP can therefore increase the contribution of the forest products sector to climate change mitigation.

One of the most important recent innovations in this area has been the development of new HWPs for commercial building construction. Laminated timber panels and beams can replace concrete and steel construction for multi-story commercial buildings, displacing those high-emissions building materials and so providing a double-benefit for carbon mitigation. Some of the largest examples of such buildings are in Norway (Box 3.2).

Norway’s economy has been transformed since the discovery of commercially viable offshore oil and gas fields in the late 1960s, which helped the country to achieve a high level of GDP per capita. Besides very high material living standards, Norway scores well on other aspects of well-being, thanks to a good mix of natural resources wealth, good policy making, and inclusive and social egalitarian values (OECD, 2019[15]). Moreover, economic growth has been achieved at the benefit of environmental quality as pollution emissions have decreased over time (OECD, 2017[16]). Further efforts are needed to transform Norway towards a carbon neutral, circular and more diversified economy. Cross sectoral approaches are needed to reduce carbon emissions, improve energy efficiency, innovate, develop a more circular economy, and reduce waste.

Norway’s economy is less CO2 intensive than the OECD average due to its lower energy intensity, substantial renewable energy supply from hydroelectric power, as well as progress in energy efficiency (Figure 3.8) (OECD, 2011[17]; OECD, 2019[18]).

In developing environmental, as well as energy policy, Norway strives to formulate the policy on the polluter pays principle and to have a market-based approach where prices reflect costs including externalities. Norway is also using cross-sectoral economic instruments to an increasing extent in climate policy, which contributes to cost-effectiveness.

Environmentally-related taxes (or charges) are policy measures imposing a tax relating to pollution or environmental degradation, including taxes on farm inputs (or outputs) that are a potential source of environmental damage. Environmentally-related taxes, by influencing the behaviour of producers and consumers, constitute an important instrument for governments to internalise the environmental externalities of economic activity (“pricing externalities”) and raise revenues. Specific taxes on energy, for example, alter the relative prices of different forms of energy and thus alter patterns of energy use, with important economic and environmental consequences. They also affect net income and have important distributional implications. Some of the environmental taxes are levied on products that result in CO2 emissions and have a climate motivation.

In Norway, environmental taxes result in effective tax rates that can differ across energy products and uses (Box 3.3). Figure 3.9 provides an overview of how energy taxes apply across the economy.

A CO2 tax was introduced in 1991. The tax rate varied considerably by fuel type and sector, with a number of important sectors more or less exempted from the tax due to the perceived danger of so-called carbon leakage.15 Some of these sectors which are exempted from the tax are part of the EU ETS, and thus at the margin, face a price on their carbon emissions approximately in line with the average CO2 tax rate. Agriculture is exempted and not part of ETS. In the 2020 Budget the rate of carbon tax was increased, and some exemptions and concessions were abolished. In 2020, the standard rate of CO2 taxes will amount to approximately NOK 545 (USD 54.4), corresponding to EUR 55 per tonne of CO2 (petrol, diesel, natural gas, LPG and mineral oil).

Notwithstanding Norway’s stronger track record in pricing GHG emissions than most OECD countries (Figure 3.10), there is room for improvement. Most emissions are priced above EUR 60 per tonne (USD 67 per tonne) of CO2 equivalents (EUR 60 is a mid-range estimate of the climate cost of CO2 emissions in 2020). However, emission pricing and taxation could be more even. Around 20% of emissions are not priced by tax or by ETS. For instance, agriculture is not part of the EU ETS, nor subject to taxes on emissions of methane or nitrous oxide (Norwegian Ministry of Climate and Environment, 2020[21]). However, standard rates of CO2 tax and base tax on mineral oils apply to agriculture.

Only a few countries have levied taxes and charges on farm inputs as a way of addressing environmental issues in agriculture (OECD, 2015[23]). These have mostly been applied to environmentally damaging chemicals, such as those associated with commercial fertiliser and pesticide use.

