Part 2
Norway’s Climate Action Plan for 2021–2030

3 The Government’s plan for cutting non-ETS emissions

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3.1 Emission reductions up to 2030

3.1.1 What needs to be done?

The Government’s political target is for Norway to reduce its non-ETS emissions by 45 % by 2030. This chapter describes the Government’s plans for achieving the 45 % target. Emissions and removals in the land use, land use change and forestry (LULUCF) sector are not discussed here, but are dealt with in Chapter 4. Norway’s climate agreement with the EU includes a commitment for the parties to cooperate on reducing emissions by at least 40 % by 2030. Under the agreement, Norway has been assigned binding annual emission allocations for non-ETS emissions, which translate into an emission budget for the years 2021–2030.

Chapter 1 of this white paper gives a general account of how the Government intends to reduce non-ETS emissions. The Government will use a combination of policy instruments that simultaneously promote value creation and green transition. The present chapter sets out in more detail how the Government plans to achieve the necessary reductions, and gives an account of different sectors and policy instruments.

Norway’s emission budget is illustrated in Figure 3.2, and Box 3.1 explains more fully how annual emission allocations are calculated. The Government intends to reduce Norway’s non-ETS emissions by 45 %, in other words by more than the 40 % to which Norway is committed under the agreement with the EU. The Government aims to achieve this reduction through domestic measures, and is making plans to this end. If strictly necessary, Norway can also make use of the EU flexibility mechanisms. The 45 % target is a political goal, and is not legally binding.

The Ministry of Finance presented updated emission projections for Norway in the 2021 National budget. These are described further in Chapter 3.2. There is considerable uncertainty relating to the estimated effects of current climate policy on emissions in the future. The projections indicate that Norway is likely to stay within its emission budget for the first few years of the period 2021–2030, but that further policy developments will be needed to close the emissions gap later on. The emissions gap is even larger for the 45 % reduction target. In other words, it will be necessary to make Norway’s current climate policy more ambitious, both to meet the commitment in the agreement with the EU and to achieve the Government’s target of reducing non-ETS emissions by 45 % through domestic measures.

If competitive low-emission solutions are developed more rapidly than assumed, it may be possible to reduce emissions more rapidly than the projections indicate. On the other hand, technological developments could be slower than assumed as a basis for the projections. Figure 3.2 shows the emissions gap to Norway’s commitment under the agreement with the EU and to the Government’s political target.

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Source Ministry of Finance, Ministry of Climate and Environment and Norwegian Environment Agency

Norway’s annual emission allocations for the target of a 40 % reduction in emissions have not yet been finalised. According to the currently available figures, the overall emission budget for the period 2021–20301 will be 210 million tonnes CO₂eq. Norway’s projected emissions for the ten-year period are over 218 million tonnes CO₂eq, so that the emissions gap for the whole period will be 8.4 million tonnes CO₂eq.

If the Government’s target of reducing non-ETS emissions by 45 % by 2030 relative to the 2005 level is converted into an emission budget in the same way, the overall budget is reduced to 202 million tonnes CO₂eq, and the emissions gap increases to 16.6 million tonnes CO₂eq. In this climate action plan, the Government describes how it intends to step up its climate ambition and close the emissions gap. The plan will reduce emissions by over 16.6 million tonnes CO₂eq more over the periode 2021-2030 than the reductions projected to result from current climate policy.

The EU has enhanced its 2030 climate target, see Chapter 2, and this may in the long term have consequences for Norway’s climate agreement with the EU. If Norway’s emission reduction target under the Effort Sharing Regulation is not increased to 45 %, the Government will officially make this a single-year target to be achieved in 2030 rather converting it into an emission budget. (Box 3.1 explains the different ways of expressing emission targets.) In other words, Norway will ensure that emissions are 45 % lower in 2030 than they were in 2005. Calculating the 45 % target in this way requires emissions to be reduced by just under 4 million tonnes CO₂eq in 2030 relative to the updated projections. However, the Government’s ambition is to achieve the 45 % target in the form of an emission budget for 2021–2030. This would result in overall emission reductions of 16.5 million tonnes CO₂eq more than the projected reductions for the ten-year period.

3.1.2 What are Norway’s plans for reducing non-ETS emissions?

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3.1.2.1 Introduction

According to the updated projections, Norway’s current climate policy will continue to provide incentives for substantial cuts in emissions up to 2030. The Government has been increasing taxes on greenhouse gas emissions for several years, and has in addition removed a number of the reduced tax rates and exemptions. The Government has also been taking an ambitious approach to electrification of the transport sector, and has made regular stepwise increases in the biofuel quota obligation for road traffic. Moreover, the Government is encouraging the phase-in of solutions for the future through Enova, which provides funding for projects to develop and deploy new technology that will reduce emissions. There are also government initiatives for the development of new technology in sectors including shipping. Emissions would be much higher than the level today without the use of these policy instruments.

Chapter 3.1.1 explains that according to current information, there is an emissions gap that must be closed in order to achieve the Government’s target of reducing non-ETS emissions by 45 % through domestic measures.

The gap between the projections and the overall emission budget for the 45 % target is 16.6 million tonnes CO₂eq. The Government will therefore step up its climate action to close the gap. This will include building further on a number of existing policy instruments and introducing new ones. Recent rapid technological advances, especially in the transport sector, are enhancing the effect of policy instruments that are already in use and making it easier to choose zero-emission solutions. In the years ahead, technological advances will support emission cuts, while climate action can encourage further technology development.

This chapter introduces the policy instruments the Government intends to use and the part they will play in reducing emissions and in Norway’s green transformation. Policy instruments will interact and in some cases overlap or have synergistic effects.

The effects of taxes and other policy instruments depend on a variety of factors, including the policy followed in other areas and economic developments. The estimates used here and shown in Table 3.1 are based on an assessment of the situation at the time of writing. Actual trends in the ten-year period may be different. There is considerable uncertainty relating to emission trends, the effects of climate policy, and not least, to technological developments and the costs of implementing mitigation measures. Norway therefore needs a flexible climate action plan that takes into account possible adjustments to policy instruments during the planning period.

It is not equally easy to make quantitative estimates of the effects of all aspects of climate policy. The quantitative effect of a tax or a requirement to use zero-emission solutions by a specified target date can be estimated, but it is more difficult to quantify the emission reductions that will be brought about for example through Enova’s activities, improvements in public transport or the long-term green shipping initiative. As a result, Table 3.1. does not completely reflect the estimated effects of the Government’s climate policy.

In some policy areas, the most appropriate approach is to plan well in advance. Examples are stepwise increases in taxes and the introduction of climate-related requirements in legislation or procurement processes. In other areas, the use of policy instruments will be evaluated as needed.

The next sections therefore discuss policy instruments whose effects have been quantitatively estimated separately from those for which there are no quantitative estimates. Table 3.1 shows that implementing policy instruments whose effects have been quantitatively estimated will make it possible to close the emissions gap and achieve the 2030 target of reducing non-ETS emissions by 45 %. If additional new policy instruments are implemented, emissions may be reduced further.

3.1.2.2 Policy instruments whose effects have been quantitatively estimated

Figure 3.4 shows the estimated contributions of different policy instruments to emission reductions. Emissions pricing through taxation will continue to be the main instrument of Norwegian climate policy. However, achieving Norway’s climate targets through the carbon tax alone would require a very high tax rate. The Government therefore intends to increase the carbon tax rate gradually from its current level of about NOK 590 to NOK 2000 per tonne CO₂eq in 2030 (2020 NOK).

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Source Statistics Norway, Norwegian Environment Agency, Ministry of Finance, Ministry of Climate and Environment

It is estimated that increasing the tax rate to this level can reduce non-ETS transport emissions by about 3.5 million tonnes CO₂eq and other non-ETS emissions by 4 million tonnes CO₂eq. These figures are based on data from Statistics Norway and results from the macroeconomic model SNOW (see Box 3.3), the Norwegian Environment Agency and the mitigation analysis for Norway 2021-2030. They are also based on the assumption that the effect on emissions will increase steadily throughout the period 2021–2030. The overall increase in the tax rate and the rate for each specific year will need to be determined through the normal budgetary processes and assessed in the light of technological developments, but must ensure that emissions are reduced sufficiently.

The Government’s policy is not to increase the overall level of taxation. This means that any increase in a tax rate must be offset by corresponding reductions in other taxes, primarily for the groups affected by the tax increase. In accordance with its political platform, the present Government has provided compensation for the rise in the carbon tax rate in the 2020 and 2021 budgets by reducing road use duty. This reduction counters the effect of a rise in the carbon tax for large parts of the transport sector. Estimates suggest that if the Government continues to compensate for increases in the carbon tax rate up to 2030 by reducing road use duty, this on its own would make the overall reduction in greenhouse gas emissions about 3 million tonnes CO₂eq smaller than if no compensation was provided (see ‘Possible additional effects’ in Table 3.1). The Government has not yet come to a decision on whether to continue this compensation mechanism. Other tax-based compensation mechanisms will also be considered to avoid the counter-productive effect of reducing the effect of the carbon tax on emissions. The Government’s climate policy is intended to minimise the negative economic impacts for ordinary people. It must pay to reduce greenhouse gas emissions, but at the same time, climate policy must not entail unreasonable costs. Specific proposals for changes in the taxation system will be presented to the Storting (Norwegian parliament) in the annual budget proposals.

The Government is using the targets for zero-emission vehicles set out in the National Transport Plan 2018–2029 as a basis for designing policy instruments. These targets list the proportions of new vehicles in different categories that are to be zero-emission by specific years in the period up to 2030. The targets are based on the assumption that zero-emission technologies in the different transport segments will mature so that they become competitive with conventional solutions. Increases in the carbon tax rate combined with incentives to choose zero-emission solutions will play a part in achieving these targets. Various other policy instruments also influence developments and how rapidly new types of vehicles are taken into use. They include purchase taxes, fuel taxes, user benefits, requirements in public procurement processes, grant schemes, local regulatory measures and the development of charging infrastructure. During the ten-year period 2021–2030, the design of these policy instruments will be adjusted as appropriate to the situation.

To achieve the target that all new local buses are to be zero-emission vehicles or run on biogas by 2025, the Government intends to make this a general requirement in all public procurement processes from 2025. This alone could reduce emissions by about 1 million tonnes CO2eq in the period 2025–2030. Vehicle taxes will be important in achieving the target for all new passenger cars and small vans to be zero-emission vehicles from 2025 and for the introduction of a requirement to use zero-emission solutions in public procurement processes for passenger cars and small vans from 2022. Enova will play a key role in achieving the targets for heavy-duty vehicles – for all new large vans, 50 % of new trucks and 75 % of new long-distance coaches to be zero-emission vehicles by 2030. In addition, the Government will consider whether to introduce requirements to use zero-emission solutions in public procurement processes for these vehicle categories and services as well, but this will only be appropriate once the technology in the various segments has matured sufficiently. Achieving these targets may result in emission cuts of around 1 million tonnes CO2eq, see ‘Possible additional effects’ in Table 3.1.

The Government intends to introduce national zero- and low-emission criteria in new procurement processes for ferries and high-speed passenger vessels, where feasible, from 2023 and 2025 respectively. In addition, requirements for zero- and low-emission solutions for aquaculture service vessels are planned to be introduced gradually from 2024 onwards where feasible. Combined, these measures may cut emissions by up to 2 million tonnes CO2eq.

The carbon tax and requirements to use low- and zero-emission solutions in the transport sector are policy instruments with overlapping effects. The overlap is estimated to correspond to 0.5–1 million tonnes CO₂eq. In the assessments presented here, the net effect of requirements to use low- and zero-emission transport solutions is categorised as ‘Emission reductions from requirements in legislation or procurement processes’ (Table 3.1).

The Government will, as a minimum, maintain the current sales volume of biofuels for road traffic, so that the emission cuts resulting from biofuel use are not reduced by the decline in sales of liquid fuels as electric vehicles are phased in. This must be achieved in a way that does not result in a rise in global emissions. The Government intends to introduce biofuel quota obligations for offroad diesel and shipping from 2022. The biofuel quota obligation for offroad diesel will be gradually increased to the same level as for road traffic. In the Government’s view, the same biofuel quota obligation should apply to road traffic and offroad diesel, and it will consider whether this can apply to shipping as well. The biofuel quota obligations for road traffic and offroad diesel combined may result in emission cuts of about 5.5 million tonnes CO2eq over the period 2021–2030. For aviation, the Government will gain experience of application of the new biofuel quota obligation before considering whether to increase the proportion of biofuel required. This is discussed further in Chapter 3.4.

The Government and the agricultural organisations have signed a letter of intent with the aim of reducing emissions and enhancing removals by a total of 5 million tonnes CO₂eq over the period 2021–2030. The letter of intent applies to all mitigation measures for agricultural activities whose effects can be accounted for in the sectors agriculture, transport, heating of buildings and LULUCF (with the exception of forestry) in Norway’s official greenhouse gas inventory. Since this means that some reductions in emissions in other sectors are credited to agriculture, the Government estimates that a reduction of 4 million tonnes CO2eq will be accounted for in the agricultural sector over the period 2021–2030.

Raising the carbon tax rate will reduce emissions from all vehicle and vessel categories. When fuel costs rise, it pays to reduce emissions, either by driving less or by choosing zero-emission solutions. The largest reductions in emissions are expected to be brought about by electrification of commercial transport.

For other non-ETS emissions, the main effects of increasing the carbon tax rate are expected to be reductions in emissions due to declining use of fossil fuels in manufacturing and an increase in the proportion of used HFCs recovered and destroyed. Emission reductions are also expected in the building sector, the oil and gas industry and waste incineration.

The gradual increase in the carbon tax rate is an important means of phasing out heating using fossil fuels in the manufacturing sector, and may result in substantial emission reductions in the period 2021–2030. If necessary, the Government will consider introducing further policy instruments, including a prohibition on the use of fossil fuels for this purpose. The Government will also work towards gradual phase-out of the use of natural gas for heating and drying buildings during construction. Emissions of HFCs and PFCs are expected to decrease considerably as a result of higher taxes and a corresponding increase in tax refunds, combined with an increase in advisory and supervisory activities.

There is considerable uncertainty surrounding the figures for estimated effects of tax increases on emissions in these sectors. The actual emission reductions will therefore depend on decisions made in the future. The calculations used here are based on the assumption that all emissions are subject to the same carbon price, including emissions that are not taxed today and those taxed at lower rates than the standard carbon tax rate for non-ETS emissions. The Government has proposed the introduction of a tax on waste incineration from 2021, and will consider a stepwise increase in the tax rate. The Government will also raise the tax rate for natural gas released to air on the continental shelf to the standard rate for non-ETS emissions.

The combination of a rising carbon tax, climate-related requirements in public procurement processes, regulatory measures, financial support and measures in the agricultural sector will make it possible for Norway to achieve its target of reducing non-ETS emissions by 45 % by 2030.

3.1.2.3 Policy instruments whose effects have not been quantitatively estimated

The Government has stepped up its efforts to promote the development of new technology and a green transition in the Norwegian business sector. These efforts will be continued using the full range of public funding agencies. The Research Council of Norway, Innovation Norway, Siva and Enova are developing a new long-term joint initiative, the Green Platform Initiative. This is intended to promote a low-emission development pathway in the Norwegian business sector and green competitiveness both in Norway and abroad. Enova, a state-owned enterprise that funds the development and introduction of climate technologies, has been given a clearer climate profile for the next four-year period. One of Enova’s tasks is to realise the effects of the carbon tax, but at the same time, it has the opportunity to prioritize reducing emissions further in all sectors. By participating in the EU funding programme for research and development, Horizon Europe, the EU’s Innovation Fund and other EU arenas for cooperation, Norway’s funding agencies in the research and innovation system will be able to scale up their efforts and achieve better results.

The Government has made green shipping a priority area in order to promote the development of a forward-looking maritime industry in Norway. The Government’s ambition is to reduce emissions from domestic shipping and fishing vessels by half by 2030. In 2021, the Government will continue to use policy instruments specifically designed to promote green fleet renewal in short sea shipping and bring about emission reductions in the cargo vessel segment. The Storting has requested the Government to propose ways of ensuring the introduction of zero- and low-emission solutions for offshore support vessels, and in response the Government will present its plan to the Storting in 2021. This will also assess new requirements that can be phased in from 2022.

The Government intends to co-fund the carbon capture project at Fortum Oslo Varme’s waste incineration plant, provided that the company provides sufficient funding of its own and obtains funding from the EU or other sources. If this project is implemented, the carbon capture facility will remove and store 0.4 million tonnes CO₂ per year, about half of which will be emissions from incineration of material of biological origin.

Norway’s four largest urban areas have concluded integrated urban land-use and transport agreements, which have made it possible to reduce growth in traffic volumes and greenhouse gas emissions. Five other smaller urban areas have received funding from an incentive scheme for improvements in public transport. In these areas too, car traffic has remained more or less unchanged or been reduced in recent years (see Chapter 3.4.2.7). Better coordination of spatial and transport planning and a more funding for integrated urban land-use and transport agreements, railways and other public transport, and cycling and walking, will yield further emission reductions in the years ahead. It is difficult to make a quantitative estimate of the overall effect of these measures. In spring 2021, the Government will present the National Transport Plan 2022–2033, which will be used to support the ambition of reducing transport emissions by 50 %.

