Tax policies and environmental regulations applied to oil producers - comparison between the State of Texas and Norway

Abstract

The oil industry is a major contributor to greenhouse gasses emissions. As these are responsible for global warming with its many nefarious effects, various environmental regulations and tax policies have been implemented to mitigate climate change, such as the Paris Agreement and the European Green Deal. These regulations pose significant challenges to the oil industry, impacting their profitability and operations. This purpose of this research is to analyze the different strategies implemented by Norwegian and Texan companies, and the impact of tax regulations on their financial performance and strategic decisions. The study explores the different trends that have emerged in Norway and Texas, two regions that play significant roles as major oil producers. By focusing on four key companies – Aker BP, Var Energi in Norway, ExxonMobil and ConocoPhillips in Texas, the research examines the period from 2017 to 2022. The findings reveal that all four oil companies have indeed integrated environmental risks in their businesses and have made progress towards mitigating their impact on the environment: they successfully decrease their CO2 intensity and CO2 emissions. However, balancing economic growth with sustainability remains a challenge, leading to divergent oil trends emerged. Norwegian companies are more restricted by EU regulations, have shown higher transparency in their sustainability reporting compared to Texan companies. The latter seem to be driven by financial returns and reputation rather than by environmental concerns. Financially, the oil industry grew substantially during the time period considered, with increases in net income, capital expenditures and R&D investments, reflecting an expansion in their operations. Within their divergent tax framework, Norwegian companies benefited from significant tax deductions while Texan companies gained lower tax rates and incentives from the Tax Cuts and Jobs Act. Both regions were encouraged to boost investments with deductible R&D expenses, decreasing their overall tax burden. This research underscores the complex relations between environmental regulations, tax policies and strategic decision-making within the oil industry, highlighting the ongoing challenges and opportunities as the energy industry has to move towards sustainability.