In Norway, the contribution of environmentally-related taxes in agriculture to total environmentally related tax revenues is less than 1% (Figure 3.11). Looking at the contribution of the individual tax categories, revenues from energy are the most important.16 Notably, while the agricultural sector in Norway pays around 1% of energy taxes, it accounts for about 8% of GHG emissions in the economy. This is due to the fact that in this sector only CO2 emissions from fossil fuels are taxed with the carbon tax.

Norway is one of the few countries taxing pesticides. A tax on pesticide sales was introduced in 1988 and until 1999 the same tax rate applied to all pesticides. The tax was levied as a percentage (11%) of the retail price. The tax is area-based and, from 1999, differentiated by toxicity to encourage farmers to switch to pesticides with lower health and environmental risks, which is more economically effective (Sud, 2020[25]). Pesticides are divided in seven tax classes depending on the health and environmental risks.17 Proceeds go to the state budget. In Norway, although the quantity of pesticides sold has slightly declined since the introduction of the tax, there has been a shift towards the use of pesticides with lower health and environmental risks. Total pesticide usage, measured in active substances, was about 19 percentage points lower in 2017 than in 2001 (Bye et al., 2020[7]).

A tax on mineral fertilisers (nitrogen, phosphorus, potassium) was also introduced in 1988. It was removed in 2000 out of concern for competitiveness to reduce the costs imposed on Norwegian agriculture (Sweden, Austria and Finland have also abolished their fertiliser taxes). The effect of the fertiliser tax in Norway was negligible because the rate was rather low, 15% (compared to 20% in Sweden) (Hellsten et al., 2017[26]).

Diesel used in agriculture is subject to the CO2-tax with the general rate (NOK 500 per tonne of CO2 USD 57 per tonne of CO2) and the Base tax on mineral oil (OECD, 2019[18]). Natural gas and LPG used in the agricultural sector is subject to the CO2 tax, except for gas in greenhouses. Diesel for use in agricultural machinery and other construction machines that are not used on public roads is exempt from the road user tax which is applied for diesel, while they meet the Base tax on mineral oil. Commercial greenhouses are exempt from paying electrical power consumption taxes.

Fossil fuel subsidies are environmentally harmful, costly, and distortive. Not only do they undermine global efforts to mitigate climate change, but they also aggravate local pollution problems, causing further damage to human health and the environment. Despite repeated pledges to phase out fossil fuel subsidies, the latest estimates of support for fossil fuels show that across the globe progress in reducing subsidies and government support for fossil fuels has been modest (OECD/IEA, 2020[27]). In most countries, support for fossil fuel consumption remains widespread.

Norway is a member of the Friends of Fossil-fuel subsidies Reform Group (a group of nine countries formed in 2010 to support the efforts of the G20 and APEC to phase out IFFS). The latest estimates indicate a slight decline in support, mainly brought about by the changes in Norway’s CO2 taxation on mineral oil adjusting to parity on the tax level on petrol. Exemptions and reduced rates of energy taxes comprise consumer support. Total support to fossil fuel consumption is estimated at NOK 7.8 billion (USD 0.9 billion) in 2017. This equals around 0.2% of total tax revenue, below the OECD average support to fossil fuel consumption (0.5% of total tax revenue in 2016).

The high proportion of hydropower in the Norwegian electricity generation mix makes it more difficult at the margin to switch from fossil fuel to renewable forms of energy. The government is making efforts to ensure that demand is met from low-carbon sources by encouraging the development of combined-cycle gas power plants fitted with carbon capture and storage (CCS), along with renewables and energy efficiency.

The energy sector is the most important sector in Norway, with regard to GHG emissions, accounting for 73% of the total emissions.18 Norway is a major producer, and net exporter, of energy products, in particular fossil fuels. Since the first oil discovery in the North Sea in 1969, oil and gas extraction has become by far the largest export industry and an important source of revenue. Norway has decoupled energy use from GDP growth; the energy intensity of the economy has declined by 20% since 2005 and its level is among the lowest in the OECD (Figure 3.12). Industry, the residential and commercial sector, and transport account for most of the total final consumption (TFC) of energy. Agriculture, including food processing, accounts for about 3.5% of TFC (OECD, 2017[28]).