To reduce emissions from construction activities, the Government will shortly present an action plan for fossil-free construction sites in the transport sector. Initiatives to be announced in the action plan include pilot projects for fossil-free construction sites, to be run by the subordinate agencies of the Ministry of Transport, and the assessment of measures for effective management of bulk materials. These initiatives may result in emission reductions beyond what is brought about by increases in the carbon tax, technology development and permanent market change.

The Government will consider amendments to the Technical Construction Regulations, taking a broad-based environmental approach. Central government agencies will be expected to attach importance to the environmental benefits of re-using already developed areas and existing buildings, and of siting premises near urban centres and public transport nodes. This approach can reduce emissions related to energy and material use and from transport.

3.1.2.4 Emission trajectories for specific sectors

The present Government’s political platform states that it will specify ambitions for reducing non-ETS emissions in different sectors, in response to a request made by the Storting in 2018. The Government’s ambition for the transport sector is to reduce greenhouse gas emissions by half by 2030 relative to 2005. This is discussed further in Chapter 3.4. The basis for ambitions for the agricultural sector is the letter of intent signed by the Government and the agricultural organisations. In this climate action plan, the Government estimates that emissions accounted for in the agricultural sector will be reduced by 4 million tonnes CO₂eq during the period 2021–2030. This is discussed further in Chapter 3.6. The Government expects the total reduction in other non-ETS emissions to be in the region of 4 million tonnes CO₂eq, but has not specified ambitions for the remaining non-ETS emissions by sector. The remaining emissions are from a number of very different sources, ranging from households and manufacturing to F-gases in products, and each source accounts for only a small proportion of total non-ETS emissions. Thus, the Government does not consider that it would serve any useful purpose to specify ambitions further by sector. Other non-ETS emissions are discussed further in Chapter 3.7.

Figure 3.5 shows how this climate action plan, using taxes, other policy instruments and emission reductions in the agricultural sector, can close the emissions gap and make it possible to achieve Norway’s target of reducing non-ETS emissions by 45 % compared with the 2005 level. Table 3.1 shows figures for emission reductions, while Figure 3.5 illustrates the effects expected in different sectors. The estimated figures are uncertain and depend on a number of factors, such as the pace of technology development and the effects of policy instruments. The estimates are based on an analysis by Statistics Norway of the costs of emission reductions, using the macroeconomic model SNOW, and an assessment of the measures presented in the mitigation analysis for Norway 2021-2030 and of how much of their emission reduction potential can be achieved through the policy instruments the Government proposes to use.

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Source Statistics Norway, Norwegian Environment Agency, Ministry of Finance, Ministry of Climate and Environment

3.1.2.5 An ambitious and flexible plan

This climate action plan describes how the Government intends to achieve its ambition of reducing non-ETS emissions by 45 % through domestic emission reductions. If necessary, the Government will consider other policy instruments such as greater use of biofuels or prohibiting certain emission sources. The Government will also if needed make use of flexibility mechanisms under the EU legislation to ensure that emissions are reduced sufficiently. Emission levels depend on many uncertain factors that may interact in unforeseen ways. Other unexpected events like the COVID-19 pandemic may occur in the future. The effects of the various policy instruments used depend on the actions of several million Norwegians, several thousand companies, and technology developments globally. This makes it necessary to assess whether the necessary emission reductions are being achieved, and the Government will therefore assess whether Norway is on track to meet its climate target during the planning period. It will use the system of annual reporting to the Storting under the Climate Change Act to assess both implementation of this climate action plan and Norway’s progress towards the 2030 target. If progress is not satisfactory, policy instruments will be adjusted as necessary.

If Norway’s non-ETS emissions are higher than its annual allocation, it can borrow from the allocation for the following year; if it has a surplus of emission units, it can bank the surplus for later use. If Norway for some reason is unable to meet its obligations under the EU legislation using national measures, it will have to use the EU flexibility mechanisms to do so. This means paying for further emission cuts or removals in other EU/EEA countries. The Effort Sharing Regulation makes countries accountable for their emissions and ensures a reduction of total emissions in Europe, while the flexibility mechanisms function as a safety valve. However, the Government’s plan is for Norway to meet its commitment through national emission cuts.

3.2 Historical emissions and projections of non-ETS emissions within the scope of the Effort Sharing Regulation

In 2019, Norway’s non-ETS emissions totalled 24.6 million tonnes CO₂eq, or about half of its overall emissions excluding the LULUCF sector. These emissions were reduced by about 11 % from 2005 to 2019.

The projections referred to in this chapter include the impacts of policy measures and instruments that have already been implemented, but not of new measures and instruments announced in this white paper.

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Source Statistics Norway and Norwegian Environment Agency

In the 2021 National Budget, the Government presented updated projections of Norway’s greenhouse gas emissions. These are based on assessments of underlying trends in the Norwegian and the global economy, including economic growth and technological and demographic conditions. In line with international guidelines, the projections are based on continuation of current climate policy, both in Norway and internationally.

Even if Norway fulfils its obligations, current policies around the world are not sufficient to achieve the targets of the Paris Agreement. The calculations are therefore based on the assumption that economic growth and general technological advances in the international economy will continue at about the same pace as until now. This means that it is assumed that the development of new climate-friendly technology internationally – which Norway will be reliant on to become a low-emission society, will be neither more rapid nor slower than has been observed historically.

If competitive low-emission solutions are developed more rapidly than assumed, it may be possible to reduce emissions more rapidly than the projections indicate. Taxes, emission allowances and other regulatory measures already give the Norwegian population and businesses incentives to make use of new technology as it becomes available. On the other hand, technological developments could be slower than assumed as a basis for the projections.

The projections are not a description of the Government’s targets, nor do they reflect the effects of new policy or policy instruments to be introduced at a later date. Targets that have been adopted but where no proposals for changes in policy instruments or measures have been put forward, and measures that have been considered but have not yet resulted in regulations, decisions on taxes, agreements or the like, are not incorporated into the projections.

The projections indicate that greenhouse gas emissions will decline by about 2 % per year from 2019 to 2030. With this trajectory, emissions would be about 9.5 million tonnes CO₂eq lower in 2030 than in 2019. It is estimated that non-ETS emissions will account for almost half of this reduction, or a little over 5 million tonnes CO₂eq. It is estimated that ETS emissions will decline by just over 4 million tonnes CO₂eq in the same period.

Table 3.2 shows historical figures and projections for non-ETS emissions in different years and different sectors. Transport emissions rose from 1990 to a maximum in 2012. Since then, they have been declining, and this trend is expected to continue. According to the projections, transport emissions in 2030 are expected to be 15 % below the 1990 level. Emissions from agriculture have been reduced by 6 % since 1990, and are projected to be a little below the 1990 level in 2030. Non-ETS emissions from manufacturing have been greatly reduced since 1990, and emissions in 2030 are projected to be more than 80 % below the 1990 level. Emissions from heating buildings have also declined steeply, partly as a result of the prohibition on using mineral oil to heat buildings. Figure 3.7 shows trends in non-ETS emissions over time for various sectors.

As explained in the 2021 National Budget, the COVID-19 pandemic and the infection control measures that were introduced in Norway and in the rest of the world caused a contraction in both the Norwegian and the international economy in 2020, and economic activity is likely to be lower than normal well into 2021. Lower economic activity also influences greenhouse gas emissions, and the projections include a temporary decline in emissions as a result of the COVID-19 pandemic. This is mainly related to a decline in transport volumes and somewhat lower industrial production.

The possibility that the pandemic will result in long-term structural changes with longer-term implications for emission trends cannot be ruled out. It is possible that travel volumes, both for work and for leisure, will prove to have been permanently reduced, for example because of a shift to digital solutions and working from home. On the other hand, private car use may increase at the expense of public transport. It is very uncertain which of these effects will dominate and be most persistent.

The projections indicate a decline of almost 1 million tonnes in Norway’s total greenhouse gas emissions from 2019 to 2020. In line with developments in the Norwegian economy, the projections are based on the assumption that the downturn related to the pandemic and infection control measures will largely be reversed in 2021. Nevertheless, some decline in overall emissions is expected in the period up to 2025. The projections show a further decline in transport emissions as a result of rising numbers of zero-emission vehicles, which becomes increasingly apparent during the period up to 2030. ETS emissions are also projected to drop steeply in the period up to 2030, primarily as a result of lower emissions from the petroleum industry.

The projections of greenhouse gas emissions were updated on the basis of the macroeconomic estimates presented in the 2021 National Budget. The level of emissions depends on the actions of several hundred thousand companies and millions of people. The projections seek to incorporate general trends and tendencies underlying these actions.

The projections are based on continuation of current climate policy, both in Norway and internationally. This means that that the tax base and rates for the carbon tax and other taxes are kept unchanged, and that calculations are based on the observed prices of EU futures contracts. It is also assumed that support for technology development, for example through Enova, will be maintained. Key assumptions underlying the projections are discussed in more detail the 2021 National Budget.

According to the projections, CO₂ emissions are expected to decline by a little over 20 % by 2030, while the estimated emission reductions for other greenhouse gases are smaller. Overall emissions of greenhouse gases other than CO₂ are expected to decline from 8.1 million tonnes CO₂eq in 2019 to 7.4 million tonnes CO₂eq in 2030. The reduction in methane emissions is partly explained by declining emissions from landfills. Methane emissions from agriculture are projected to remain at about the same level as today, since agricultural production is expected to keep pace with population growth, while a certain decline in emissions per unit of production is expected. (Methane as a greenhouse gas is discussed further in Chapter 3.6.) Nitrous oxide emissions are projected to remain stable in the years ahead, while implementation of the EU’s 2014 revised F-gas Regulation is expected to result in a decrease in HFC emissions after 2020. However, SF₆ emissions are expected to rise.

The estimate for Norway’s greenhouse gas emissions in 2030 presented in the 2021 National Budget has been revised downwards by 4.5 million tonnes CO₂eq since the previous projections, which were presented in the 2019 National Budget. This is mainly because estimated emissions from oil and gas extraction are lower, to a large extent because of increasing electrification of petroleum installations.

If current policy is continued, emissions from road transport are projected to decrease from 8.5 million tonnes CO₂eq in 2019 to 5.3 million tonnes CO₂eq in 2030. This is mainly because it is assumed that phase-in of low- and zero-emission vehicles will increase further in the coming years. The share of electric cars in sales of new passenger cars has been rising by up to 10 percentage points per year over the past few years, and reached 48 % in the first eight months of 2020. The updated projections use the assumption that the share of electric cars will reach 90 % in 2025 and 95 % in 2030 without any policy changes. By way of comparison, the projections in the 2019 National Budget assumed that 75 % of new passenger cars would be electric in 2030. Sales of electric cars have grown more rapidly than expected since the earlier projections were published in autumn 2018. The share of electric vans in sales of new vans in 2025 is assumed to be half of that for passenger cars, which is the same assumption as in the 2019 National Budget. This means that projections for sales of electric vans are also higher than they were in 2019. The pace of technological development for heavy-duty vehicles is also expected to pick up gradually, but developments will be later and slower than for lighter vehicles. There are few zero-emission solutions for these vehicle categories at present, and further developments are uncertain.

The projections are also based on the assumption that the actual percentage of biofuels by volume in fuels for road use will be 15.5 % from 1 January 2021, in line with the biofuel quota obligation.

There has been a marked reduction in emissions from domestic shipping and fishing vessels in recent years. This is probably explained by a reduction in activity level for offshore supply vessels, a shift to less emission-intensive fuels and the use of new technology. It may also be partly explained by a rise in the proportion of vessels bunkering outside Norway. The projections are based on the assumption that this is a permanent reduction, and that further technological advances will mean that emissions continue to decline after 2020. About one third of Norway’s ferries will be using battery technology by the end of 2021. Enova is providing substantial funding in the form of grants for the introduction of zero- and low-emission technology in the maritime sector.

Emissions from the use of mineral oil to heat commercial buildings and homes have been reduced by about 90 % since 1990. Emissions from this source will be virtually reduced to zero in the years ahead, since using mineral oil to heat buildings was prohibited from 2020. However, the use of gas to heat buildings will still generate emissions, and there will be methane emissions from fuelwood use. It is also assumed that there will be some remaining emissions from the use of mineral oil, since exemptions from the prohibition may be granted, for example for holiday homes that are not connected to the grid. Emissions from heating of buildings are estimated to be 0.25 million tonnes CO₂eq in 2030. This is the same level as in the 2019 National Budget.

Non-ETS emissions from the energy supply sector are generated mainly by the incineration of waste containing fossil carbon and the use of fossil energy carriers in small-scale combustion installations. In the projections, these emissions are expected to remain at about the current level. As in the earlier projections, emissions from landfills are expected to be further reduced as a result of the prohibition against landfilling of biodegradable waste. Emissions from agriculture are expected to remain relatively stable in the years ahead. In 2019, the Government and the agricultural organisations signed a letter of intent with the aim of reducing emissions and enhancing removals in the agricultural sector.

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Source Statistics Norway, Norwegian Environment Agency and Ministry of Finance

Assuming the continuation of current climate policy and policy instruments, and that demographic and economic trends and the pace of general technological advances are close to what is expected up to 2030, both in Norway and internationally, a continued reduction in emissions is projected up to 2050. However, the level of uncertainty is high, and the projections must therefore be considered as a rough approximation. Technological advances from year to year and other improvements in efficiency are expected to outweigh the effects of economic and population growth. In addition, lower emissions from oil and gas production and further steps to phase out the use of fossil energy for heating and transport purposes are expected to play a part in reducing emissions. The overall conclusion is that emissions will be roughly halved in 2050 compared with the current level. The projections are uncertain, and the level of uncertainty increases over time.

3.3 Policy instruments to reduce emissions

3.3.1 The rationale for Norway’s use of policy instruments

The policy instruments Norway uses are intended to contribute towards emission targets at the lowest possible cost to society. One implication of following the principle that policy instruments should be used effectively is that the Government will use specific policy instruments in the situations where they are most suitable.

The main instruments of Norwegian climate policy are cross-sectoral: taxes on greenhouse gas emissions and emissions trading. Both these instruments put a price on emissions and make it more expensive to release greenhouse gases. Taxes provide an incentive to reduce emissions both through immediate action and through investment in research and development that will make it possible to reduce emissions at a later date. Pricing of emissions is particularly effective when zero- and low-emission solutions have reached the market or are nearing market introduction. Emission pricing makes such solutions more attractive to consumers and businesses relative to solutions that result in higher emissions. Raising carbon taxes will promote efficiency and encourage a shift from car use to walking, cycling and use of public transport.

In addition to instruments that put a price on emissions, the Government will use other policy instruments to reduce barriers and correct market failures related to technology development, and in specific markets. Current examples include support for technology development and innovation in all sectors through Enova and Innovation Norway, the use of climate-related requirements in public procurement processes, and the prohibition on the use of mineral oil to heat buildings.

It can be appropriate to use direct regulation on its own when an alternative technology or a different solution is mature enough to be deployed. For example, legislation has been introduced prohibiting the use of mineral oil for heating and the landfilling of biodegradable waste. This is a particularly appropriate way of dealing with emissions that are not easily taxed.

Which policy instruments are suitable and where depends partly on which low- and zero-emission alternatives are available and how mature they are. Different forms of market failure and barriers require different combinations of policy instruments.

During the development of a technology, when solutions are not yet mature and costs are still high, it is important to improve the technology and drive down costs. The most important policy instrument at this stage is support for research, development and innovation on zero- and low-emission solutions. Norway is dependent on technological advances to achieve its targets. Without public support, there will be too little investment in these activities.

Once there are mature research results, the purpose of grants is to make it possible to speed up and scale up pilot and demonstration projects and full-scale testing, so that technology costs are reduced and solutions reach the market more quickly. In this phase, innovative procurement can also play a part in accelerating technology development.

As technologies and solutions mature, it is important to increase market volumes so that new solutions can be deployed and play a part in reducing emissions. As a small country, Norway is dependent on being able to deploy technologies developed in other countries.

Policy instruments for specific sectors are discussed in later chapters.

3.3.2 Raising taxes on greenhouse gas emissions between 2021 and 2030

The Government will:

• Gradually raise taxes on non-ETS greenhouse gas emissions to approximately NOK 2 000 per tonne CO₂eq in 2030. The state revenue from these increases will be used to reduce other taxes.

• Assess the effects and impacts of introducing a tax on mineral fertiliser, and how it could be introduced. The purpose of the tax would be to reduce nitrous oxide emissions.

The Norwegian taxation system currently includes three climate-related taxes on non-ETS emissions. The first is the carbon tax on mineral products, which is levied on fossil energy products such as petrol, diesel, LPG and natural gas. The tax applies to all use of these products for road traffic, and also for other transport such as domestic shipping and aviation. This tax also applies to the use of the same products in agriculture, fisheries less than 250 nautical miles from the coast, the construction industry and manufacturing industries that are not covered by the EU ETS. The second climate-related tax is the tax on all production and import of the greenhouse gases HFCs and PFCs. Thirdly, the carbon tax on emissions from petroleum activities on the Norwegian continental shelf applies to non-ETS emissions of natural gas from petroleum extraction.

