Resource rent taxation and neutrality of investment projects on the Norwegian Continental Shelf ¹

Nonrenewable resources are often taxed at high rates. Tax neutrality is, therefore, crucial since distortions can have substantial economic efficiency losses. However, academics have long disagreed on what constitutes a neutral tax. The same tax model can be described as prone to overinvestments by some researchers and resulting in underinvestments by others. The Norwegian petroleum tax regime 2000–2022 is a case in point. This article, using data on plans for sanctioning development projects submitted to the Ministry of Energy (so-called plan for development and operation [PODs]), examined whether pre-tax unprofitable projects have ever been sanctioned. With two exceptions, there have been no examples of the sanctioning of economically unprofitable projects. The projects presented to and approved by the Norwegian government have been economically profitable at relatively high hurdle rates. The two exceptions were a electrification project using floating offshore wind technology but was part of a larger investment project that is economically viable, as well as a carbon capture and storage (CCS) project handed in by oil and gas companies but unrelated to their petroleum related activities. These exceptions suggests that the petroleum tax system can in principle be used to subsidize projects that isolated are economically unprofitable projects to help achieve the goals of reducing climate gas emissions.