Despite the large production of fossil fuels, Norway is one of the leading OECD countries in terms of share of renewable energy sources in total domestic primary energy supply (Figure 3.13). Norway is in a unique position as regards renewable energy. Unlike most other countries, nearly all of Norway’s electricity production (96%) is based on hydropower.

Norway is applying most, if not all, of the EU energy legislation via the European Economic Area (EEA). Since 2009, Norway has adopted the EU Renewable Energy Directive and has committed to ambitious national target for renewable energy equivalent to 67.5% in 2020 (excluding energy use in gas and oil sector), which according to the Norwegian Ministry of Climate and Environment already exceeded in 2018 (72.8%). In the same year, the share of renewable energy in the total energy supply in Norway was about 49%, being second highest among OECD countries (Figure 3.13). The contribution from renewable electricity production constitutes an important part of this. The Renewables Directive also requires Norway to achieve 10% renewable energy in the transport sector in 2020. Norway also set a target of expanding annual biomass production to 14 TWh by 2020. The target seems to have been achieved already in 2017.

In order to meet these targets, the government has increased the scope of measures and instruments related to development of renewable energy and energy efficiency, including broad efforts in research and development.

Norway also provides strong incentives for zero emission vehicles, both tax advantages and other user incentives. Because Norway’s electricity generation is almost 100% hydroelectric power, a transition to electric vehicles would decarbonise the transportation sector almost entirely (OECD, 2015[23]). Norway now has the highest number of electric vehicles per-capita in the world, but questions were raised concerning the cost-effectiveness of these incentives as the cost of CO2 abatement implied by the incentives is very high (OECD, 2019[18]).

Public support to energy efficiency and flexibility solutions for the energy system is also provided through the state-owned agency, Enova. Enova prioritises working toward flexible solutions that help reduce the need for energy and peak demand. This includes developing technology and business models that stimulate the utilisation of latent flexibility resources, better efficiency and storage.

Norway’s good economic performance contrasts with its mediocre performance on conventional innovation environment-related indicators, such as R&D government budget (GBARD) devoted to the environment and patents on specialisation in environmental technology among OECD countries (Chapter 4). This apparent “Norwegian puzzle”, as it is known, is related to the exceptional productivity generated by non-R&D-based (non-technological) innovation in the services sector. At the same time, Norway has experienced fast productivity growth in the services sector – fuelled by high-skill levels in the workforce – which implies quite robust innovation.

In terms of eco-innovation policies, energy and environment represent some 20% (NOK 7.7 billion - USD 0.9 billion) of Norway’s total R&D expenditure, with oil and gas extraction accounting for more than half. Through different programmes, the Research Council and Innovation Norway grants about NOK 1.8 billion (USD 0.2 billion) per year to environmental research and innovation. Each year, the Ministry of the Environment receives around NOK 450 million (USD 54 million) in R&D appropriations, an amount that represents less than 3% of total government R&D appropriations. In 2017, the government presented a national strategy for green competitiveness. The aim of the strategy is to provide more predictable framework conditions for a green transition in Norway, while maintaining economic growth and creating new jobs.

In terms of eco-innovation priorities, Norway is focusing its efforts on particular technologies, notably carbon capture and storage (CCS) and offshore wind energy. Norway has a long and unique experience in geological storage of CO2 and puts considerable effort into developing technology to reduce the cost of capturing and storing CO2 at gas-fired power plants. CCS is one of five priority areas for enhanced national climate action. Feasibility studies show that realising a full-scale CCS chain in Norway by 2022 is possible and at lower costs than for projects previously considered in Norway. The aim is to capture CO2 from different emission sources in eastern Norway. The CO2 will then be transported by ship to an onshore transport and storage terminal at Kollsnes on the Norwegian west coast. From the onshore terminal, CO2 will be sent in pipeline to a safe geological storage location under the seabed, close to the Troll oil and gas field.