Emissions that are not subject to the carbon tax nor included in the ETS originate largely from the agricultural sector, and consist of methane and nitrous oxide. They include roughly 480 000 tonnes CO₂eq in the form of emissions of nitrous oxide from the use of mineral fertilisers. From 1988 to 1999, Norway levied a tax on phosphorus and nitrogen in mineral fertiliser, but this was discontinued in 1999. At the same time, it was decided as part of the Agricultural Agreement to introduce a system of environmental programmes in agriculture. A grant scheme for environmentally friendly manure application has been established. Grants are also available for impermeable covers for manure storage facilities and for increasing the capacity of such facilities. Norway has adopted regulations relating to fertiliser products of organic origin, which govern the storage and application of livestock manure. The regulations are being revised with the aim of introducing stricter rules to reduce releases to air and water. Emissions of nitrous oxide from mineral fertilisers have remained more or less stable since the tax was abolished.

Norway’s Green Tax Commission2 recommended the reintroduction of the tax on mineral fertiliser to reduce releases of nutrients and greenhouse gases. The Commission was of the opinion that a tax on the nitrogen content of mineral fertiliser on climate-related grounds would result in more cost-effective adaptation. If the tax were to be reintroduced, the costs incurred by the agricultural sector would be incorporated into calculations of farmers’ incomes. These are used as a basis for determining the budgetary framework for the negotiations on the annual Agricultural Agreement. The letter of intent signed by the Government and the agricultural sector is intended to give genuine, adequate reductions in emissions in the period up to 2030. If there is insufficient progress, the Government will consider the introduction of new policy instruments. The Government will therefore assess the introduction of a tax on mineral fertilisers to reduce nitrous oxide emissions from soils. The assessment will look at the possible effects of the tax both on greenhouse gas emissions and on agricultural production, other effects, and how the tax could be introduced.

In recent years, the Government has increased tax rates and also worked systematically to widen the tax base, so that a larger share of emissions is taxed. In the 2021 National budget, the Government proposed the introduction of a tax on waste incineration. With this, more than 70 % of Norway’s non-ETS emissions will be subject to taxation in 2021.

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Source Ministry of Finance, Statistics Norway and Norwegian Environment Agency

The Government has also initiated an assessment of a tax and other policy instruments targeting SF₆ emissions. This is further discussed in Chapter 3.7. The Government will also consider making direct emissions of methane and non-methane volatile organic compounds (NMVOCs) from onshore petroleum installations subject to the carbon tax, provided that satisfactory measurement and calculation methodology is available.

The remaining non-ETS emissions originate from a variety of smaller sources, and taxation is probably not an appropriate instrument for reducing these emissions.

From 2021 to 2030, the Government will gradually increase the standard tax rate for non-ETS emissions to about NOK 2 000 per tonne CO₂eq, measured in fixed 2020 NOK. This is an overall rise of about NOK 1 400 from the 2021 tax rate, and will be one of the most important steps for achieving Norway’s international obligations and the Government’s ambitions relating to climate change.

The overall increase in the tax rate and the rate for each specific year will need to be determined through the normal budgetary processes and assessed in the light of technological developments, but must ensure that emissions are reduced sufficiently. In this white paper, the effects of increasing climate-related taxes have been assessed on the assumption that a gradual year-by-year increase in tax rates up to 2030 will result in a linear increase in the effects. If tax rates are increased more rapidly earlier in the period, this may result in a greater anticipated effect on emissions. If increases in tax rates are delayed, the anticipated effect on emissions may be smaller. If technological advances are made more quickly than has been assumed and the cost of zero-emission solutions falls more rapidly than expected, it may be possible to achieve the same reduction in emissions with a lower tax rate. On the other hand, slower technological progress may result in smaller emission reductions than the current estimates.

The Government’s policy is not to increase the overall level of taxation. This means that any increase in a tax rate must be offset by corresponding reductions in other taxes, primarily for the groups affected by tax rises. In accordance with its political platform, the present Government has provided compensation for the rise in the carbon tax rate in the 2020 and 2021 budgets by reducing road use duty. Since a rise in the carbon tax in isolation results in higher fuel prices, road use duty has been reduced so that the rise in the carbon tax has not had consequences for people who drive petrol or diesel cars.

Road use duty is not levied in order to put a price on greenhouse gas emissions; its purpose is to put a price on other social costs of road use, such as accidents, congestion, noise, wear and tear on roads and emissions of particulate matter. But like the carbon tax, road use duty affects the sales price of petrol and diesel. A reduction in road use duty therefore counters the effect of a rise in the carbon tax. Estimates suggest that if the Government continues to compensate for increases in the carbon tax rate up to 2030 by reducing road use duty, this on its own would make the overall reduction in greenhouse gas emissions about 3 million tonnes CO2eq smaller than if no compensation was provided (see ‘Possible additional effects’ in Table 3.1). The Government has not yet come to a decision on whether to continue this compensation mechanism. Other tax-based compensation mechanisms will also be considered to avoid the counter-productive effect of reducing the effect of the carbon tax on emissions. The Government’s climate policy is intended to minimise the negative economic impacts on ordinary people. It must pay to reduce greenhouse gas emissions, but at the same time, climate policy must not entail unreasonable costs. Specific proposals for changes in the taxation system will be presented to the Storting in the annual budget proposals.

The increasing numbers of electric vehicles, technological advances and improvements in public transport mean that any future increases in fuel taxes will be less important for many people.

The policy the Government describes in this white paper puts Norway on track to exceed both its commitment to reduce non-ETS emissions by 40 %, as set out in the climate agreement with the EU, and Norway’s ambition of reducing non-ETS emissions by 45 %. As policy instruments are implemented, it will be easier to see their actual effect on emissions. It may therefore be necessary to adjust the use of policy instruments during the period 2021–2030.

On its own, a carbon tax rate of NOK 2 000 per tonne CO₂eq would result in higher fuel prices. However, prices are also dependent on a number of other factors. Ten years provides plenty of time to adapt to higher tax rates. For example, more fuel-efficient fossil-fuel vehicles and improved, lower-cost electric vehicles will become available in the next few years. In addition, the Government is aiming for all new passenger cars to be zero-emission vehicles from 2025, and it has introduced policy instruments to facilitate this.

In the short term, higher climate-related taxes will increase costs for companies that use fossil fuels in production processes. The costs of transporting goods and passengers will also rise if fossil fuels are used for this purpose. The extent to which costs rise will vary between stakeholders and will also depend on how they adapt to rising costs. This in turn will depend on the availability and cost of climate-friendly technologies and alternative solutions. There is a great deal of uncertainty surrounding these factors, and it is therefore not possible to make precise estimates of the increases in costs. If businesses are exposed to international competition, a tax level exceeding that levied by Norway’s competitors will be a competitive disadvantage and may reduce their profitability. If a company already has a small operating margin, a rise in tax rates could ultimately result in its closure or a move to another country. The risk of such effects will depend on what competing countries do: the more ambitious their climate targets are, and the more effective the policy instruments they introduce, the lower the risk will be. Businesses that adapt to the new situation will have a competitive advantage over those that face higher costs because they generate pollution.

In the Government’s view, a tax level of about NOK 2 000 per tonne CO₂eq will strike a good balance between its ambition to achieve emission reductions through domestic action and the need to take into account the profitability of the Norwegian business sector. Over a ten-year period, it is possible for the business sector to adapt to a higher tax level by switching to low-emission alternatives. Raising climate-related taxes gives people and businesses incentives to make environmentally-friendly choices, and is an important way of reducing Norway’s greenhouse gas emissions.

3.3.3 Regulatory measures

Norwegian legislation includes various acts and regulations that influence greenhouse gas emissions, and some that also influence carbon removals. There are some provisions that were adopted primarily to reduce greenhouse gas emissions, such as the prohibition on landfilling of biodegradable waste under the Pollution Control Act, and other more general legislation that has several purposes, including emission reductions. The Planning and Building Act is a good example of the second category.

Regulatory measures are environmentally effective policy instruments, and a suitable way of promoting the use of technologies and solutions that are already available. It is possible for example to include requirements for the use of zero-emission solutions in procurement processes, as is now being done for both ferries and local buses, or to prohibit the use of outdated solutions. An example of the latter is the prohibition on using mineral oil to heat buildings. Biofuel quota obligations have been introduced under the product legislation to ensure more use of biofuels in conventional vehicles.

Regulatory measures are a good supplement to general taxes in situations where for administrative or technical reasons it is not possible or desirable to impose taxes on emissions. Regulatory measures can also be an effective way of overcoming behavioural barriers that hinder the implementation of measures even if taxation makes them economically viable. The Government will make use of regulatory measures to reduce greenhouse gas emissions and promote the transition to a low-emission society where they are appropriate. Among other things, the Government will consider how section 7 of the Road Traffic Act can be used to give municipalities the authority to establish zero-emission zones on climate-related grounds. The Government is also announcing further biofuel quota obligations under the product legislation. If necessary, the Government will consider policy instruments in addition to the gradual increase of the carbon tax rate, including prohibiting the use of fossil fuels, to phase out their use for energy purposes in the manufacturing sector.

3.3.4 Public procurement – how the public sector is leading the way in the green transition

The public sector is a major consumer, investor and economic operator. The sector influences the climate and environment both in Norway and internationally through purchases of products and services, the transport solutions it chooses, energy use, waste management, and requirements imposed on subcontractors. National, county and municipal authorities purchase goods, services and construction work worth around NOK 560 billion a year.

Including environmental and climate-related requirements in public procurement processes is an essential tool for reducing Norway’s greenhouse gas emissions, promoting green industrial development and stimulating demand for low-emission products and services. Green procurement of public transport services has been particularly important for the transition to environmentally-friendly transport.

There is good provision in the legislation for including environmental and climate-related requirements in public procurement processes. The Public Procurement Act requires the public sector to organise its procurement activities in such a way that they reduce harmful environmental impacts and promote climate-friendly solutions where relevant. Contracting authorities are also required to take lifecycle costs into account in each contract and to focus on reducing harmful environmental impacts and promoting climate-friendly solutions.

Costs may rise as a result of the inclusion of environmental and climate-related requirements in procurement processes; for example, transaction costs and purchase prices may be higher. Contracting authorities should therefore focus particularly on sectors and areas where the potential environmental benefits are particularly large or where public procurement can play an important part in developing the market for new climate- and environmentally-friendly solutions.

Areas where public procurement is a particularly suitable instrument for achieving Norway’s climate and environmental targets include transport, construction, the circular economy, food and food waste, plastics and hazardous substances. The Government will give priority to these areas, and describes how in the chapters on the relevant sectors. To clarify overall priorities for the contracting authorities, the Government will prepare an action plan for increasing the proportion of green public procurement processes and green innovation. Its purpose will be to simplify public procurement processes, make them more effective and professional, and make them a more targeted instrument for achieving the Government’s climate and environmental targets and supporting the green transition.

3.3.5 Support for technology development and early market introduction

3.3.5.1 The research and innovation system from research to market introduction

Norway is dependent on rapid technological advances and widespread use of new technologies to achieve its climate targets.

Norway has a well-developed research and innovation system with funding agencies that can support initiatives from research to market introduction of new technologies and solutions. The Research Council of Norway provides support for early-phase initiatives in research, competence development and innovation for the education and business sectors. It also funds the Centres for Environment-friendly Energy Research (the FME scheme) and Centres for Research-based Innovation (SFIs). Innovation Norway contributes to sustainable growth and exports through the grant scheme for environmental technology, the bioeconomy programme and other schemes such as innovation grants and innovation contracts. Objectives relating to sustainability and green solutions have been included in the assessment criteria for all of Innovation Norway’s funding schemes. Enova supports late-phase technology development and early market introduction. The Klimasats grant scheme supports projects to reduce greenhouse gas emissions and promote the low-emission transition at municipal and county level. SIVA (the Industrial Development Corporation of Norway) plays a part in the transition through its five Catapult Centres, where companies can develop new green solutions. The centres were established under the Norwegian Catapult Programme, and provide access to equipment for testing new services and products. This can drive the implementation of new green technologies and speed up market introduction. For example, the Sustainable Energy Catapult Centre at Stord in Western Norway has recently established a test centre for greener fuels and has test facilities for offshore wind power. Nysnø Climate Investments provides capital that can be invested in new, climate-friendly technology.

Cross-cutting initiatives have been established to streamline the pathway from research to market introduction. For example, the Pilot-E scheme involves cooperation between the Research Council of Norway, Innovation Norway and Enova on environment-friendly energy technology. The recently established Green Platform Initiative is intended to promote a green transition in the business sector, and involves cooperation between the Research Council of Norway, Innovation Norway, SIVA (the Industrial Development Corporation of Norway) and Enova.

3.3.5.2 Enova

A new four-year agreement between Enova and the Ministry of Climate and Environment came into force from 2021. The Government has given Enova a clearer climate profile for this period and adjusted its overall objective, which is now to contribute towards Norway’s emission reduction commitments and contribute to the transition to a low-emission society, as set out in the Ministry’s budget proposal for 2021.

Enova’s activities focus on late-phase technology development and early market introduction. Grants for late-phase technology development help to speed up the pace and scale of pilot and demonstration projects and full-scale testing, so that new technologies and solutions reach the market more quickly. Enova’s funding instruments will play an important part in reducing Norway’s non-ETS emissions by accelerating the early market introduction of climate-friendly technologies and solutions with the aim of them becoming the preferred solutions without government support in the long term. The transport sector will account for a large proportion of Enova’s activities, including support from the Zero-emission Fund. This is because the sector is responsible for a large volume of emissions and technology development is needed in heavy-duty vehicle segments, and because as time goes by more and more vehicle and vessel types and models will be ready for market introduction.

Effective funding instruments are vital in this work. The rolling four-year agreements between Enova and the Ministry and flexible, long-term funding through the Climate and Energy Fund give Enova a wide degree of freedom and flexibility to respond quickly to new opportunities and to support those projects that offer the greatest opportunities to influence developments. Given uncertainties about how rapid technology development may be in various sectors, freedom and flexibility within the framework of the four-year agreement will be extremely important in the years ahead.

The new four-year agreement for 2021–2024 specifies the objective of Enova and the fund more fully through two specific goals, which are to contribute to: a) reductions in non-ETS greenhouse gas emissions in the period up to 2030 and b) technology development and innovation that will be instrumental in reducing emissions during Norway’s transformation to a low-emission society by 2050. The agreement also specifies that Enova is expected to find good solutions that take into account the need for an effective energy system, since there are close links between the energy system and the emission reductions needed in the transition to a low-emission society.

Technology development and innovation will be needed in all sectors to reduce Norway’s emissions and achieve the transition to a low-emission society without adverse effects on welfare. This applies equally to the transport sector and to manufacturing industries. For example, sustained initiatives for technology development will be needed in manufacturing industries in the ETS sector so that they can achieve the transition. This is an area where technology development pathways may be very long, and the process needs new impetus now. Advances in technology in the next 10 years will be vital in achieving sufficient momentum by 2030 so that emission reductions continue after this.

Sufficient technology development in the non-ETS sector will also be needed to make it possible to reduce emissions in the period up to 2030. For example, there is still much to be done in the way of development and pilot projects before there are market-ready zero-emission solutions in heavy-duty transport segments and in shipping. To ensure that Enova’s activities are effective, it is therefore necessary to strike a good balance between short-term emission reductions and technology development that will make it possible to reduce emissions in the long term in all sectors.

The new four-year agreement with Enova is based on experience gained from earlier agreements, and makes use of Enova’s expertise and experience in designing funding instruments. The agreement puts Enova in a position to expand its current initiatives and to play an important part in achieving emission reductions and in Norway’s transition to a low-emission society.

The Government has increased allocations to Enova in several successive budgets, to about NOK 3.3 billion per year. The four-year rolling agreements provide a good framework for adjusting Enova’s activities as needed. The next opportunity will be in connection with the agreement period starting in 2025.

3.4 Halving transport emissions

The Government’s target is to halve emissions from the transport sector by 2030. Transport accounts for roughly 60 % of non-ETS emissions in Norway. Without deep cuts in transport emissions, it will be impossible to achieve the target of reducing non-ETS emissions by 45 % by 2030.

If emissions from the transport sector are to be cut by half, it must pay to choose emission-free vehicles. There is a large share of electric cars in sales of new passenger cars in Norway. In future, the Government intends to make zero-emission vehicles the natural preferred choice for heavy vehicles as well. Biofuels will be used to reduce emissions from petrol and diesel vehicles. At the same time, it must become even easier to choose to walk, cycle or take public transport. Initiatives for green shipping will be continued. Norway’s maritime industry is a leader in the green transition for a number of vessel categories. The Government intends to build on this.

Restructuring the transport sector will be a complex, demanding process. At the same time as reducing emissions, we must also ensure a good transport system for the general public and businesses. A number of policy instruments are in use and are producing results. The Government’s policy is designed to cut emissions in ways that take into account the stakeholders and commercial activities that are currently responsible for the emissions. The mix of policy instruments therefore combines higher taxation with incentives and support for low-and zero-emission solutions. It will be necessary to assess the scope and design of the various instruments during the period up to 2030 in the light of actual emissions and technology advances.

