State participation and taxation in Norwegian petroleum: Lessons for others?
Photo: Energy Strategy Reviews
Energy Strategy Reviews September 2014 Volume 3, pp 49-54
Starting around 1970, Norway's system of state participation and taxation in petroleum had important asymmetries, known as distortionary in tax theory. Moreover, tax rates were tailored to oil price changes. From 1986 onwards this has been reformed gradually into a stable and symmetric system, recognized as close to neutral, inducing companies to maximize pre-tax values. But the system is costly and risky for the state. If countries are unable or unwilling to bear costs and risks, they cannot implement the neutral system. Neither did Norway from the beginning. In that case a country faces important trade-offs between risk and the maximization of pre-tax value or state revenue. This may be partly circumvented by slowing the pace of licensing.