Besides R&D, eco-innovation in Norway has been promoted with other policy measures, such as regulations, economic incentives, negotiated agreements, public procurement and eco-labels. Norway has experience with eco-labels. The Nordic Swan label now applies to 71 product groups; for instance, nearly all paper and detergent products carry it. The EU’s Flower eco-label is also present in the Norwegian market. Together with other countries in the European Economic Area, Norway has introduced an energy label for home appliances, such as refrigerators and washing machines.

The bio-economy – which is based primarily on biogenics instead of fossil resources – is gaining prominence in the policy debate across the globe as technical progress in microbiology provides new opportunities to use natural resources sustainably. Most OECD countries, including Norway, are developing holistic national bio-economy strategies to decouple economic growth from its dependence on fossil fuels, and as a pathway to supporting some of the UN Sustainable Development Goals and commitments under the Paris Climate Agreement (Diakosavvas and Frezal, 2019[32]). Bio-economy-related strategies particularly in Europe also highlight the contribution of the bio-economy to circular economy approaches (e.g. Norway, Finland, France, Italy, Latvia, Spain, and the United Kingdom).19

In Norway, the bio-economy sector accounts for 6% of the economy (of which 46% is due to agriculture and food). Moreover, more than a three-fold increase in total GDP is estimated in 2050 (from EUR 33 billion to EUR 110 billion), with the agriculture and food sector’s contribution estimated to rise from EUR 15 billion to EUR 27 billion (Bardalen, 2016[33]). The bio-economy sector in Norway with the largest value added is the food and drink industry, and with NOK 37 billion (USD 5.9 billion) in 2014 it was nearly three times as high in terms of value added as the second largest, agriculture, at NOK 13 billion (USD 2.1 billion).

The share of jobs in the bio-economy varies across regions, with some mid- and northern-regions of Norway over 22.5% of the working population is employed in the bio-economy. Looking at bio-economy jobs, an overall higher proportion of jobs – up to 16% – are in new bio-economy sectors outside the traditional sectors of agriculture, forestry and fisheries. The proportion is particularly high in mid-Norway. At the same time, most regions in mid-Norway witnessed negative development in jobs in the bio-economy. In northern Norway the situation is very different and the number of jobs in the bio-economy has increased.

The Norwegian bio-economy is characterised, as for other Nordic countries, by a relatively low share of workers employed in bio-economic sectors and, at the same time, by a very high labour productivity (Capasso and Klitkou, 2020[34]). This is due not only to a high productivity across all bio-economic sectors, but also to a strong increase in productivity in fishing and aquaculture, whose value added has evolved massively during the last ten years.

As a whole, the Norwegian bio-economy has strongly increased its productivity in recent years (Capasso and Klitkou, 2020[34]). Sectors connected to food and beverages, which already had a high weight within the Norwegian bio-economy, are still increasing their contribution to the Norwegian value added; at the same time, pharmaceuticals are experiencing a dramatic shift toward bio-based production and thus contributing also to qualitative changes in the Norwegian bio-economy.

In 2016, the Norwegian Government published the national strategy on bio-economy, Familiar resources, undreamt of possibilities (Norwegian Ministries, 2018[35]; Bardalen, 2016[33]). This was a broad cross-sectoral strategy, developed by eight ministries, including the Norwegian Ministry of Agriculture and Food. National institutions such as Innovation Norway, the Research Council of Norway and the Norwegian Environmental Agency were especially important advisers in the process. The strategy covers a ten-year period and is subject to mid-term evaluation.

The strategy points out three overarching objectives ‒ increased value creation, reduction in GHG emissions, increased resource efficiency and sustainability ‒ and four focus areas: co-operation across sectors, industries and thematic areas; markets for renewable bio-based products; efficient use and profitable processing of renewable biological resources; and sustainable production and extraction of renewable biological resources.