The Government will:

• Reduce non-ETS emissions from the transport sector by half by 2030 using the policy instruments presented in this climate action plan;

• Raise the taxation level for non-ETS greenhouse gas emissions to approximately NOK 2 000 per tonne CO₂eq in 2030, measured in fixed 2020 NOK;

• Continue to provide incentives for phasing in zero-emission solutions for new vehicle sales;

• Use Enova to support technology development and early market introduction in the transport sector;

• Make use of public procurement processes to promote the development and deployment of zero- and low-emission solutions in the transport sector;

• Use regulatory measures, particularly emission standards, to reduce emissions from the transport sector;

• Use other instruments that are important for cutting emissions in the transport sector, including coordinated spatial and transport planning;

• Use the National Transport Plan 2022–2033 to support the ambition of reducing transport emissions by 50 %.

Phasing in zero-emission solutions in all vehicle categories

The Government will:

• Design policy instruments on the basis of the targets for zero-emission vehicles set out in National Transport Plan 2018–2029, which entails:

  • Targeting incentives to choose zero- and low-emission solutions as clearly as possible and facilitating the achievement of the target for new car sales by 2025 to consist almost exclusively of zero-emission cars;

  • Continuing to use the funding agency Enova to support technology development and early market introduction in the transport sector. This is particularly relevant for achieving the targets for large vans, long-distance coaches and other heavy-duty vehicles.

  • Continuing to use public procurement processes to promote the development and deployment of zero-emission solutions. This is particularly relevant for achieving targets for local buses and for goods distribution in urban centres;

  • Seeking to introduce requirements to ensure the use of zero-emission solutions in public procurement processes for new local buses from 2025. Ways of ensuring that requirements include buses running on biogas will be considered.

  • Seeking to introduce requirements to ensure the use of zero-emission solutions in public procurement processes for passenger cars and small vans from 2022;

  • Assessing the possibility of including requirements for zero-emission solutions in public procurement processes for large vans, long-distance coaches and trucks;

• Facilitate the rapid development of charging infrastructure throughout the country using a combination of policy instruments and market-based solutions to keep pace with the expanding use of electric modes of transport;

• Set requirements for parking spaces in new buildings and buildings that undergo major renovation to be electric vehicle ready.

Biofuels

The Government will:

• As a minimum, maintain the current sales volume of biofuels;

• Seek to introduce a biofuel quota obligation for offroad diesel from 2022, which will gradually be increased up to 2030 to the same level as for road traffic;

• Seek to introduce a biofuel quota obligation for shipping from 2022;

• Seek to combine the biofuel quota obligations for road traffic and offroad diesel, and assess whether the same proportion of biofuels could be made applicable to shipping;

• Gain experience of application of the new advanced biofuel quota obligation for aviation before considering whether to increase the proportion of advanced biofuel required;

• Consider the proportion of biofuels required by the biofuel quota obligations every two years, and make adjustments if appropriate, starting in 2022. The need for emission cuts must be weighed against price, biofuel availability, risk of deforestation, Norway’s obligations under international law and trade policy interests.

• Consider the use of various instruments to ensure that a rise in sales of biofuels as a result of the gradual increase in the carbon tax rate does not lead to rising global emissions.

Action plan for fossil-free construction sites in the transport sector

The Government will:

• Present an action plan for fossil-free construction sites in the transport sector; this will include:

  • initiating pilot projects for fossil-free construction sites to be run by the subordinate agencies of the Ministry of Transport;

  • making use of requirements in public procurement processes as a means of reducing emissions from construction sites in the transport sector, with a view to facilitating a transition to fossil-free construction sites by 2025;

  • initiating an assessment of requirements and goals for fossil-free construction sites in the transport sector;

  • considering instruments to ensure effective management of bulk materials such as soil and gravel from construction sites in the transport sector;

  • reviewing the external costs of construction activities other than CO₂ emissions.

Climate action at local level

The Government will:

• Consider adjustments to the provisions on low-emission zones so that they can also be established on climate-related grounds;

• Consider the use of the legal authority provided by section 7 of the Road Traffic Act to establish zero-emission zones on climate-related grounds, initially in the form of a pilot project in a few cities. Zero-emission zones must not include trunk roads/national roads.

• Contribute to the development of methods for more accurate quantification of how land-use change and changes in transport systems affect traffic volumes and trends in land use in urban areas. This is intended to simplify sustainable land-use and transport planning by the municipalities;

• Require central government agencies to attach importance to the environmental benefits of re-using already developed areas and existing buildings, and of siting their premises near public transport nodes and the centre of towns and urban areas, in line with central government planning guidelines for coordinated housing, land use and transport planning;

• Make it clear that in urban areas, reductions in greenhouse gas emissions, traffic congestion, air pollution and noise should be brought about by effective spatial planning, and that public transport, cycling and walking should be used to meet the growth in the volume of passenger transport;

• Call on the municipalities to use existing instruments to take climate and environmental issues into account in urban areas.

Shipping and fishing vessels

The Government will:

• Maintain its ambition of reducing emissions from domestic shipping and fishing vessels by half by 2030 compared to the 2005 level, and continue to develop policy instruments and assess new instruments as needed to achieve this;

• Consider the use of climate-related requirements in public procurement processes for maritime transport services, with a view to introducing them in 2023;

• In the course of 2023, introduce criteria concerning zero- and low-emission solutions, where feasible, for new procurement processes for ferry services;

• In the course of 2025, introduce criteria concerning zero- and low-emission solutions, where feasible, for all procurement processes for high-speed passenger vessel services;

• Continue to provide support to the counties so that they can promote zero- and low-emission solutions for ferries and high-speed passenger vessels;

• Introduce requirements for zero- and low-emission solutions for aquaculture service vessels, to be phased in gradually from 2024 where feasible;

• In 2021, present a plan to the Storting (Norwegian parliament) in response to its decision requesting the Government to propose ways of ensuring the introduction of zero- and low-emission solutions for offshore support vessels; this will include assessing new requirements to be phased in from 2022;

• Continue to play a leading role in the work of the International Maritime Organization (IMO) on reducing greenhouse gas emissions.

3.4.1 Emission trends, targets and ambitions

In 2019, non-ETS greenhouse gas emissions from the transport sector totalled roughly 14.3 million tonnes CO₂eq, see Figure 3.9. This was a reduction of 2.5 million tonnes CO₂eq or 14 % in the period 2014–2019.

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Source Statistics Norway and Norwegian Environment Agency.

Emissions from the transport sector are largely non-ETS emissions, with the exception of aviation emissions, which are mainly in the ETS sector. Aviation emissions are further discussed in Chapter 5.7. In 2019, non-ETS transport emissions were 2 million tonnes CO₂eq higher than in 1990 but 1.2 million tonnes below the 2005 level.

Emission trends vary from one transport segment to another. The largest source of transport emissions is road traffic, and emissions from this segment were reduced by 7.3 % from 2018 to 2019. Passenger cars are still the largest source of transport emissions, but emissions are declining with the increasing use of biofuels and the significant increase in electric vehicle use. It will take some time before the full effects of electric vehicle use become apparent in Norway’s emission inventory.

According to the projections presented in the 2021 National Budget, non-ETS emissions from the transport sector are expected to be reduced from 14.3 million tonnes CO₂eq in 2019 to 10.4 million tonnes CO₂eq in 2030 – a reduction of roughly 27 %. The projections are based on the assumption that current policy instruments are maintained, including effective policy instruments targeting electric vehicles. The reduction in emissions will also be dependent on the availability of charging infrastructure for heavy vehicles. See Chapter 3.2 for more about the projections.

The Government’s ambition is to reduce greenhouse gas emissions in the transport sector by half between 2005 and 2030. This is expressed as a single-year target for 2030, see Box 3.1. The Government has also set a number of targets for sales of new zero-emission vehicles, see Box 3.6. Achieving these will require advances in technological maturity in various segments of the transport sector. The Government also has a specific ambition to reduce greenhouse gas emissions from domestic shipping and fishing vessels by half by 2030 compared with the 2005 level.

A steady trend towards halving of transport emissions by 2030 will be crucial for achieving Norway’s target of reducing non-ETS emissions by 45 %. Reducing emissions throughout the period 2021–2030 will mean that cuts have an effect in every year up to 2030, not only in 2030.

In the Government’s view, the policy instruments set out in this climate action plan could reduce overall non-ETS emissions by 12 million tonnes over the period 2021–2030 compared with the current baseline projections. Figure 3.10 shows the calculated emission trajectory for non-ETS transport emissions if the Government’s climate action plan is implemented.

The Government intends to specify that all new local buses are to be zero-emission vehicles or run on biogas by 2025 by making this a general requirement in all public procurement processes from 2025. This could reduce emissions by about 1 million tonnes CO₂eq over the period 2025–2030.

The Government also intends to introduce national zero- and low-emission criteria in new procurement processes for ferries and high-speed passenger vessels, where feasible, from 2023 and 2025 respectively. In addition, requirements for zero- and low-emission solutions for aquaculture service vessels are planned to be introduced gradually from 2024 onwards where feasible. In total, this could reduce emissions by up to 2 million tonnes CO₂eq over the period 2021–2030.

The Government will maintain the current sales volume of biofuels by increasing the biofuel quota obligation for road traffic. This could reduce emissions by about 2.7 million tonnes CO₂eq over the period 2021–2030 compared with the level expected without any change in the required percentage of biofuels and declining sales of liquid fuels. The Government also intends to introduce a biofuel quota obligation for offroad diesel from 2022, which will gradually be increased up to 2030 to the same level as for road traffic. This could cut emissions by an additional 2.8 million tonnes CO₂eq over the period 2021–2030. In addition, the Government intends to introduce a biofuel quota obligation for shipping from 2022.

The Government will gradually increase the carbon tax rate to NOK 2 000 per tonne CO₂eq, which could reduce emissions from the transport sector by about 3.5 million tonnes CO₂eq over the period 2021–2030. This is based on the assumption that the carbon tax is raised steadily through the ten-year period.

Halving transport emissions means that in 2030, they must be reduced to a total of about 7.7 million tonnes CO₂eq. As mentioned above, according to the projections presented in the 2021 National Budget, non-ETS emissions from the transport sector are expected to be reduced to 10.4 million tonnes CO₂eq in 2030. This leaves an emissions gap in 2030 of about 2.7 million tonnes CO₂eq. In all, the emission reductions outlined above will keep Norway on course to reduce transport emissions by roughly half by 2030 compared to the 2005 level.

The targets for zero-emission vehicles set out in the National Transport Plan 2018–2029 are to be maintained, and the Government will design the policy instruments described in this climate action plan so that they can be achieved. Achieving these targets will reduce emissions by more than the calculations show. Since it is not possible to quantify tax design or funding available through grant schemes precisely for each year up to 2030, it is impossible to make a direct assessment of the effects of the policy instruments on emissions. Furthermore, the integrated urban land-use and transport agreements for Norway’s largest urban areas, the Government’s action plan for fossil-free construction sites in the transport sector, and other instruments with a substantial effect on greenhouse gas emissions will produce greater emission reductions than the figures calculated in this plan.

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3.4.2 Policy instruments

In this white paper, the Government is presenting instruments to reduce non-ETS emissions from the transport sector by half by 2030. These instruments are also designed to achieve the targets for new zero-emission vehicles set out in the National Transport Plan 2018–2029.

Almost all action taken in the transport sector will influence greenhouse gas emissions. A number of policy instruments have been introduced with the specific aim of reducing emissions. There are also many instruments that are not primarily designed to cut greenhouse gas emissions but that may nevertheless have an effect on them.

The Government is working along several tracks to reduce transport emissions. Firstly, more low- and zero-emission vehicles and vessels are being phased in. Secondly, climate-friendly fuels are being phased in for fossil fuel vehicles and vessels. Thirdly, coordinated spatial and transport planning is being used to reduce overall transport needs and facilitate more public transport use, cycling and walking.

Various types of action are proposed to speed up emission reductions for different vehicle and vessel categories in line with the targets that have been adopted. These involve maintaining or modifying policy instruments, or in some cases introducing new ones. At the same time, it is important to consider the overall effects of policy instruments, both as regards particular vehicle and vessel categories and as regards the overall approach for the transport sector. Policy instruments work together: some supplement each other or can be used as alternatives, some reinforce each other, while certain instruments are mutually exclusive. All vehicle and vessel categories will be affected by real increases in fuel taxes as the carbon tax rate is raised. The extent to which other policy instruments, particularly grant schemes, are used will also depend on these tax rates. Using requirements in legislation may limit opportunities for using grant schemes.

3.4.2.1 The carbon tax

The carbon tax rate is the main policy instrument for reducing greenhouse gas emissions from the transport sector. All transport emissions are currently subject to the carbon tax on mineral products, meaning that emissions are priced equally across vehicle and vessel categories. The extent of emission reductions and how they are made will to a large extent depend on the market.

The Government intends to make stepwise increases in the carbon tax to approximately NOK 2 000 per tonne CO₂eq in 2030, see Chapter 3.3.2. This will provide a stronger incentive to choose low-emission forms of transport.

What effect does this policy instrument have on emissions, and what is its cost?

A higher carbon tax rate affects emissions primarily through increases in fossil fuel prices and stronger incentives to choose zero-emission technologies or for example make more use of public transport. For households and companies that do not use zero-emission vehicles, a carbon tax rate of NOK 2 000 may mean higher costs.

To encourage technological development and market introduction in transport segments where emission-free alternatives are not yet mature, the Government sees a need to continue using other policy instruments to supplement the carbon tax, such as subsidies and grants.

3.4.2.2 Vehicle taxes

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In recent decades, vehicle taxes have been used to encourage a shift towards zero- and low-emission vehicles in Norway. For example, CO₂ and NO_X components have been included in vehicle registration taxes, and various tax exemptions have been introduced for zero-emission vehicles. This policy has been effective, resulting both in more lower-emission conventional vehicles and in substantial progress in phasing in hybrid and zero-emission vehicles. Norway has therefore made good strides in reducing the average emission intensity of passenger cars. In the updated cross-party agreement on climate policy, the Storting adopted the target that emissions from new passenger cars should not exceed 85 g CO₂/km in 2020. This target was reached well before 2020. In 2019, emissions from new passenger cars averaged 60 g CO₂/km. Figure 3.12 shows 2018 emissions from new passenger cars in various European countries.

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Source Norwegian Environment Agency

In 2019, CO₂ emissions from passenger cars in Norway were 21.4 % lower than at their peak in 2010. About 10 % of passenger cars in Norway are now zero-emission vehicles, and more than half of all new passenger cars are zero-emission cars. No country has a larger share of zero-emission cars than Norway. For the period up to 2025, vehicle taxes and other policy instruments will be designed to facilitate achievement of the target for new car sales by 2025 to consist almost exclusively of zero-emission cars.

Originally, the primary purpose of vehicle taxes was to generate state revenue. In addition, taxes on the use of vehicles are intended to put a price on the external costs of their use. The transition to zero-emission vehicles, brought about in part by tax exemptions, has led to a steep drop in state revenue from vehicle taxes. In addition, the external costs of vehicle use other than CO₂ emissions are either not priced or not accurately priced. Norway’s current system of vehicle taxes is therefore not sustainable with respect to either revenue or environmental considerations. In the years ahead, the system will need to be reorganised to rectify this.

In the 2021National Budget(Meld. St. 1 (2020–2021)), the Government presented principles for designing a future vehicle tax system. A sustainable vehicle taxation system must put a price on the external costs of using vehicles. It must include taxes on the purchase and ownership of vehicles, be built on a stable tax base, and be designed to be as technology-neutral as possible. A sustainable vehicle taxation system must also be designed to be equitable. The principles set out in the National Budget indicate how vehicle taxation should be designed from 2025. In the next few years, vehicle taxes should be gradually changed to follow these principles.

CO₂ emissions from road traffic must be further reduced, and the Government is therefore maintaining the targets for the introduction of zero-emission vehicles, expressed as shares of new vehicles sold, as set out in the National Transport Plan 2018–2029. This means that vehicle taxes and other policy instruments must continue to provide incentives for reducing CO₂ emissions and phasing in zero-emission vehicles. Until the transition to zero-emission vehicles is complete, a balance must therefore be struck between the sustainability of the vehicle taxation system and achieving the targets for zero-emission vehicles set out in the National Transport Plan 2018–2029.

Changes to Norway’s vehicle taxes are considered as part of the annual budgetary processes. The speed of the transition to a sustainable vehicle taxation system must be assessed taking into account how the changes will affect state revenue, the environment and other political objectives. The Government will therefore propose specific changes to vehicle taxes in future national budgets.

What effect does this policy instrument have on emissions, and what is its cost?

Vehicle taxes can be divided into taxes on vehicle purchase, ownership and use. Taxes on purchase and ownership can be used to influence the size and composition of the vehicle fleet in Norway. Zero-emission vehicles are exempt from both VAT and the registration tax, which provides a strong incentive to purchase such vehicles. In addition, the CO₂ component of the registration tax means that vehicles with high CO₂ emissions are taxed more heavily those with low CO₂ emissions, creating an incentive to purchase conventional vehicles with low emissions. The road traffic insurance tax is also lower for zero-emission vehicles, adding to the incentives to own electric vehicles.

