Cost Effectiveness and Target Group Influence in Norwegian Climate Policy

Abstract

Cost effectiveness is a key principle of climate policies in industrialised countries, yet there are significant political barriers against its implementation. The Norwegian case demonstrates that differences in the climate policy instruments targeting different sectors cannot be explained by the sectors' relative significance in the national economy. Whereas the economically insignificant energy‐intensive industries (EIIs) successfully resisted mandatory greenhouse gas (GHG) regulations until 2008, the offshore petroleum industry (the most important sector for Norway's gross domestic product) has paid NOK 300 per tonne of CO2since 1991. What explains why some sectors successfully resist GHG regulations while others do not? This analysis indicates that a key determinant is interdependence between target groups and decision makers in winning coalitions. EIIs were capable of issuing relevant and credible threats to shut down and relocate if costly GHG policies were imposed. In contrast, decision makers did not perceive as credible the offshore petroleum industry's claim that a CO2tax would undermine its competitiveness. Moreover, when target groups can issue effective threats, private information becomes more relevant and reinforces decision makers' dependence on target group cooperation.