The strategy aims to provide a common understanding of the opportunities and challenges associated with the development of the bio-economy in the country. The strategy specifically addresses goal conflicts and opportunities to minimise them, for example by minimising waste and optimising efficiency of use. In this respect, bio-refinery development in the food, feed and wood industry is considered a promising route in Norway.

The Research Council of Norway, Innovation Norway and Siva have developed a common Action Plan for the implementation of the recommendations and instructions in the strategy has been drawn up. The Action Plan was published in February 2020 (Research Council of Norway, Innovation Norway and Siva, 2020[36]). Work on developing a strategy on circular economy is in progress, with nine ministries involved in the process, including the Ministry of Agriculture and Food (Box 4.3, Chapter 4).

With a view to promoting innovation, the strategy supports public R&D and encourages innovation projects along the bio-economy value chain. Innovations in agriculture, forestry and fisheries/aquaculture are considered necessary to achieve climate-resistant plants and improvements in soil fertility/quality. In particular, the strategy emphasises the promotion of key enabling technologies (including biotechnology, nanotechnology, precision farming and ICT) to facilitate the development of new bio-based processes, products and services, such as the microbial production of food and feed ingredients and the anaerobic fermentation of biogas, as well as sustainable farm practices.

Several policy instruments have been introduced to support industrial and commercial development. Given Norway’s experience in environmental taxation, the government proposes several regulatory improvements to create a level playing field for bio-based products, for example taxes or quotas for fossil-based products to account for negative environmental and climate effects. In addition, a revision of fertiliser regulations and an increase in the use of organic fertilisers/sludge, including regulations for deposing, storage and spreading, are on the agenda (Norwegian Ministries, 2018[35]).

The strategy highlights increased collaboration within and between value chains. However, the structure of industry within the production of primary resources is characterised by many small industries and SMEs. This can be a challenge for effective production and advanced technology development and emphasises the need to bring together the many research and innovation communities across sectors.

Several studies have been undertaken on forest-based supplies. In general, the studies point out that there is a large surplus of biomass from forestry in Norway, which can be made available if it is profitable in terms of market price. As for agricultural sources, a 2016 study from the Norwegian research centre NOFIMA provided an overview of the amounts of agri-food residues resulting from Norwegian industrial processing of cereals, livestock, oil plants, fruits and berries, and vegetables and potatoes. The study found that the industries processing raw material, including agricultural sectors, produce 415 000 tonnes annually of agri-food residues.

Building regional and national bio-economies is challenging and many countries are struggling with how to create both sustainable and commercially viable value chains and related innovation ecosystems (Philp and Winickoff, 2019[37]). New products in the advanced bio-economy are often faced with immature markets and competition from cheaper, but less sustainable alternatives. A key policy conclusion of two recent case studies on value chains based on carbon waste gases and marine residuals is that for stimulating growth in the bio-based industries it is essential to have consistent, long-term policies that give the industries predictability for their investments into projects which often have a longer payback time. These policies, as well as the underlying national and societal ambitions, should be communicated clearly to the industry. Public involvement in establishing industrial networks/clusters and other measures (e.g. cross sectoral workshops) to stimulate new interactions between companies, has been identified as another important catalyst for innovation in bio-based value chains.

The main objectives and targets related to waste management as set out in the 2016-17 White paper on Waste as a Resource – Waste Policy and Circular Economy20 are i) significantly decoupling the growth in total waste generated from the rate of economic growth; ii) reducing the amount of waste delivered for final treatment to 25% of total waste generated; and iii) assuring appropriate treatment of all hazardous waste within Norway, either by recycling or sufficient and safe treatment and disposal. The White Paper also contains an overall plastic strategy, which reviews all planned and initiated measures against marine litter and the spread of micro-plastics. Waste management in Norway is governed by the 1981 Pollution Control Act, the unified Waste Regulations, which entered into force in 2004. The regulations covered landfilling, incineration, hazardous waste management and transboundary shipment of waste.