Putting a price on the external costs of using vehicles, such as CO₂ emissions, requires taxes on use. The most important taxes on vehicle use in Norway are the carbon tax on mineral products and the road use duty on fuel. The carbon tax puts a price on CO₂ emissions, while the road use duty puts a price on other external costs of vehicle use such as accidents, congestion and noise. Fuel taxes do not apply to zero-emission vehicles, but electricity for electric vehicles and plug-in hybrids is subject to the electricity tax. The fuel taxes create an incentive to reduce the use of conventional vehicles and choose fuel-efficient or zero-emission vehicles. However, since there is no road use duty for zero-emission vehicles, the external costs of their use have not been priced.

Overall, Norway’s vehicle taxes create strong incentives to choose zero-emission vehicles. The Institute of Transport Economics has estimated that if all CO₂-differentiated taxes and grant schemes are included, the implicit carbon price for passenger cars in Norway was at least NOK 12 500 per tonne CO₂ in 2019 and at least NOK 11 200 in 2020. According to the Institute, conservative estimates of the implicit carbon prices for the individual taxes were used throughout. Similarly, the Ministry of Finance has estimated that the overall tax incentives for electric vehicles amount to NOK 10 000–15 000 kroner per tonne CO₂. This estimate is based on the carbon tax rate (present value) needed to provide just as strong an incentive to choose electric vehicles as the current preferential taxation. This estimate does not include the exemption from the registration transfer fee or financial advantages outside the taxation system such as exemption from or reduction of road tolls, car ferry prices and parking fees, and access to bus lanes. The figures are based on a simplified set of assumptions. In specific cases, level of support may be considerably higher or lower, depending on the specifications of the electric vehicles, the specifications of alternative vehicles with combustion engines, and driving patterns.

3.4.2.3 Funding instruments

Significant technology development will be needed in the transport sector in order to halve emissions by 2030. The Government’s proposals for increases in climate-related taxes will not be enough on their own to promote the technology development and deployment needed to achieve Norway’s ambition of halving emissions. Public funding for research, technology development and early market introduction will also be needed. The Government provides support through funding agencies including the Research Council of Norway, Enova, Innovation Norway and the Klimasats grant scheme.

Enova is the main funding agency the Government uses to support technology development and early market introduction of green solutions. The Government has given Enova a clearer climate profile in the agreement for the next four-year period, see Chapter 3.3.5. Enova is relevant for all sectors, but in the years ahead will mainly target the sectors with the largest emissions and the greatest need for technology development. This applies particularly to heavy vehicle and vessel categories. Enova will also be important in supporting the development of infrastructure for zero-emission fuels for vehicles and vessels, in the early phase when public funding is necessary.

Since 2016, Enova has provided roughly NOK 900 million per year in funding for transport sector projects. In the maritime sector, Enova supports the establishment of charging infrastructure for zero- and low-emission ferries and high-speed passenger vessels, the electrification of maritime transport, and the establishment of infrastructure for shoreside electric power in ports and on vessels. In the vehicle sector, Enova supports technology development for heavy vehicles, infrastructure for zero-emission fuels, public transport and the production of biogas and biofuels. Through the Zero-emission Fund for commercial transport, Enova promotes greater use of battery-electric, hydrogen and biogas solutions on land and at sea through early market introduction. As technology matures in more and more areas, this will be an important way of encouraging early market introduction, for example of zero-emission heavy vehicles.

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Photo: Norwegian postal service

The Klimasats grant scheme offers support to counties and municipalities for projects in areas including climate-friendly transport and climate-friendly spatial and transport planning. Klimasats funding has been awarded to projects to include requirements for low- and zero-emission solutions in county procurement processes for high-speed passenger vessels, the establishment of cycle parking at public transport nodes, electric vans, charging infrastructure for taxis, smart transport solutions, e-bikes for official use, and charging points for electric vehicles. Grants have also been awarded for planning and assessing climate-related measures and for networking to build expertise. The Klimasats grant scheme was established as a temporary scheme in 2016, and was to run for at least five years. The Government will continue the scheme in 2021 to ensure that support continues to be available for municipal and county efforts to cut greenhouse gas emissions.

What effect does this policy instrument have on emissions, and what is its cost?

Financial support is used as a policy instrument in this context to promote technology development and early market introduction in segments where zero-emission alternatives are not yet mature. Funding schemes also trigger the implementation of measures that would be difficult to realise through taxation, such as spatial planning for a climate-friendly society. Support for investments in ambitious technology pathways lays a foundation for making emission reductions in the time ahead, after 2030 as well, and thus contributes to the long-term transformation process. For certain technologies, the time between concept and market standard is so long that it will be a major challenge for Norway to achieve its 2050 target unless this work is well underway by 2030.

The economic and administrative costs depend on how many projects receive grants and the level of funding. Optimally, grants should be designed to achieve emission reductions that are as cost-effective as possible, and to realise economically viable projects that would not otherwise have been feasible.

3.4.2.4 Biofuel quota obligations

Biofuels and biogas (see Chapter 3.5 on the action plan for biogas) reduce emissions by replacing fossil fuels in vehicles and vessels with combustion engines. The use of biofuels is important in reducing emissions from Norway’s transport sector, and in 2019 biofuel use resulted in a reduction of CO₂ emissions by roughly 1.3 million tonnes in the national emission inventory.

In Norway, biofuel quota obligations ensure that biofuels make up a certain proportion of overall fuel sales. There are currently no quota obligations for biogas. A biofuel quota obligation for road traffic was first introduced in 2009, and from 2017 there has been an additional requirement to include a certain proportion of advanced biofuels in the mix. The biofuel quota obligation has been gradually increased. On 1 January 2021 it was raised to 24.5 %, and the proportion of advanced biofuels to 9 %. For aviation, a biofuel quota obligation of 0.5 % advanced biofuels was introduced on 1 January 2020. Biofuels can be used in offroad diesel and for shipping as well as for road traffic and aviation.

The Government wants future increases in biofuel quota obligations for road traffic and aviation to be met primarily using advanced biofuels.

Sales of fossil petrol and diesel will decline in the years ahead, partly because there will be more zero-emission vehicles on the road. This means that over time, the volume of biofuels sold to meet a specific biofuel quota obligation as a percentage of sales will also decline, thus reducing their contribution to emission cuts. To counteract this, the Government plans to increase the biofuel quota obligation for road traffic in order to maintain a constant volume of biofuels up to 2030.

The Government also intends to introduce a biofuel quota obligation for offroad diesel from 2022, which will gradually be increased to reach the same level as for road traffic by 2030. In addition, the Government intends to introduce a biofuel quota obligation for shipping from 2022. The biofuel quota obligations for road traffic and offroad diesel should in future be combined into a single quota obligation. This will give market actors more flexibility to use biofuels where appropriate. The Government will assess whether the same biofuel quota obligation can be made applicable to shipping as well.

The Government will consider the proportion of biofuels required by the biofuel quota obligations every two years, and make adjustments if appropriate, starting in 2022. This will provide predictability for sellers and users of biofuels. The Government’s policy is that biofuel quota obligations will be further increased if this proves necessary for achieving the emission targets. At the same time, the need for increased use of biofuels must be assessed on the basis of price and availability, and biofuel use in Norway that would lead to rising emissions in other countries must be avoided. Norway’s biofuel use must be in line with its international legal obligations.

The Government will gain experience of application of the new advanced biofuel quota obligation of 0.5 % for aviation before considering whether to increase the percentage for this sector.

In this white paper, the Government presents a credible plan for achieving Norway’s 2030 climate targets through national emission cuts. There is considerable uncertainty relating to emission trends over the next ten years. Should it prove necessary during this period, adjustments to policy instruments will be considered. The level of emissions depends on many uncertain factors that may interact in unforeseen ways.

The biofuel quota obligations can be adjusted relatively quickly if emission trends make this necessary. In its annual reporting to the Storting under the Climate Change Act, the Government will assess implementation of this climate action plan and Norway’s progress towards the 2030 target. If progress is not satisfactory, the use of policy instruments must be adjusted as necessary. Such adjustments, together with purchases of emission allowances and any additional use of biofuels, will ensure that Norway achieves its climate targets.

The planned increases in the carbon tax will over time make biofuels more competitive relative to fossil fuels. How competitive they become and how quickly this happens will depend on price developments for both types of fuels. One effect of gradually increasing the carbon tax could be that in the longer term, the proportion of biofuel sold exceeds the quota obligations. When biofuels become more competitive than fossil diesel will depend on price developments for both biofuels and fossil diesel. Because there are technical blending limits for FAME biodiesel, it is likely that fossil diesel will first be replaced by conventional HVO biodiesel as the carbon tax is increased.

Conventional HVO biodiesel may be produced from raw materials that entail a higher deforestation risk, such as palm oil. Depending on future price developments, this type of HVO biodiesel may become competitive when the carbon tax reaches NOK 2 000 per tonne CO₂eq. This applies to its use for road traffic, shipping and offroad diesel. The Government will consider the use of various instruments to ensure that a rise in sales of biofuels as a result of the gradual increase in the carbon tax rate does not lead to rising global emissions.

It is uncertain whether HVO biodiesel from other conventional raw materials that involve a lower deforestation risk will become cheaper than fossil diesel with the planned carbon tax increases. Should this type of biofuel become competitive for example by 2025, it could result in emission reductions of the order of 10–15 million tonnes CO₂ over the period 2021–2030. However, new price assessments by the consultancy firm Argus indicate that this will not happen. When estimating the emission reductions brought about by implementing this climate action plan, the Government has not included the effect of any increase in biofuel use as a result of a rising carbon tax rate, see Chapter 3.1.2.

What effect does this policy instrument have on emissions, and what is its cost?

Biofuel quota obligations bring about rapid, reliable emission cuts in Norway. In 2019, sales of more than 600 million litres of biofuels were reported for road traffic, corresponding to 15 % of fuel sales by volume. Biofuels thus resulted in a reduction of 1.3 million tonnes in CO₂ emissions as reported in the national emission inventory. The new requirement from 1 January 2021 will also yield a similar reduction in emissions. The increase in the biofuel quota obligation will shift sales from conventional to advanced biofuels. Because advanced biofuels count double towards the quota obligation, the change will not result in an increase in the total volume of biofuels. An increase in advanced biofuel use has a significant effect internationally, and also when the risk of indirect land use change (ILUC) is included in estimates of global emission reductions. The estimated global emission reductions from biofuel sales in 2019 were about 530 000 tonnes CO₂eq when ILUC is included. For 2021, the equivalent figure is a reduction of 925 000 tonnes CO₂eq.

Since advanced biofuels count double towards the biofuel quota obligation, the increase in the proportion of advanced biofuels to 9 % considerably restricts the share of biofuels involving a high deforestation risk that can be used in a blend. Also, from 1 July 2020, the scope of the road use duty was expanded to include all biofuels. This means that it does not pay in practice to sell a larger volume of biofuels than required by the biofuel quota obligation. These changes are important in ensuring that Norwegian imports of biofuels do not contribute to deforestation.

Raising the biofuel quota obligation for road traffic so that the sales volume of biofuels is maintained unchanged up to 2030 will increase the emission reductions from biofuels by about 2.7 million tonnes CO₂eq over the period 2021–2030, compared to the estimated reduction if biofuel quota obligations remained unchanged while the volume of liquid fuels for road traffic declined. It is estimated that the introduction of a biofuel quota obligation for offroad diesel, to be gradually increased to the same level as for road traffic, will increase emission reductions from biofuels by an additional 2.8 million tonnes CO₂eq in the period 2021–2030.

Thus, the overall effect of the increases in biofuel quota obligations presented by the Government in this white paper will be to reduce emissions by roughly 5.5 million tonnes CO₂eq over the period. In addition, the Government intends to introduce a biofuel quota obligation for shipping.

For the authorities, the biofuel quota obligations will result in some administrative costs for inspection and enforcement. Users of biofuels will experience higher pump prices as a result of quota obligations, since biofuels are more expensive than fossil fuels. Biofuels vary in price, and advanced biofuels are costlier than conventional biofuels. In the mitigation analysis for Norway 2021–2030, the economic cost of using advanced biofuels is estimated at about NOK 2 000 per tonne CO₂eq. Uncertainty is high, but according to the latest assessments, biofuel prices are expected to increase beyond this in the period up to 2030 as a result of rising global demand.

Raising the carbon tax rate will make biofuels more competitive against fossil fuels, but by how much and when is difficult to forecast. It is therefore difficult to assess whether biofuel sales towards the end of the period 2021–2030 will be a result of the need to meet biofuel quota obligations or of lower prices than for fossil fuels.

Economic impacts, including costs incurred by the public sector, companies and households, in addition to possible carbon leakage and the distributive effects of biofuel quota obligations, will be reviewed when changes are considered as mentioned above.

Figure 3.14 shows the shares of zero-emission vehicles in Norway’s vehicle fleet in 2017, 2018 and 2019. Conventional vehicles still make up a large majority of vehicles in all categories.

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Source Sweco

3.4.2.5 Public procurement

The public sector purchases large volumes of transport services every year. By including climate-related requirements in procurement processes, the state can reduce emissions and encourage accelerated development of new technology. Procurement in this sector includes both transport services for the public and indirect transport through the purchase of goods and services. Public transport services include passenger transport such as bus, air, tram, train, ferry and high-speed passenger vessel services, and also waste collection, patient travel, school transport, and transport services for people who are unable to use public transport. Indirect transport includes the transport of goods and services and services including an element of transport.

The Government has set targets for public transport to be fossil-free by 2025, and for goods distribution in the largest urban centres to be emission-free by 2030. In addition, all new passenger cars and small vans are to be zero-emission vehicles from 2025. New local buses are to be zero-emission vehicles or run on biogas from 2025, and by 2030, all new large vans, 75 % of new long-distance coaches and 50 % of new trucks are to be zero-emission vehicles. See also Box 3.6.

In its political platform, the Government announced that requirements for zero-emission transport solutions would be included in public procurement processes whenever feasible. In a 2020 report, the Norwegian Government Agency for Financial Management and the Norwegian Environment Agency found that there is an unrealised potential for using the options available under the procurement legislation to apply minimum requirements and award criteria relating to zero-emission transport solutions, and to use contractual terms requiring gradual electrification.

In the procurement market for local buses, taxis, and tradesmen, services and goods transport that use vans, zero- and low-emission vehicles could be required to a much greater extent than is currently being done, since the technology is available.

The Government will therefore seek to introduce requirements to ensure the use of zero-emission solutions in public procurement processes for passenger cars and small vans from 2022. These requirements will be formulated so that extraordinary weather conditions and the like can give grounds for exemptions.

The Government will seek to introduce similar requirements for local buses from 2025, The design of these requirements will be considered to find ways of including buses running on biogas.

Norway’s regulations relating to environmental and energy requirements in procurement processes for vehicles for road transport apply both to the public sector and to companies that provide services for the public sector. The Government will initiate the process of amending the regulations and expanding their scope to include zero-emission requirements.

Zero-emission models of large vans, trucks and long-distance coaches are still considerably more expensive than conventional models. It will still be difficult for contracting authorities or suppliers to cover the extra costs without supplementary instruments such as grants. At present, the technology is not mature enough to be able to determine a timeline for introducing statutory zero-emission requirements for these vehicle categories, but this should be considered further. However, requirements will not be introduced until the technology in the various segments is sufficiently mature.

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Photo: AtB

Zero-emission models of trucks, refuse collection vehicles and construction machinery are still significantly more costly than fossil-fuel models. Operating costs are lower for biogas vehicles, and the technology is more mature, so that they are a good low-emission option in the heavy vehicle segment. The Government will use public procurement as a tool for achieving large-scale increases in the shares of zero- and low-emission heavy vehicles, which in turn may reduce production costs and purchase prices in the long run.

In its action plan for fossil-free construction sites in the transport sector, the Government has announced that it will use requirements in public procurement processes as a means of reducing emissions from these construction sites. This will facilitate a transition to fossil-free construction sites by 2025. The Government will also consider the introduction of a more general requirement for construction sites to be fossil-free as part of its follow-up to the Storting’s request for an action plan. A pilot project for fossil-free construction sites will be initiated, to be run by the subordinate agencies of the Ministry of Transport, and the Government will consider instruments to ensure effective management of bulk materials from construction sites in the transport sector. Action to improve logistics and efficiency can reduce the need for transport at and around construction sites.

The Government is also working on the introduction of zero- and low-emission requirements and criteria in public procurement processes in the shipping sector for a number of vessel categories. See further information in Chapter 3.4.5.

As described in Chapter 3.4.2.4, the Government plans to introduce biofuel quota obligations for offroad diesel and shipping from 2022. Biofuel quota obligations contribute to emission reductions because fossil fuels are replaced by sustainable biofuels. Biofuel use intended to satisfy climate-related requirements in public procurement processes, and that is reported as part of biofuel quota obligations, is not considered to have any further effect on emissions beyond what is achieved by fulfilling the quota obligations.

What effect does this policy instrument have on emissions, and what is its cost?

Environmental and climate-related requirements in public procurement processes have a great deal of potential to accelerate the phase-in of zero- and low-emission technology in the transport sector. By creating high demand, the public sector can play a part in reducing production costs and market prices for new technology. Central government and county contracting authorities have already required the use of zero-emission technology in a number of public transport procurement processes. This has resulted in the deployment of new technology. Green procurement can thus be considered as investment in a technology, market or expertise that can yield cost-effective environmental benefits over time.

