Tom Eblen

Here’s how another country hopes to avoid Kentucky’s mistakes with coal

Models of oil platforms on display at the Norwegian Petroleum Museum in Stavanger, a North Sea port city that has become the center of Norway's oil industry. Norwegian officials know the oil boom’s days are numbered, so they are managing their resource to create a nest egg for the future.
Models of oil platforms on display at the Norwegian Petroleum Museum in Stavanger, a North Sea port city that has become the center of Norway's oil industry. Norwegian officials know the oil boom’s days are numbered, so they are managing their resource to create a nest egg for the future. teblen@herald-leader.com

I didn’t expect to find a parable for Kentucky while on vacation in Europe. But there it was, in an unlikely place: the Norwegian Petroleum Museum in the North Sea port city of Stavanger.

One of the great things about travel is that it exposes you to different cultures and ideas. You see how other people live and how their societies respond to challenges and opportunities.

Norway was poor for most of its history. With a harsh climate and rocky soil, its unstable economy relied on fishing and sea commerce. Between 1825 and 1925, one-third of Norway’s population emigrated to North America — a larger percentage than any other country except Ireland. Today, there are almost as many Norwegian Americans (4.7 million) as Norwegians (5.2 million).

But Norway’s fortunes changed dramatically on Dec. 23, 1969. Geologists at Phillips Petroleum discovered oil beneath the North Sea off Norway’s coast. A lot of oil.

Nearly a century earlier, geologists in Eastern Kentucky and other parts of Central Appalachia began realizing the extent of the region’s rich coal deposits, just as the industrial revolution was demanding more fossil fuels.

Here’s how the process worked in Kentucky: Wealthy interests, mostly from the Northeast, sent agents into the mountains, buying land and mineral rights from poor subsistence farmers for almost nothing.

At first, deep mines brought jobs to people desperate for them. But they were hard jobs that didn’t pay much until the men unionized. Most of the real coal wealth left Kentucky or was concentrated in a few hands. The coal industry was in control of everything, including state government.

Over time, mines were mechanized, most deep-mining became destructive strip mining and employment fell. Everyone knew Eastern Kentucky’s coal reserves wouldn’t last forever, but politicians required little compensation for mining’s environmental damage, and they did little to plan or save for a post-coal economy.

Kentucky didn’t even impose a coal severance tax until 1972, and it remains one of the lowest among major coal-producing states. Until 1992, less than 8 percent of severance tax money went back to coal counties. Little of it was spent wisely for the future. Cheap natural gas has now hastened the coal industry’s demise. Kentucky remains a poor state with little money to reinvent its economy.

Norway took a much different approach to its natural resources.

By early 1971, the Norwegian government developed a comprehensive policy for managing oil. Rather than letting private business have free rein, politicians decided the resource should be developed for the benefit of Norway’s citizens — especially those who would be born after all the oil was gone.

That policy, summarized in the Oil 10 Commandments, called for Norway’s people to remain in control of the country’s resource, through both government oversight and a state oil company to partner with the global corporations.

Environmental protection would be stressed, as would using oil to develop other domestic industries and promote energy independence. Norway, which generates all of its electricity from hydro plants, has since become one of the world’s most ecologically progressive countries. Nearly one-fourth of Norwegian cars are now electric or hybrid, and the government earlier this year adopted incentives to eliminate gasoline and diesel-powered vehicles by 2025.

Norway makes it economical for big oil companies to explore and drill for oil. But once their wells start producing, the oil is heavily taxed — but not so heavily that it has kept oil companies from going there.

Where has all the oil tax money gone? That is the most interesting part of the story.

In 1998, the Norwegian government created a sovereign wealth fund to invest oil revenues for the future. To keep politics to a minimum, the fund doesn’t invest in Norway, but in stocks, bonds and real estate around the world.

The fund, managed by Norway’s central bank, now owns 1.3 percent of all global equities and has extensive real estate holdings, primarily in the United States, Britain and Japan. Assets now total more than $960 billion — or about $185,000 for each man, woman and child in Norway.

That money is being socked away for a post-oil future. Only 3 percent of investment income can be used for the nation’s current needs, despite Norway’s high tax rates — a financial discipline unfathomable in American politics.

Long poor, Norway is now one of the world’s richest countries, with far less income inequality than in the United States. Per-capita income is high ($73,450 vs. $59,609 in the United States in 2016). The unemployment rate is about the same as in this country (4.3 percent vs. 4.4 percent) and Norway’s social safety net is comprehensive.

Like any country, Norway has economic and political tensions, which are now playing out ahead of a parliamentary election Sept. 11 that is expected to be close. The nation is recovering from an oil price slump between 2014 and 2016 that eliminated thousands of jobs, and Norwegians are anxious about future jobs.

But here’s the thing: When their fossil fuel resource is gone, Norwegians will have something to show for it — a nest egg to help ease their transition to a new economy. If only Kentuckians could say the same.

Tom Eblen: 859-231-1415, @tomeblen

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