In 2018, 17 900 tonnes of plastic waste were collected for recycling from agriculture. Main waste constituents are round bale packing (plastic sheeting) and fertiliser and seed bags (Bye et al., 2017[38]). In 2017, delivery of hazardous waste from agriculture is estimated to around 242 tonnes, whereof 44% is oil-containing hazardous waste and 30% is waste containing heavy metals.

In 2017, the Norwegian government and the food industry have signed an agreement to reduce food waste in Norway by 50% by 2030. Food waste in Norway refers to the edible part of food waste. This reduction target is in line with the UN Sustainability Goal 12.3, stating that global food waste should be halved by 2030, and, in fact, is a bit more ambitious because the goal applies to the entire food value chain from primary production to consumers. The agreement is voluntary, but binding for the contracting parties.

Norway has good environmental-policy frameworks, strong commitment and is at the forefront of good practice in many areas of environmental policy. Norway has made progress in decoupling its economic growth from environmental degradation, decarbonising its economy, with the energy sector playing a key role. It ranks among the OECD countries with the lowest energy intensity and is one of the leaders in use of renewable energy sources. The government places great emphasis on increasing supply of renewable energy.

Norway is committed to an ambitious climate policy and has adopted some of the most ambitious emission mitigation targets of any OECD country, and is preparing for carbon neutrality by 2050. Its climate targets for 2030 and 2050 made legally binding in the 2017 Climate Change Act. Meeting these targets is a formidable challenge and would require further policy measures. The high relative size of the agricultural emissions (8.5%) and the enormous potential for carbon sequestration in forest and carbon storage in wood requires that these two sectors become a cornerstone of Norway’s climate change mitigation polices.

The polluter pays principle is a cornerstone of the Norwegian policy framework on climate change, as well as energy policy. Use of economic policy instruments has been pioneering in many areas, for instance environmental taxation. In addition, innovative technical solutions have also been encouraged, for instance in carbon-capture technology. Furthermore, as a member of the European Economic Area (EEA), Norway has transposed most EU environmental directives and often imposes more stringent requirements than those required.

Norway was one of the first countries to adopt a carbon tax, and it joined the EU Emission Trading System (ETS) in 2008. More than 80% of Norway’s GHG emissions are now either covered by ETS or subject to environmental taxes. It has achieved some success in combining these two instruments to set a common price on emissions, though the effective carbon price still varies by sector, and exemptions granted to certain sectors have weakened the overall effectiveness of the carbon tax in reducing emissions. The reduction of divergences of rates in the GHG tax across sectors brought in the 2020 Budget would help ensure consistent and economic incentives to abate.

Agriculture is not a part of the EU ETS, nor is it subject to tax on emissions of methane or nitrous oxide. Therefore the sector is an exception and not regulated as other sectors on climate change mitigation. However, standard rates of the CO2 tax and the base tax on mineral oils apply to agriculture. In addition, agriculture in Norway will be part of the EU Effort Sharing regulation (ERS) from 2021. For ESR, the target is to reduce GHG emissions by 40%. The government has an ambition of a 45% reduction in ESR.

Norwegian forestry has tremendous potential for growth. Current harvest rates are constrained in part by market demand for newsprint, which is in long-term decline, and for durable wood products (HWPs), which have nearly unlimited growth potential but which have yet to take a large share of the market for larger buildings. Harvest rates are also constrained on the supply side by a fragmented ownership structure that does not always respond to market signals and which makes executing a national harvest strategy challenging.

  • Despite progress, environmental challenges persist. The country struggles to reach international commitments within the agricultural sector related to GHG emissions, ammonia emissions and water protection. Norway’s reduction commitments for GHGs are ambitious compared with domestic mitigation opportunities as there is already a carbon tax in place and domestic electricity production is hydro-electric.