The emission reduction potential in the transport sector directly related to requirements in public procurement processes is estimated by the Norwegian Environment Agency and the Norwegian Agency for Public and Financial Management to be greatest for construction sites and bulk transport. The emission reduction potentials for the period 2021–2030 are estimated at around 1.1 million tonnes CO₂eq for construction sites and about 0.5 million tonnes CO₂eq for bulk transport (2020 report from the Norwegian Environment Agency and Norwegian Agency for Public and Financial Management).

Including such requirements may cause the economic and administrative costs to rise while the technology is still immature. In some cases, such purchases may entail more administration for the procurer. The additional costs of zero- and low-emission transport solutions vary widely, both between different vehicle segments and within each segment. In most cases, introducing new technology is costly and risky.

According to the mitigation analysis for Norway 2021–2030, electric passenger cars and small vans will become competitive with fossil-based transport solutions in the period 2022–2025. For buses, the cost will vary between different procurement processes. The county authorities are responsible for public transport in urban areas. According to the mitigation analysis, the purchase price of an electric bus is currently about twice that of a bus with a combustion engine. However, the operating costs of electric buses are about half those of conventional buses. This will entail higher costs for the counties for the first few years, but investment and operating costs for buses are likely to decline from about 2025 onwards. In the period 2016–2020, Enova provided approximately NOK 500 million in support for zero-emission buses and the necessary charging infrastructure. The Government will compensate the local government sector for any additional costs incurred as a result of the introduction of low- and zero-emission requirements for new passenger cars, small vans and local buses, provided that there is budgetary provision for this.

3.4.2.6 Other regulatory measures

User benefits for zero-emission vehicles

Economic incentives make it more attractive for people to choose climate-friendly solutions. User benefits for electric vehicles have been of key importance for the increase in the share of these vehicles in the vehicle fleet in Norway. These benefits include reduced road tolls, car ferry prices and parking fees, and access to bus lanes. The Government is currently working on provisions prescribing that electric cars are not to pay more than half the normal price for parking in municipal spaces. Current guidelines for road toll charges allow for lower rates or exemptions for zero-emission vehicles. Rates can be set locally for these vehicles at all toll stations, and may vary between 0 and 50 % of the standard rate minus any discount for a vehicle toll tag. Oslo and Viken counties are in the process of developing a similar system for exemptions and discounts for biogas vehicles.

Local authorities make the final decisions on user incentives for electric vehicles. The Norwegian Public Roads Administration monitors traffic in bus lanes and can if necessary engage in dialogue with local authorities on limiting access to these lanes for electric vehicles.

What effect does this policy instrument have on emissions, and what is its cost?

Numbers of electric vehicles are highest in areas where there are toll rings, road toll projects and ferry services. There is much to indicate a correlation between local user benefits and numbers of electric vehicles. According to the mitigation analysis for Norway 2021-2030, the average person who purchased a small electric car in 2020 will recoup the additional cost within a very few years. For large passenger cars, the mitigation analysis estimates this will be the case from 2022. This is primarily because switching from petrol to electricity reduces energy costs, but also because toll charges and maintenance costs are lower.

The economic and administrative costs incurred by local authorities depend on the share of electric vehicles in the fleet. The number of electric vehicles on Norwegian roads has been rising sharply in recent years, particularly in and around urban areas. As these numbers rise, revenue from tolls declines. Traffic in bus lanes also increases where electric vehicles are allowed to use them, and this has made it necessary for local authorities to limit electric vehicle access to certain stretches of bus lanes. One common requirement is that there must be at least one passenger in the vehicle at certain times of day.

Requirements relating to vehicles

Norway sets emission requirements for vehicles through national regulations. These regulations implement the EU rules on emission performance standards. This legislation is important both for reducing emissions from individual vehicles and for stimulating technology development.

Norway’s current regulations set a target for the average emissions of each manufacturer’s new car fleet of 95 g CO₂/km. The average emissions of new cars sold in Norway are much lower, 60 g CO₂/km in 2019.

Cars sold in Norway are included in the European target that average emissions should not exceed 95 g CO₂/km. This makes it attractive for car manufacturers to sell environmentally friendly cars in Norway, and the range of zero-emission models has grown in recent years. The availability of zero-emission models in all vehicle categories is an essential basis for successfully reducing greenhouse gas emissions, and also for achieving the Government’s targets for sales of zero-emission vehicles.

In spring 2019, the EU adopted stricter emission performance standards for passenger cars, vans and heavy-duty vehicles. The new regulations set stricter emission performance standards for cars and vans in 2025 and 2030 and set CO₂ emission standards for heavy-duty vehicles for the first time.

The Government supports these new requirements and will incorporate the legal acts into the EEA Agreement as quickly as possible.

The Government will also follow the work being done in the EU and other countries, which are considering whether they can ban certain vehicle types. The European Commission’s Communication on stepping up Europe’s 2030 climate ambition noted that vehicle emission performance standards have proved to be effective in reducing emissions. The Commission therefore signalled that it would strengthen emission standards for cars and vans for 2030. The Commission also noted that cars have a relatively long lifetime (10–15 years) and announced that the Commission will assess when it should no longer be permitted to place internal combustion engine vehicles on the market.

Zero- and low-emission zones

Municipalities can use a number of policy instruments to promote environmental and climate change considerations in urban areas. These include flexible road toll charges, temporary increases in toll charges in periods when air pollution is high, fee-based low-emission zones to reduce local air pollution, and temporary traffic bans. Municipalities can also curb traffic in urban areas and city centres through parking restrictions, for example by limiting the number of parking spaces available to the general public and through the price system for parking.

The Government urges the municipalities to use existing instruments to take climate and environmental issues into account in urban areas. The Norwegian Environment Agency and the county governors have improved their support and guidance for climate-related efforts by the municipalities, and will continue to provide help and guidance so that the municipalities can make effective use of existing policy instruments.

The Government considers it important for individual municipalities to have a wide range of tools for reducing their greenhouse gas emissions. At present, municipalities can establish low-emission zones in order to improve local air quality under section 13 of the Road Traffic Act and the regulations relating to low-emission zones for motor vehicles, which were adopted on 20 December 2016. The regulations do not currently provide the legal authority to establish such zones purely on climate-related grounds. The Government will consider adjustments to the provisions on low-emission zones so that they can also be established on climate-related grounds.

Several cities, particularly Oslo and Bergen, would also like to be able to establish zero-emission zones to reduce greenhouse gas emissions. In its 2021 climate budget, the Oslo City Government announced that it will assess how zero-emission zones can be designed and what effect they may have on emissions, with the aim of establishing a zone or zones during the current City Government’s term of office. The City of Bergen published a green strategy in 2016, which included the aims of introducing a zero-emission zone in parts of the city centre in 2020 and making the entire city centre a zero-emission zone by 2030.

A zero-emission zone is a delimited area where access is restricted to vehicles that use zero-emission solutions, such as electric, hydrogen and possibly biogas vehicles. This means that fossil-fuel vehicles are not allowed to use the roads.

Section 7, first paragraph, of the Road Traffic Act provides the legal authority to establish zero-emission zones. The authority to make decisions on these matters has been delegated to the Ministry of Transport. The Government will consider the use of this legal authority to establish zero-emission zones on climate-related grounds, initially in the form of a pilot project in a few cities. Zero-emission zones must not include trunk roads/national roads. The Government intends to determine more specifically how this will be done in the course of 2021.

Establishing zero- and low-emission zones on climate-related grounds will provide support for achieving the Government’s targets for new passenger cars and vans to be zero-emission vehicles by 2025 and for goods distribution in the largest urban centres to be virtually emission-free by 2030.

What effect does this policy instrument have on emissions, and what is its cost?

The economic and administrative costs of establishing zero-emission zones will depend on a number of factors, including the size and location of the zones. The use of fossil-fuel vehicles will be prohibited in zero-emission zones, which means that people who still need to drive in these areas will have to invest in new, emission-free vehicles. If zero-emission zones are established, individuals and companies that need to drive within these areas will therefore face additional costs, unless they have already purchased zero-emission vehicles. The municipalities will be responsible for assessments, establishing zero-emission zones, information activities, and enforcing the rules and penalties, and will therefore incur administrative costs. Zero-emission zones will yield climate and air quality benefits. The scale of the benefits will depend on how people, companies and so on adapt to their introduction, how permanent zero-emission zones are and how large they are. Introducing zero-emission zones may also increase sales of zero-emission vans and trucks, thus leading to wider market introduction of zero-emission vehicles in general. Reductions in local emissions will have health benefits for people who live in or spend time in and around zero-emission zones.

3.4.2.7 Coordinated spatial and transport planning

Promoting public transport, cycling and walking through good planning and organisation

The Government aims to achieve growth throughout Norway on the basis of a sustainable spatial and transport policy that reduces travel needs, land use and greenhouse gas emissions. The Government expectations3 for regional and municipal planning and the central government planning guidelines for coordinated housing, land-use and transport planning will be used as a basis for this.

The proportion of zero-emission cars is increasing significantly. However, internal combustion engine vehicles are still expected to make up a large share of the car fleet in Norway in 2030. The mitigation analysis for Norway 2021-2030 shows that measures to reduce the volume of transport are important both for emission reductions early in the period 2021–2030 and for reducing land use.

Densification of city centres and around public transport nodes is key to strengthening the basis for dynamic cities and promoting more use of public transport, cycling and walking. Compact cities and well-coordinated housing, land-use and transport planning enable more people to leave the car at home. If there are fewer cars on the road, there is more room for commercial transport and people who for various reasons need to use a car. More cycling and walking also have public health benefits. E-bikes have increased cyclists’ mobility and may encourage more people to cycle in the years ahead.

The Government considers it important for most commercial activity, residential developments, workplaces and establishments that have large numbers of visitors to be located within urban areas that are defined and delimited through municipal planning processes. This can encourage the development of dynamic cities and communities and focus developments around nodes along the main public transport axes.

The Government wishes central government agencies to lead by example and promote this approach. The Government will therefore require central government agencies to give weight to the environmental benefits of re-using already developed areas and existing buildings, and of siting their premises near public transport nodes and the centre of towns and urban areas, in line with central government planning guidelines. This applies to the central government administration in its roles as developer, manager and tenant of property. See Chapter 7.3 for more about these roles and common environmental aims.

A number of factors influence whether people use environment-friendly modes of transport, but the key factor is whether a car is available for a particular trip. Instruments that regulate traffic, such as road tolls and parking restrictions, are also important for decisions about whether to use a car for a trip. Municipalities can limit car use in city and urban centres by introducing parking restrictions, for example by limiting the number of parking spaces or through pricing. Restricting parking is an effective tool, and has the greatest effect in dense urban areas, where distances between important urban functions are short and it is easy to choose public transport or to cycle or walk.

The Government will contribute to the development of methods for more accurate quantification of how land-use change and changes in transport systems affect traffic volumes and trends in land use in urban areas. This is intended to simplify sustainable land-use and transport planning by the municipalities. Statistics Norway has recently developed new methodology for calculating greenhouse gas emissions from land-use change. In parallel with this, the Ministry of Local Government and Modernisation has initiated the development of a spatial management tool to provide better data on future land use, including parking, for use in the regional transport model. The tool will be ready for use in 2021, and will provide important information about changes in transport and land use and their effects on greenhouse gas emissions, based on data from the land-use element of municipal master plans.

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Photo: Fredrik Varfjell/NTB

Integrated urban land-use and transport agreements for sustainable cities

Norway’s cities are growing, and 75 % of population growth in Norway in the years ahead is expected to be in the four largest urban areas. Projections also indicate that the overall transport volume is expected to increase throughout the country. The split between transport modes is expected to remain fairly stable. According to the mitigation analysis for Norway 2021–2030, the nine urban areas covered by the system of integrated urban land-use and transport agreements account for almost half of passenger-car kilometres in Norway. Projections in connection with work on the National Transport Plan indicate that unless new targeted measures are introduced, road traffic could increase by 12–16 % in the four largest urban areas.

Integrated urban land-use and transport agreements are one of the key instruments the central government uses to ensure that growth in the volume of passenger transport is met by using public transport, cycling and walking, not by increasing car use. The target of zero growth in passenger car traffic is the starting point for these agreements. This target has recently been updated and reformulated to clearly state its purpose. The actual target of zero growth in passenger transport by car has been retained.

The target now states that in urban areas, reductions in greenhouse gas emissions, traffic congestion, air pollution and noise are to be brought about by effective spatial planning, and that public transport, cycling and walking should be used to meet the growth in the volume of passenger transport.

To achieve the target of zero growth in passenger transport by car, land use management must support the development of efficient and attractive public transport services and make it easier to cycle or walk. It will also be necessary to maintain the focus on public transport, cycling and walking.

So far, integrated urban land-use and transport agreements have been concluded with Norway’s four largest urban areas (the Trondheim, Stavanger, Bergen and Oslo areas). Five other smaller urban areas (the Tromsø, Drammen, Porsgrunn/Skien, Sarpsborg/Fredrikstad and Kristiansand areas) are also included in this system, but do not yet have full agreements. They have received funding from an incentive scheme for improvements in public transport.

A key component of the integrated urban land-use and transport agreements is the government support available for large-scale public transport projects that are considered to be of national or significant regional importance. In the 2021 budget, an allocation of NOK 6 billion was proposed for the integrated urban land-use and transport agreements covering the four largest urban areas, including funding for light rail systems in the Oslo and Bergen areas and bus rapid transport systems in the Trondheim and Stavanger areas.

The agreements covering the four largest urban areas are resulting in large-scale investment in pedestrian and cycle paths and public transport. They include main cycle routes in the Stavanger and Bergen areas in addition to the public transport projects mentioned above. Once all these projects are completed, they are expected to have far-reaching effects on the use of environmentally friendly forms of transport.

Urban environment and urban development agreements for the period 2016/17–2023, which were forerunners of the integrated land-use and transport agreements, have already produced good results. From 2017 to 2019, passenger car traffic was reduced in the Oslo, Bergen and Stavanger areas. Car traffic in Trondheim rose slightly over the same period. In the Oslo region, numbers of people using public transport reached record levels, with over a million daily trips on buses, light rail and railways. The other three of the largest urban areas also saw marked increases in trips by public transport. In the Stavanger area the number of trips by bus was approximately 22.3 million in 2019, a 26 % increase from 2017. In the same period, Bergen saw a 16 % increase in trips by bus and light rail, reaching 64.8 million trips in 2019. Trondheim recorded roughly 33 million trips by bus and tram in 2019, an increase of 8 % from 2017. Public transport use has also increased in the five smaller urban areas that have agreements under the incentive scheme for public transport.

The Norwegian national travel survey indicates similar trends. In 2019, fewer people than before travelled by car, and more people used public transport and cycled in the four largest urban areas. The proportion of travel by public transport in the Oslo, Bergen, Trondheim and Stavanger areas rose by 2–5 percentage points from 2014 to 2019. Cycling as a share of all travel rose by one percentage point over the same period.

The integrated urban land-use and transport agreements provide a useful cooperative arena where central government, county and municipal authorities can plan and coordinate land use and transport systems for the largest urban areas. The Government wishes to continue this form of cooperation. The Government will discuss work on these agreements in more detail in the National Transport Plan 2022–2033.

Infrastructure that supports efforts to reduce emissions

The Government uses the rolling National Transport Plan to set out a framework for transport policy throughout Norway for a 12-year period.

There are various ways of responding to population growth and growing transport demand: for example, by using existing infrastructure more effectively or improving it, or through new investments and large-scale modernisation of infrastructure. Transport infrastructure includes roads, railways, seaports and airports.

The railway budget has been substantially increased over the past few years. In the 2021 budget, the Government proposed an allocation of approximately NOK 32 billion for the railways, which is more than twice the 2013 level. Construction of railways results in greenhouse gas emissions, but emissions in the operational phase are low or zero.

The public road budget has also been significantly increased. With an increase in road capacity and the current vehicle fleet, emissions will rise, but traffic flow may also be improved, for example for buses and cyclists. On the other hand, rising numbers of zero-emission and biofuel vehicles will reduce emissions. Nevertheless, increasing road capacity around Norway’s largest urban areas will make it more difficult to achieve the target of zero growth in passenger car traffic without using road tolls or other instruments for regulating traffic.

Greenhouse gas emissions as a result of land-use change in the area directly occupied by a transport project, for example the area occupied by construction of a new road or rail line, must also be taken into account when assessing greenhouse gas emissions from infrastructure. See Chapter 4.5.7 for more about this.

Shifting freight transport from road to rail and sea will have positive effects on congestion and traffic safety and will also have climate and environmental benefits.

In spring 2021, the Government will present the new National Transport Plan 2022–2033, which will support the ambition of reducing transport emissions by half.

What effect does this policy instrument have on emissions, and what is its cost?

Coordinated spatial and transport planning that ensures effective land use and promotes environmentally friendly forms of transport will generally also contribute to emission reductions.

It is difficult to estimate the costs of achieving zero growth in passenger transport by car, since these will depend on which measures are used. The most important policy instrument for the central government is the system of integrated urban land-use and transport agreements. At the same time, the mix of policy instruments targeting road users will largely be determined by local authorities, and will depend on which measures are implemented. It is also difficult to estimate the cost effectiveness of individual elements of the integrated urban land-use and transport agreements, since they are so closely interwoven. For example, the emission reduction potential of increasing cycling and walking depends on whether these forms of transport replace trips using fossil-fuel cars. Achieving zero growth in passenger transport by car will benefit the business sector, for example by making it easier to transport goods and services to customers.

