The Iraqi who is "perhaps the greatest value creator Norway has had"

When I worked in the financial world, the joke the sales people told me about folks from the Norwegian Petroleum Fund was that you couldn't even offer them a bottle of water when they came to visit. They had strict rules about accepting gifts from their brokers. That's a smart, if extreme, policy because, as you might know, a lot of money (most of which the customer ultimately pays) goes to food and entertainment for building personal relationships in the business world. But none of that really matters to figuring out which institutional brokerage could minimize transactions costs for the people of Norway. Talking to them in person confirmed that these folks from Norway were more attentive to detail and interested in real costs than most.

So this article in the Financial Times entitled, "The Iraqi Who Saved Norway From Oil" , pointed out to me by a friend, is wonderfully consistent with my own little experience. It's the story of Farouk al-Kasim, an Iraqi geologist who married a Norwegian woman, moved to Norway to seek treatment for his son's cerebral palsy, avoided Saddam Hussein and the Iran-Iraq war, and helped build the Norweigian oil industry.

This extract, on an example of successful government regulation, is worth highlighting:

"Farouk is perhaps the greatest value creator Norway has had," says Olsen. And with good reason. Most of the oil found in the world is never recovered: the average extraction rate worldwide is around 25 per cent. Norway averages 45 per cent, and for that, Olsen gives al-Kasim much of the credit: he pushed the government to increase extraction rates; insisted that companies try new technologies, such as water injection in chalk reservoirs or horizontal drilling; and threatened to withdraw operating licences from companies that balked. “It is this culture, a culture of ‘squeezing the last drop out’, which he cultivated,” says Olsen.The extraction rates al-Kasim forced through significantly boosted oil and gas revenues – and so indirectly, the size of the savings fund. But the culture of pursuing the “last drop” brought greater benefits than just money pouring in. It spurred the development of technological expertise that has enabled Norwegian companies to compete with the best in the world. This, then, is a striking case of strong state regulation ultimately benefiting the private sector. “Norway is the only country in the world where the state and the capitalistic entities work together as partners, and the co-operation works, really works,” says al-Kasim. Paradoxically, state involvement makes this easier. “To put it very simply, you put your wallet where your mouth is … When you take 50 per cent of the risk, and other companies take maybe 15 per cent tops, it is hard for them to say you’re crazy, right?”

The Green Shift: Why it's the right time for this policy

Respected Globe and Mail columnist, Jeffery Simpson, wrote a column earlier this week entitled, "Carbon tax: the right policy, the wrong time" which claimed that, while a revenue-neutral carbon tax is a good policy in the long run, now is a bad time to implement it because the rapid rise in oil prices has, "create[d] genuine hardship for a lot of people". Simpson's article, I think, elucidates what Warren Kinsella said in a blog post which ended with: "I'm not saying no to a carbon tax. I'm saying no to a carbon tax now."

I don't doubt that many Canadians are experiencing some hardship now with the recent rise in oil prices. But that is a reason for providing some tax relief now with tax cuts and refundable tax credits. Look at Dion's Green Shift from another point of view: it's a plan to help Canadians with the higher price of oil by cutting income taxes.

How is this tax relief going to funded? Fortunately, not by borrowing from the future. We're already passing on much of the burden of dealing with environmental degradation to future generations. It will not be funded by cutting social programs. It will not be funded by increased taxes on gasoline because the existing federal excise tax on gasoline is already equivalent to a roughly $40/tonne CO2 tax. But it will be funded in a way that will gently put the brakes on our production of greenhouse gases.

People have been focusing too much on gasoline, and not enough about the fact that much of the Green Shift's tax relief will be funded by users of coal. Higher oil prices might make people think about using less gas, but they have also caused people to burn more coal, a dirtier energy source than oil. This is just one reason why higher oil prices are not a good substitute for a carbon tax.

Warren Kinsella, say yes to tax relief funded by a tax on fossil fuel CO2 emissions now!

Lifting the ban on offshore oil drilling in the US: another reason why the high price of oil isn't a great way to reduce greenhouse gas emissions

In the news today is a report that George Bush, supported by Republican presidential candidate John McCain, is urging the US congress to the repeal the ban on new off-shore drilling for oil. John McCain previously opposed offshore drilling, but now he and others have been changing their minds and supporting some off-shore drilling.

I'm not going to debate the merits of off-shore drilling here, but it's fair to say that the ban was in place to curtail an environmentally risky way to search for oil.

What I will say is that this is a further illustration of why a high price of oil is no substitute for a carbon tax. High prices for oil mean more money paid to suppliers of oil, and more incentive to produce oil in environmentally or socially risky ways. In the US that means more incentives to drill in the environmentally sensitive Arctic National Wildlife Refuge, or off-shore. Here in Canada we are well aware of the environmental and social stresses caused by the boom in the oil-sands industry.

A carbon tax is different from a high oil price because with a tax, although the buyer pays more money, the seller receives less money. A tax would not increase the incentive to produce more and more oil and to thereby take more social and environmental risks.

Finally, a carbon tax produces revenues for our government, and not for unfriendly foreign governments. None of that tax money would go to the Taliban or to Al-Qaeda. I can't say the same for all the money that North Americans spend on crude oil.