  • Norway should consider making further steps to reduce pollution from agriculture and to increase alignment with the OECD Council Recommendation on Water. In spite of several policies put in place over the past decade to control nitrogen pollution, Norway still faces excessive levels of nitrogen discharges into its coastal waters. One-quarter of the Norwegian water bodies are estimated to be at risk for not fulfilling the requirements of good water quality. In addition, more efforts may be needed to recover water charges and use pricing instruments, in line with the OECD Council Recommendation on Water.

  • Norway should ensure that agriculture and forestry land use planning is well-co-ordinated and clearly addresses the potential trade-offs and synergies between the two sectors. The application of the land use regulations should combine the protection of the amount of agricultural landscape with flexibility for land owners to maximise the value of their holdings. The fact that farmers own a large share of forest properties, and that their holdings are larger on average, should be seen as an opportunity for jointly maximising the value of forestry and agriculture land use.

  • Norway should ensure that land policies are conducive to innovation. By definition, innovative land uses are unforeseen, so land use regulation must be flexible enough to handle unexpected cases. Regulation can also encourage innovation, for example with differential regulatory treatment of innovative land uses. This is already successfully applied in Norwegian salmon aquaculture, where innovative production systems get special access to production permits.

  • Norway should pursue policies to bring wood-based construction products to price parity with traditional concrete and steel. This could include changes to building codes to decarbonise construction, mandates for use in public buildings, and tax credits. The evolution of electric vehicle, solar and wind power markets may serve as a model in this regard, where price-parity with conventional alternatives creates a tipping-point and rapid adoption.

  • Forest policies are active on both the demand and supply sides to remove barriers to growth. Logistics are facilitated by an active programme for forest road building and other infrastructure needs. Co-operative systems provide an easy turnkey solution for landowners for harvesting and replanting, and reforms to the tax system have made income from forest land more attractive. The extent to which this system may discourage landowners from considering innovative new methods to use their forest land deserves and independent assessment to evaluate how the current system of forest harvest and replanting services and the replanting regulation may be reformed to encourage innovation, especially by small landowners.

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Notes

← 1. See, for example, https://www.regjeringen.no/no/dokumenter/prop.-1-s-20192020/id2671327/?ch=2) (annual budget). Other recent documents that define objectives and measures can be found at the following government reports: https://www.regjeringen.no/en/dokumenter/meld.-st.-14-20152016/id2468099/ (natural diversity); https://www.regjeringen.no/no/aktuelt/kulturmiljo/id2697943 (cultural and historical) heritage); https://www.regjeringen.no/no/dokumenter/meld.-st.-18-20152016/id2479100/ (outdoor recreation); https://www.regjeringen.no/en/aktuelt/the-norwegian-government-steps-up-the-efforts-to-turn-waste-into-resources-and-reduce-marine-litter/id2558322/ (waste and circular economy); https://www.regjeringen.no/en/dokumenter/meld.-st.-41-20162017/id2557401/ (climate); https://www.regjeringen.no/en/dokumenter/meld.-st.-13-20142015/id2394579/ https://www.regjeringen.no/en/dokumenter/meld.-st.-10-20102011/id635591/, and https://www.regjeringen.no/en/id4/ .

← 2. See for example: https://www.regjeringen.no/en/topics/european-policy/areas-cooperation/environment-climate/id686218/

← 3. https://www.landbruksdirektoratet.no/no/miljo-og-okologisk/jordbruk-og-miljo/gjodsling/regelverk/forslag-til-nye-forskrifter-levert-gjodsel-storre-ressurs-mindre-ulempe https://www.regjeringen.no/en/topics/european-policy/areas-cooperation/environment-climate/id686218/

https://www.landbruksdirektoratet.no/no/miljo-og-okologisk/jordbruk-og-miljo/gjodsling/regelverk/forslag-til-nye-forskrifter-levert-gjodsel-storre-ressurs-mindre-ulempe

← 4. See https://www.landbruksdirektoratet.no/en/property/the-norwegian-concession-act for more details.