3.4.3 Charging infrastructure

To achieve the Government’s targets for zero-emission vehicles (see Box 3.6), it is essential that charging infrastructure is widely available throughout Norway. As set out in its action plan on alternative transport fuels infrastructure, the Government intends the development of publicly available charging infrastructure to be market-based. However, the state, through Enova, will contribute where developments are not commercially viable. Queues for charging are a signal to economic operators that establishing more charging infrastructure in an area would be profitable.

There are still parts of Norway that lack the necessary charging infrastructure, partly because it is not profitable to establish commercial operations there. In such cases, Enova can provide funding for necessary charging infrastructure in order to create a basis for commercial operations. Since 2015, Enova has provided a total of about NOK 136 million for the establishment of charging infrastructure for electric vehicles. In 2020, NOK 64.5 million in funding was granted for 25 new charging stations in Troms og Finnmark county.

At present, charging infrastructure is readily available for passenger cars and vans, and new charging stations are being installed at a steady pace. The introduction of electric trucks and buses and the necessary charging infrastructure is still in an early phase. For local buses running on scheduled routes, charging infrastructure is typically installed in connection with procurement of the buses, and Enova has already played an important role in this area.

In future, the demand for charging infrastructure will be influenced by the number of electric vehicles and their charging needs. Batteries and the ranges of new electric vehicles are improving constantly, and more and more people are charging their cars at home. The Government will facilitate home charging by amending the legislation on housing cooperatives and similar forms of housing so that residents are entitled to install charging points for electric and plug-in hybrid vehicles.

To encourage more people to purchase zero-emission vehicles, the Government will amend the Technical Construction Regulations to include requirements for parking spaces in new buildings and buildings that undergo major renovation to be electric vehicle ready. This means that buildings will be constructed with cable routes for charging infrastructure, and that sufficient space will be set aside for installing charging points. The Government will report back to the Storting with more information on these matters in 2021.

The municipalities also play an important role in the development of charging infrastructure, and they are urged to implement strategies to ensure that charging infrastructure is adequately distributed throughout their municipality. Given the expected future increase in numbers of electric vehicles, the Government has indicated that the counties and municipalities should use planning procedures under the Planning and Building Act to ensure that sufficient charging stations are established. Municipalities should therefore routinely require the establishment of charging facilities when areas are designated for parking. Through the Klimasats grant scheme, the Government has provided support for municipal advice on charging for housing collectives and on land-use planning for filling stations.

Planning and development of the road system and charging infrastructure should be coordinated. One example of this approach is that the Ministry of Transport has asked the Directorate of Public Roads to draw up a strategy for rest stops that can facilitate the installation of charging infrastructure at rest stops on main roads and truck stops, such as considering whether sufficient power can be supplied and setting aside the necessary space, etc. The Ministry has also asked for the strategy to outline possible new models of public-private cooperation that could be introduced for larger rest stops as economic operators adapt their operations to include new activities such as electric vehicle charging. Operators must meet clear, non-discriminatory and predictable conditions in their dialogue with the Norwegian Public Roads Administration. Users of all kinds of electric vehicles must be able to use charging points that are established at rest stops. The Government will discuss further how planning and development of the road system and charging infrastructure can be coordinated in the National Transport Plan 2022–2033.

Similarly, it is important to ensure that the energy legislation is adapted to the new needs created by the development of charging infrastructure. This is discussed further in Chapter 8.

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Photo: Stefan Sauer

3.4.4 Halving emissions from domestic shipping and fishing vessels

The green transition in the shipping sector is a special priority for the Government. The Government’s action plan for green shipping (2019) confirmed its ambition of reducing transport emissions from domestic shipping by half by 2030 compared with the 2005 level, and that the Government will promote the use of zero- and low-emission solutions in all vessel categories.

The action plan covers all vessel categories, including cargo vessels, ferries and high-speed passenger vessels, and various specialised vessels. Norway is playing a leading role globally in taking zero- and low-emission technology into use in the maritime sector. However, the shipping sector is cyclically sensitive. By spearheading the further development of green shipping, the Norwegian maritime industry can maintain an important competitive advantage internationally.

Green fleet renewal also opens up opportunities for Norwegian suppliers and creates jobs along the entire maritime value chain. Menon Economics estimated that 7 000 people were employed in the green maritime industry in 2018. The industry includes shipyards, suppliers of both maritime equipment and technological services, shipping companies and more.

The Government is now building on the groundwork provided by the action plan for green shipping. For several years, the Government has been continuing and strengthening schemes to promote zero- and low-emission solutions in the shipping industry. In 2020, the Government allocated a total of NOK 735 million5 for green shipping. The Government is maintaining its ambition of reducing emissions from domestic shipping and fishing vessels by half by 2030 compared with the 2005 level, and will continue to develop policy instruments and assess new instruments as needed to achieve this. Equipping the shipping sector for the future requires large-scale investment, and the choices that shipping companies make today will have long-lasting effects on emissions from this sector. For example, it typically takes three years from ordering a new ship to its completed construction, and its expected lifetime is 25–30 years. Action taken by the Government today will thus yield emission reductions well beyond 2030 and help Norway to achieve its target of becoming a low-emission society by 2050.

3.4.4.1 Policy instruments to promote green shipping

Norway’s maritime industry includes stakeholders along the whole value chain from technology development and ship design to shipping companies and users of various forms of shipping services and maritime operations. This is a strong starting point for developing zero- and low-emission solutions, which include energy efficiency measures, battery technology, shoreside electric power, hydrogen, ammonia and biofuels. There are several technologies that still need to mature further, and support will be needed for technological development and early market introduction. But there has been significant maturation in some market segments, and solutions are being developed and demonstrated for more and more segments.

Taxation

Domestic shipping is subject to the carbon tax on fossil fuels. However, carbon pricing in the shipping sector is often not sufficient to justify the costs of developing new environmental technology. There are wide variations between vessel categories, in industrial structure and in operating patterns. A ship is a major investment with a long lifetime, which means that the green transition will mainly involve fleet renewal through capital-intensive new builds. Technological development is well under way, but costs related to green technology are still high for most vessel categories. This means the green transition in the shipping sector requires a relatively long time horizon.

Grant schemes

Well-designed grant schemes that are used to support projects where there is a prospect that zero- and low-emission solutions will in time become competitive without support are necessary to compensate for high costs and risk levels. To ensure green fleet renewal in short-sea shipping, particularly for cargo vessels, special schemes have been established for the short-sea shipping fleet. These are discussed in Chapter 3.4.4.5.

Innovation contracts have been very important for the introduction of zero-emission technology, such as battery and hydrogen propulsion, in the ferry sector. The world’s first all-electric car ferry, MF Ampere, was built under an innovation contract. Since 2015, the number of electric ferries has been rising each year, and by 2022 more than 70 are expected to be in operation. Innovation contracts are currently being used to develop and introduce zero-emission technology for high-speed passenger vessels. Experience gained from using innovation contracts for ferries is being applied to other segments of the shipping sector.

In recent years, shipping has become an important priority area for Enova, with considerable potential for both technological development and market changes that will reduce emissions. Between 2015 and autumn 2020, Enova awarded grants totalling NOK 3.2 billion for maritime projects. This has helped to drive rapid developments, particularly in electrification.

Ferries are the vessel category where most progress has been made in electrification. Enova has supported the development of infrastructure that has made it possible for county authorities to require the use of zero- and low-emission solutions when procuring ferry services. As a result, ferries that use battery-electric propulsion for a large proportion of their operations are now being constructed and put into service. Hybrid electrification is increasingly viewed as a suitable technology and preferred solution, as evidenced by interest in new categories such as fisheries, aquaculture and cargo vessels. The increased demand opens up opportunities for more supply-side operators, which is instrumental in establishing the value chain needed for electrification to become a sustainable and financially viable solution. Norway has substantial supplier and shipbuilding industries that manufacture and assemble equipment needed for electrification, and a number of battery manufacturers have established operations in Norway as well.

DNV GL estimates that vessels at berth account for 7 % of greenhouse gas emissions from shipping. Support for the establishment of shoreside electric power is therefore an important priority for the Government. Enova has awarded NOK 629 million to over 80 shoreside electric power projects, and shoreside electric power facilities are being established or already operating in more than 60 ports. This makes it possible for ships to connect to shoreside electricity while at berth. In 2020, Enova launched three new support schemes relating to shoreside electric power: for infrastructure investments, for pre-projects for shoreside facilities, and for installation of shore power systems in existing vessels.

Requirements for zero- and low-emission solutions in legislation and procurement processes

Requirements for zero- and low-emission solutions for specific vessel categories in legislation and public procurement processes are another important policy instrument. Such requirements, in combination with targeted funding arrangements and taxes, are necessary for ensuring the green transition. The Government is proposing the introduction of requirements and criteria for the use of zero- and low-emission solutions for a number of vessel categories. For details, see Chapter 3.4.4.2–3.4.4.4.

3.4.4.2 Policy instruments to promote zero- and low-emission solutions for ferries and high-speed passenger vessels

In all, there are 130 ferry services in Norway. In the course of 2020, 26 of these were electrified, and by 2022 there will probably be around 70 electric ferries in operation. In addition, the Norwegian Public Roads Administration has an innovation contract for a hydrogen-powered ferry. The first hydrogen-powered high-speed passenger vessel and the first electric high-speed passenger vessel are being developed. In the mitigation analysis for Norway 2021–2030, it was estimated that the measures analysed for ferries and high-speed passenger vessels combined could reduce emissions by 1.9 million tonnes CO₂ in the period 2021–2030.

Of the 130 ferry services in Norway, 16 are part of the national road system, which means that the central government is responsible for procurement of the services through the Norwegian Public Roads Administration. All the other ferry services are part of the county road system, and the counties are responsible for procurement. Zero- and low-emission solutions for ferries have thus far been introduced through a combination of requirements in public procurement processes and funding from Enova, the NOx Fund and others. There will be new tendering rounds for most ferry services in Norway during the period 2021–2030. In the course of 2023, the Government will therefore seek to introduce criteria concerning zero- and low-emission solutions, where feasible, for new procurement processes for ferry services.

Zero- and low-emission solutions for high-speed passenger vessels are at an earlier stage of development than those for ferries. Just as experience gained in the ferry sector is useful in the development of zero- and low-emission solutions for high-speed vessels, so can developments in the high-speed passenger vessel segment have considerable transfer value for other vessels requiring higher speeds and more power than ferries. Several counties are now drawing up calls for tenders requiring zero-emission solutions for high-speed passenger vessels. Through the Klimasats grant scheme, the Government has provided substantial support to the counties in their efforts to phase in zero- and low-emission solutions for high-speed passenger vessels. The Government is also continuing an allocation for the development of zero-emission high-speed vessels in 2021, with a budgetary framework of NOK 80 million. To support these efforts, the Government will develop zero- and low-emission criteria for use in procurement processes for new high-speed passenger vessels, where feasible, in 2025. This will require the technology to be sufficiently mature and a real alternative for the counties.

Textbox 3.14 Barometer of progress towards the green transition in the shipping sector

DNV GL carried out a survey of the technology status of the domestic shipping fleet, published in early 2019, which provided a good starting point for developing a green barometer for shipping. This is a useful tool for monitoring the deployment of low- and zero-emission solutions over time, and for measuring progress towards climate and environmental targets.

In its green shipping action plan, the Government decided that development and improvement of the barometer should continue, with the aim of expanding its scope to include a broad range of measures and technologies such as biofuels, hydrogen, sail technology and energy efficiency measures. Another aim is to reduce uncertainty associated with the estimated figures for ships on the order book. Regular updates of the barometer will provide important information about the progress of the green transition in the shipping sector, and what further action is needed by the industry itself and the authorities.

The figure below shows the status of the barometer of progress towards the green transition in shipping, as updated by DNV GL in October 2020.

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Source DNV GL

The barometer shows that progress in the transition to green domestic shipping in Norway is too slow to achieve the Government’s target of halving domestic shipping emissions by 2030. Further action both by the industry and by the authorities will therefore be needed in order to ensure adequate uptake of zero- and low-emission solutions and allow the emission reduction target to be achieved.

The assessment of overall progress towards the transition is based on three data sets. First, estimates indicate that greenhouse gas emissions from domestic shipping are too high and are not falling quickly enough. Second, the data show that there is too little implementation of zero- and low-emission solutions on ships currently in operation for every vessel category except ferries, and this must therefore be increased significantly in the near future. Third, the order book for new builds for the next three years includes too few ships that according to plan will use zero- and low-emission solutions. These three factors combined result in the slow rate of progress towards the green transition.

Research and development (R&D) activity on new zero- and low-emission technologies and alternative fuels is another topic that could be incorporated into the barometer. Current R&D activity may give an indication of whether the new technologies that are needed are maturing quickly enough. Work is in progress to incorporate this into the next update of the barometer.

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Photo: Brødrene Aa

What effect does this policy instrument have on emissions, and what is its cost?

A number of assessments of costs in the county ferry sector show that the counties are incurring additional costs as a result of the transition to zero- and low-emission technology. The Government has therefore increased non-earmarked funding to the counties several times to make it easier for them to give priority to zero- and low-emission solutions for ferries and high-speed passenger vessels. In the 2018 National Budget, block grants to the counties were increased by NOK 100 million, allocated to counties responsible for ferry and high-speed passenger vessel services, and the 2021 budget increased the block grants for this purpose by an additional NOK 100 million. In addition, an extra allocation of NOK 150 million was made in the revised 2020 National Budget.

The introduction of zero- and low-emission criteria in new procurement processes for ferries and high-speed passenger vessels, where feasible, will play a part in reducing emissions from these two vessel categories. By announcing its intention of introducing such criteria in new procurement processes for ferries in 2023 and for high-speed passenger vessels in 2025, the Government is giving stakeholders an opportunity to plan ahead. The Government considers it important to introduce such requirements only where feasible, and will take special circumstances such as geographical conditions, a lack of infrastructure or disproportionately costly technology into account where necessary. It is therefore uncertain whether the entire emission reduction potential identified in the mitigation analysis for Norway 2021–2030 will be realised. Policy instruments that promote technological developments in maritime transport also offer good opportunities for value creation for Norway.

3.4.4.3 Policy instruments to promote zero- and low-emission solutions for aquaculture service vessels and fishing vessels

In aquaculture, feed barges, workboats and service vessels account for emissions totalling about 0.4 million tonnes CO₂eq annually. The smaller aquaculture vessels are suitable for electrification given their size and that they typically travel short distances locally. Around 60 % of the feed barge fleet already uses shoreside electric power, and as long as there is sufficient grid capacity, further electrification of aquaculture service vessels will also be possible.

The Government will introduce requirements for zero- and low-emission solutions for aquaculture service vessels, to be introduced gradually from 2024 where feasible, to ensure that this segment of the aquaculture industry also keeps pace in the green transition. The requirement will apply to the feed barge fleet and to aquaculture service vessels that operate within a small geographical area, typically in connection with one site or a cluster of sites. Gradually phasing in the requirements where feasible will take into account the fact that some sites are far from land and the possibility of electrification is limited. Introducing zero- and low-emission solutions for vessels used at such sites would entail far higher costs and would require the development of technologies such as hydrogen and ammonia, which are not commercially competitive at present. Requirements for zero- and low-emission solutions can only be introduced provided that technological solutions are available that are mature enough for commercial use, and they are suitable for a specific site. Furthermore, greater use of and demand for charging infrastructure for electricity must be expected as a result of introducing requirements, other alternative fuels will be in greater demand, and more grid capacity will be needed.

The fishing fleet has previously benefited from a refund system for the carbon tax on fuel bought for use in fisheries less than 250 nautical miles from the coast. This system has been discontinued from 2020. To ease the transition for the industry, it has been replaced by a compensation system, which is to be gradually phased out by 2025. The new compensation system is not linked to emissions but to each vessel’s share of the total catch for the compensation group to which it belongs. This new approach is intended to provide more incentives to operate in more climate-friendly ways. It means that mineral products for use in fisheries less than 250 nautical miles from the coast are now subject to the standard carbon tax rate on greenhouse gas emissions, which increases the carbon price in line with other industries.

What effect does this policy instrument have on emissions, and what is its cost?

The introduction of requirements for zero- and low-emission solutions for aquaculture service vessels where feasible will promote further technological development and emission reductions. It is uncertain whether the full emission reduction potential identified in the mitigation analysis for Norway 2021–2030 can be realised. This will depend partly on how phase-in is planned from 2024, the substance of the requirements, and how many sites are considered to be unsuitable for zero- and low-emission solutions.

The consequences for the industry will depend on how quickly requirements are phased in and the substance of the requirements. Requirements are to apply where feasible. This takes into account the fact that some sites are far from land or in areas lacking infrastructure, and the possibility of electrification is limited.

