Norway will subsidize high electricity prices with oil revenues

Bloomberg reports that Norway’s government will subsidize rising electricity prices in an aid package totaling more than 8 billion kroner ($890 million) to help mitigate the impact of record electricity prices hitting households across Europe.

Ironically, these subsidies will probably be paid for with oil money.

Record high prices

Residents in southern Norway have seen their electricity prices reach record highs due to low water levels at hydroelectric dams. The price of electricity has also increased because Norway is exporting electricity to continental European nations like Germany and England.

The subsidies paid by the Norwegian government will cover half of the households’ power costs in the December to March period, with market price of electricity above 70 ore per kilowatt-hour. This will come via deductions on their electricity bills, Prime Minister Jonas Gahr Store told a news conference in Oslo on Saturday, according to Bloomberg.

Where does the money come from?

Norway has a reputation as having a vast welfare state. It is easy to have generous benefits when 20 percent of the revenue received by the government comes from the oil industry.

Norway is the largest oil-producing country in Western Europe and the 15th largest oil producer in the world. Norway is also a major producer of natural gas, and it was the fourth largest natural gas exporting country in the world in 2020, behind only Russia, the United States, and Qatar.

Unfortunately, subsidies of this nature will likely become more frequent in the future because too many countries in Europe are shutting down their reliable coal and nuclear power plants to rely on wind, solar, natural gas, and imports of electricity from neighboring countries. This means that much of continental Europe is using Norway’s vast reserves of hydroelectric power as their dispatchable power plants.

The problem with this strategy is that eventually, you run out of other people’s electricity.