A $14 billion legal test is latest threat to Norway’s oil future

Bloomberg

Norway’s oil industry has one more thing to worry about. After an unprecedented lawsuit against Arctic drilling, environmentalists have launched a new legal battle to challenge a tax incentive that’s been a cornerstone of the country’s policy to stimulate oil exploration.
The move comes at a bad time for Norway, which needs to step up the search for new resources if it wants to avoid a sharp output decline from the middle of next decade. It adds to existing headwinds for the country’s biggest industry, which has emerged stronger from a bruising slump but is facing an intensifying debate over its sustainability.
At stake is a tax mechanism that allows unprofitable oil companies to claim 78 percent of exploration costs as a cash refund, instead of deducting the expenses over time. The government has paid out 109 billion kroner ($14 billion) since 2005 to explorers such as Lundin Petroleum AB and Repsol SA. It helped attract more companies to Norway, nearly doubling the pace of exploration and leading to key discoveries such as the multi-billion-barrel Johan Sverdrup field.
Environmental group Bellona last year filed a complaint to the EFTA Surveillance Authority, a watchdog that makes sure Norway complies with European Union rules. Should ESA decide the refund is illegal state aid, oil companies would need to return some of the cash and Norway dismantle the program. “It would be serious,” Petroleum and Energy Minister Terje Soviknes said in an interview. “We need more exploration activity.” Climate activists are increasingly turning to the law to fight the oil industry. Greenpeace has also sued Norway — unsuccessfully so far — to stop licenses in the Barents Sea.
Opponents say the exploration refund encourages the search for oil the world can’t afford to burn.