Gracia Rahi (CERDI, UCA)

12.15 pm: Carbon tax on CO2 emissions from oil extraction: The special case of Norway

Abstract

This study examines the impact of carbon taxation on CO2 emissions from oil extraction, with a particular focus on Norway’s upstream petroleum sector. While carbon taxes are widely used to reduce greenhouse gas emissions by increasing the cost of carbon-intensive activities, empirical evidence on their effectiveness at the extraction stage remains limited. Exploiting Norway’s distinctive fiscal framework - where carbon taxes directly target emissions from offshore oil extraction, including combustion and flaring- this paper evaluates whether upstream carbon taxation leads to measurable emission reductions. Using the synthetic control method, the analysis compares Norway’s emissions trajectory with a counterfactual constructed from comparable oil-producing countries with no carbon pricing instruments in place. The results indicate that direct carbon taxation at the extraction stage is associated with significant reductions in CO2 emissions, with effects emerging gradually over time and becoming more pronounced in the long run rather than in the short term. These findings are robust across a wide range of robustness checks, including alternative donor pools and placebo tests. Overall, the paper highlights the effectiveness of integrating extraction-specific carbon taxes within petroleum fiscal regimes and underscores their potential role as a scalable policy instrument for aligning oil-dependent economies with global climate mitigation objectives.