← 5. Land use changes are mainly from: housing; infrastructure development; forestry activities; and land-use changes in agricultural areas (arable land, including sown grassland, meadows and pastures), which include changes in farming practices and the abandonment of farmland.

← 6. The indicator for open lowlands and cultural landscapes has shown a slight negative development for biodiversity since 1990. https://miljostatus.miljodirektoratet.no/miljomal/naturmangfold/miljomal-1.1/miljoindikator-1.1.7/.

← 7. Key elements include: developed a legal framework to combat invasive alien species (IAS), which consists of the Nature Diversity Act and regulations relating to alien organisms; conduct surveys to combat and to surveil IAS in selected conservation areas; established the Norwegian Biodiversity Information Centre, which conducts ecological risk assessments; and conducted risk assessments of IAS by the Norwegian Scientific Committee for Food and Environment; participation in European research programmes to compile and harmonise information about IAS within Europe.

← 8. This is the same target as the European Union. Norway’s NDC covers all sectors and GHGs.

← 9. https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Norway%20First/Norway_updatedNDC_2020%20(Updated%20submission).pdf

← 10. Wetlands will not be included in the commitment until 2026, and many measures are put in place. More details will be presented in the White Paper on climate policies that is expected to be presented by the end of 2020. The White Paper will be based on the comprehensive report “Climate Cure 2030” (Klimakur 2030)” published in January 2020, https://www.miljodirektoratet.no/klimakur.

← 11. Chapter 5, Economics, Taxation and Sustainability of the Granavolden platform of the ruling party states: “The exceptions for agriculture and fisheries are removed if the party’s composition the Committee on Fisheries and the negotiations between the State and the agricultural organisations on a climate agreement does not come up with measures that provide real and adequate emissions reductions.”

← 12. Relative differences in the price of pasture land keep more land in beef production in these two regions.

← 13. Carbon leakage occurs when a domestic tax on carbon results in increased imports of the taxed product from countries where such a tax is not applied. Part of the carbon emissions resulting from consumption take place elsewhere, so the net carbon reduction is smaller than the domestic reduction.

← 14. See Chapter 2 where a “decoupling” scenario converts payments based on animal numbers (among other things) to a historical entitlement payment. Reduced livestock numbers decrease GHG emissions even more in that scenario, though production also decreases more.

← 15. Carbon leakage effects occur when country efforts to reduce GHG emissions are, partially or completely, offset by increased emissions from countries without mitigation policies (OECD, 2020[39]).

← 16. For the methodology and definitions of the different tax categories, see https://ec.europa.eu/eurostat/documents/3859598/5936129/KS-GQ-13-005-EN.PDF/706eda9f-93a8-44ab-900c-ba8c2557ddb0?version=1.0

← 17. An evaluation in 2003 of the National Plan for Pesticide Risk Reduction (1998-2002) revealed that farmers were shifting to less environmentally harmful pesticides. Later, the Action Plan for Pesticide Risk Reduction (2004-08) increased the number of tax classes from three to five for better differentiation by health and environmental risk. The pesticide tax rates were increased by about 25% in 2005, with no further changes since.

← 18. The energy sector includes the energy industries (including oil and gas extraction), the transport sector, energy use in manufacturing and constructing, fugitive emissions from fuels and energy combustion in other sectors. Road traffic and offshore gas turbines (electricity generation and pumping of natural gas) are the largest single contributors, while coastal navigation and energy commodities used for the production of raw materials are other major sources.

← 19. The concept of bio-economy is closely related to the circular economy. The main objective of the bio-economy is the production and use of biomass, while the circular economy is focused on the use and reuse of products and on closing the loop within the value chain (Diakosavvas and Frezal, 2019[32]).

← 20. https://www.regjeringen.no/en/aktuelt/the-norwegian-government-steps-up-the-efforts-to-turn-waste-into-resources-and-reduce-marine-litter/id2558322/.

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