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Photo: Eidsevik Offshore AS

3.4.4.4 Policy instruments to promote zero- and low-emission solutions for offshore support vessels

In the mitigation analysis for Norway 2021–2030, the emission reduction potential for offshore support vessels in the ten-year period was estimated at 1 million tonnes CO₂eq. Offshore support vessels include supply vessels and other specialised vessels for offshore activities. At present, emissions from offshore support vessels in the petroleum industry are subject to the carbon tax, and it is possible to apply for grants from Enova for energy and climate-related measures for these vessels. The petroleum industry is a leader in the deployment of low-emission technology. Equinor, for example, sets requirements for battery-hybrid ships, shoreside electric power and energy-efficiency measures in new long-term contracts. Equinor has announced its ambition to reduce emissions from its maritime activities in Norway by 50 % by 2030, compared to the 2005 level.

As part of the follow-up of its action plan for green shipping, the Government has initiated a review of the legal basis for introducing requirements for zero- and low-emission solutions, and what the consequences would be for the industry. When it considered the bill Temporary amendments to the Petroleum Taxation Act (Prop. 113 L (2019–2020)), the Storting asked the Government to propose ways of ensuring the introduction of zero- and low-emission solutions for offshore support vessels. In 2021, the Government will present a plan to the Storting showing how its decision will be followed up, including assessing new requirements to be phased in from 2022.

What effect does this policy instrument have on emissions, and what is its cost?

Introducing requirements for zero- and low-emission solutions for offshore support vessels in petroleum production can play a part in reducing emissions. It is uncertain whether the full emission reduction potential identified in the mitigation analysis for Norway 2021–2030 can be realised by introducing such requirements. This will depend partly on the timing and the substance of the requirements. The consequences for the industry will depend on how quickly requirements are phased in and the substance of the requirements.

3.4.4.5 Policy instruments to promote green fleet renewal of the short-sea cargo segment

Short-sea cargo vessels that are used for domestic transport in Norway typically operate mainly in Norwegian waters and the Baltic Sea. Many of these cargo vessels are old and inefficient. According to a report commissioned from Menon Economics in 2020, around 400 Norwegian-owned cargo vessels operate primarily in Norwegian waters, and about 200 of these are over 20 years old. In the Government’s green shipping action plan, domestic emissions from cargo vessels in 2017 were estimated at about 1.1 million tonnes CO₂, based on AIS data from Norwegian waters.

To reduce Norwegian emissions, the Government has launched an initiative for green fleet renewal of the short-sea cargo segment. The initiative includes strengthening green fleet renewal activities under the Green Shipping Programme, a scheme for scrapping old vessels in the short-sea shipping fleet to remove them from the market, and a loan scheme for short-sea shipping and fishing vessels to promote green fleet renewal. Through these measures, the Government increased budgetary allocations to green fleet renewal by a total of NOK 420 million in 2020. This is a vital contribution to the transition to zero- and low-emission solutions in short-sea shipping, which will require significant investment for a shipping segment that is exposed to international competition. The green transition in the short-sea cargo segment is still in an early phase, and in the years ahead major increases will be required in the use of new fuels and technologies such as electrification, hydrogen, ammonia, LNG and biofuels.

In its green shipping action plan, the Government stated that it is necessary to identify possible challenges relating to funding for green renewal of the short-sea cargo fleet, with a view to improving the framework for this process. The Government will continue the green fleet renewal initiatives that were started in 2020, i.e. the loan scheme for short-sea shipping and fishing vessels, the scheme for scrapping old vessels in the short-sea fleet, and green renewal activities under the Green Shipping Programme. The use of climate-related requirements in public procurement processes will be considered with a view to introducing them in 2023.

What effect does this policy instrument have on emissions, and what is its cost?

The Government will ensure that the recently established policy instruments for green renewal of the short-sea cargo segment are harmonised with existing policy instruments and introduce climate-related requirements in public procurement processes, thus ensuring that policy instruments promote technological development and emission reductions in this segment. Because the operating pattern of the short-sea shipping fleet involves transport both within and beyond Norwegian waters, policy instruments in this sector will play a part in reducing domestic emissions and may also have ripple effects beyond Norway’s borders.

Policy instruments must be assessed regularly to ensure they function as intended. This will also make it possible to take into account any need for adjustment. The costs and benefits of policy instruments will depend on the results of the assessments and decisions made in the annual budgets.

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Photo: Vard

3.4.4.6 Norway’s involvement in international efforts to reduce emissions from shipping

Shipping is a global industry, and the Government’s point of departure is that environmental and climate-related requirements for international shipping should be established by the International Maritime Organization (IMO). The Government will maintain its leading role in this work. In addition, the Government considers it important to cooperate closely with the EU, which has announced proposals in various sectors including green shipping in the European Green Deal. The introduction of zero- and low-emission fuels will require broad-based international efforts, and the Government therefore considers it important that activities in more international arenas, such as Nordic cooperation, are organised to support this shift. It is also necessary to ensure the fastest possible global transition to zero- and low-emission shipping solutions by providing assistance to developing countries. The Government is doing this by cooperating with IMO on the GreenVoyage2050 project. The Government will strengthen cooperation with IMO on assistance to developing countries in their efforts to prevent marine pollution and reduce greenhouse gas emissions from ships.

In 2018, IMO adopted a climate strategy setting out levels of ambition for emissions, including reducing emissions from international shipping by at least 50 % by 2050. Its vision is to phase out greenhouse gas emissions as soon as possible in this century. The negotiations on the strategy were chaired by Norway, represented by the Ministry of Climate and Environment, which is also heading the follow-up of the strategy. IMO’s climate strategy is a political document that establishes levels of ambition and a plan for how to achieve them. The strategy will need to be followed up with legally binding emission requirements for shipping. In November 2020, the IMO Marine Environment Protection Committee (MEPC) approved new climate-related requirements to ensure that the level of ambition for 2030 is achieved. These are designed to cut the carbon intensity of shipping (i.e. emissions per unit of transport work) by at least 40 % by 2030 compared with the 2008 level. These requirements will probably enter into force before 2023.

Norway will play a leading role in IMO’s further efforts to phase in zero- and low-emission fuels in shipping and to develop new mechanisms for achieving emission targets. IMO’s climate strategy is to be updated every five years, and Norway will seek to ensure that the next version is ambitious and has a clear plan for practical follow-up.

By acting as a leader in the transition to green shipping domestically, Norway can promote the adoption of Norwegian standards internationally. This could play a part in reducing emissions from all shipping worldwide. It could also open up market opportunities for Norwegian maritime solutions. The Government will continue to promote Norwegian interests in IMO and to act as a driving force within IMO for stricter international climate-related and environmental rules for shipping.

3.4.5 Uncertainty, economic and administrative consequences, and effects on emissions

The effects of tax increases on both emissions and the various stakeholders will be influenced by the way tax increases are brought in and what other policy instruments are implemented. For example, clear advance notice and predictable, gradual increases will allow households and businesses more time and opportunity to adapt. The use of other policy instruments, such as the vehicle taxation system and grant schemes under Enova, will affect how much opportunity the various stakeholders have for adaptation. Different market segments face different barriers and types of market failure, and the combinations of policy instruments that will be most suitable and effective for achieving the Government’s targets will vary from one segment to another.

The report from Statistics Norway (see Box 3.3) on the costs of reducing Norwegian non-ETS emissions by 50 % estimated that a carbon price of NOK 2 000 could result in a reduction of more than 40 % in emissions in 2030 compared with the 2005 level. Achieving the targets set by the Government for the transport sector will require combinations of policy instruments, some of which may both strengthen the effects of raising carbon tax rates and not least ease the transition for people and businesses currently using fossil fuels.

Administrative and economic consequences

Higher carbon tax rates will create stronger incentives to reduce emissions from transport by switching to zero-emission technology and through lower fuel consumption by those vehicles that use petrol and diesel.

Costs will rise for households and businesses that continue to use internal combustion engine vehicles if their travel patterns do not change. However, before any substantial rise in tax rates, there will be plenty of opportunity for stakeholders to adapt so as to reduce or avoid cost increases, and as time goes on there will be more and better alternatives. Raising tax rates gradually gives stakeholders time to adapt.

Stricter requirements in public procurement processes may mean higher purchasing costs for municipalities and counties, particularly in the next few years. Over time, lower operating costs will make categories such as electric ferries and buses economically viable. The Government has already done much to ensure that short-term financial pressures do not prevent sound long-term decisions, for example by using the Klimasats grant scheme and increasing block grants to the municipalities and counties. The use of innovation contracts has been vital for technological development in the ferry sector, and in 2020 the Government allocated earmarked funding for an innovation contract for zero-emission high-speed vessels.

It is uncertain what effect increasing carbon tax rates will have in shipping, fisheries and aquaculture. It is assumed that low-cost measures such as electrification of the ferry sector will be implemented regardless of whether tax rates are raised. The Norwegian Environment Agency estimates, with a considerable level of uncertainty, that there is an emission reduction potential of about 0.63 million tonnes CO₂ in the period 2021–2030, assuming the carbon tax rate is raised gradually to NOK 2 000 per tonne CO₂eq and that other policy instruments are not changed. This corresponds to roughly 10 % of the emission reduction potential for all measures assessed for shipping, fisheries and aquaculture in the mitigation analysis for Norway 2021–2030. There is also uncertainty concerning the effect of raising the tax rate for vessel categories with an operating pattern that makes it possible to bunker abroad or register fuel purchased in Norway as fuel for international operations, and thus avoid the tax. At the same time, it is assumed that stakeholders in the maritime sector will respond to a price signal, and that announced increases in the tax rate in combination with more specific policy instruments for different vessel categories will promote a faster green transition.

For the authorities, the biofuel quota obligations will result in some administrative costs for inspection and enforcement. These costs will depend on when biofuel quota obligations are introduced for different vessel categories, the adjustments that are needed, and so on. Users of biofuels will experience higher pump prices as a result of quota obligations, since biofuels are more expensive than fossil fuels. Biofuels vary in price, and advanced biofuels are costlier than conventional biofuels. It is estimated that the increase in the biofuel quota obligation from 1 January 2021 to 24.5 % biofuels and 9 % advanced biofuels will result in an increase in pump prices of NOK 0.09 per litre excluding tax.

3.5 Action plan for biogas

3.5.1 Using biogas cuts emissions and reduces waste

Achieving climate targets will require a variety of solutions in all sectors – solutions that are both climate-friendly and environmentally sound, both in Norway and internationally.

Biogas is one part of the equation for reducing emissions and is also part of a circular approach to resource use. Utilising biodegradable waste in biogas plants is smart waste management that recovers important nutrients such as nitrogen, phosphorus and potassium. This helps to make food sustainable and climate friendly. Biogas production captures methane, which is a short-lived climate forcer, and uses it for more sustainable commercial transport on the roads and in a world-class maritime industry.

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Photo: Biogass Oslofjord

Biogas is already in use as fuel for vehicles on Norwegian roads. Biogas can replace natural gas in shipping and manufacturing. The technology and expertise are in place in Norway; Norwegian biogas technology is prize-winning. Research, development and innovation are resulting in better use of biogas, and biogas production is creating jobs in rural districts. Emissions are reduced when livestock manure is used in biogas production and when the biogas replaces fossil energy sources.

Producing biogas from waste is smart utilisation of resources that would otherwise be lost. It is also essential to reduce waste quantities, and not to make ourselves dependent on generating waste. However, some waste will always be generated as long as humans, animals and plants inhabit the Earth. There is reason to believe that biogas will play a role not only in the green transition but also in the low-emission society from 2050 onwards.

3.5.2 The Government’s biogas initiative

In connection with the 2020 budget (Prop. 1 LS (2019–2020)), the Government announced that it would present an action plan for biogas. This climate action plan for achieving Norway’s 2030 targets will improve the framework for a variety of zero- and low-emission solutions. The action plan for biogas therefore promotes greater production and use of biogas using both general and sector-specific policy instruments of Norway’s climate and environmental policy.

The planned increases in the carbon tax to NOK 2 000 per tonne CO₂eq may make biogas more competitive against fossil alternatives.6 This may increase biogas use for road transport, in manufacturing and for heating buildings. See Chapters 3.4 and 3.7.

The Government intends to introduce a biofuel quota obligation for shipping from 2022. The Norwegian Environment Agency and the Norwegian Maritime Directorate have outlined how this obligation could be designed. The model they propose is restricted to domestic shipping and to the use of advanced biofuels and biogas. They consider that it may be appropriate to design the biofuel quota obligation so that it increases the use of biogas.7

If biogas is included in a biofuel quota obligation, it will be necessary to review the current support regime. State aid rules limit the types of requirements and support schemes that can be applied simultaneously. A biofuel quota obligation might in addition encourage higher imports of biogas that has benefited from production support schemes. When the introduction of a biofuel quota obligation is considered, policy instruments and trade in biogas in an international perspective will therefore also be considered.

The grant scheme for deliveries of manure to biogas plants was expanded through the 2020–2021 Agricultural Agreement, see Chapter 3.6. This encourages the use of more manure in biogas production and increased production of biogas.

Strengthening the use of policy instruments, as described above, comes in addition to the initiatives that Norway has been pursuing for some years to promote biogas use. A number of policy instruments are being used to promote higher biogas production and demand.

Biogas is not subject to road use duty. From 2020, road use duty on natural gas is one-sixth of the rate for petrol, as measured by energy content. In the 2020 National Budget, it was announced that road use duty on natural gas would be gradually increased up to 2025. From 1 July 2020, road use duty was expanded to include all biofuels for road use, which may give stronger incentives to use biogas.

The current and previous governments have promoted a number of grant schemes to support the production, infrastructure and use of biogas as a climate-related measure, particularly in the transport and agricultural sectors:

• Enova is an important funding agency which for several years has been offering funding instruments to support biogas production and vehicles and associated infrastructure for biogas use. Enova supports technology development and production of biogas, and since 2014 has awarded grants totalling roughly NOK 430 million for biogas production. Enova also supports greater use of biogas solutions, such as infrastructure and vehicles, through early market introduction.

• Innovation Norway’s bioenergy and technology programme for the agricultural and forestry sector is designed to encourage farmers and forest owners to produce, use and supply bioenergy as heat, fuel or other forms of energy. The programme provides funding for investment in facilities for biomass-based production of biogas, heat, electricity, biofuels and biochar. Innovation Norway’s grant scheme for environmental technology provides grants for the development, construction and testing of new environmental technology.

• The Norwegian Agriculture Agency has a grant scheme for deliveries of manure for biogas production, which has been operating since 2013. In the 2020–2021 Agricultural Agreement, the parties agreed to continue this scheme. NOK 9 million was allocated to the scheme, an increase of NOK 4 million from the previous year, and the size of the grants available was increased.

• The Klimasats grant scheme can provide municipalities and counties that wish to make use of biogas in public transport with support for infrastructure projects. The scheme also supports feasibility studies and assessments of local biogas potential.

In addition, some Klimasats funding is set aside for knowledge development, assessments and information dissemination in the field of climate and environment.

• The Research Council of Norway has funding available for research related to biogas, particularly under the BIONÆR and ENERGIX programmes, and other programmes may also be relevant for biogas research.

Municipalities and counties are important stakeholders in the transition to a low-emission society, as they are aware of local opportunities and needs. There are ambitious local politicians who deserve much of the credit for the role that biogas plays today. They have paved the way for production and infrastructure development, and created demand by including environmental and climate-related requirements in public procurement processes, adapted to local conditions.8 See more about public procurement in Chapter 3.4.2.5.

Local initiatives can have a substantial impact. A good example is the Biogass Oslofjord network involving the counties in the region, and there are many other examples of cooperation between municipalities/counties and the business sector throughout Norway. Another initiative is the decision by the steering group for Oslopakke 3 (a road and public transport package for the Oslo region) to recommend that vehicles running on biogas should be exempt from road tolls in Oslo. Further consideration of how to implement this in practice is still needed.

3.5.3 Biogas as part of the circular economy

Biogas is an example of circular economy in practice. In theory, this is a simple and obvious idea, making use of biological processes that occur naturally. In practice, developing a value chain for biogas on an industrial scale can teach us a great deal about what it takes to make processes circular and thus avoid unnecessary emissions.

One general challenge is that recycled resources are often costlier than fossil or virgin alternatives. The value chains for diesel, plastics and other petroleum products, new furniture, new clothing and new electronics have been in place for many years and are well developed. They operate on a large scale, run smoothly and are cost-effective.

Biogas is costlier than natural gas. The value chain for biofertiliser is immature and is still a cost driver for biogas plants, even though there is intrinsic value in returning nitrogen, potassium and phosphorus to the natural nutrient cycle instead of using mineral fertiliser or peat. Opportunities for using ‘green CO₂’ in manufacturing and food production are only just beginning to emerge.

3.5.4 Use of biogas

Biogas is most widely used in transport segments where there are few or no alternatives to fossil fuels. For the moment, it is being used for heavy road vehicles, but there is also growing interest from the shipping industry. Price is the greatest challenge. Biogas costs more than diesel for road vehicles, and much more than diesel or natural gas for shipping. Prices vary between or are determined by agreements between suppliers and transporters, which is similar to the system for large-scale users of diesel. Prices are shown on the pumps at filling stations.

Gas-powered vehicles and vessels are also more costly than conventional types, but gas-powered engines are available for most road vehicles, and ships have been using LNG as fuel for many years. Norwegian shipping companies are already using this technology. In shipping, manufacturing and the heating sector, the need for new investment is limited, since biogas can replace natural gas directly where it is currently used. Nevertheless, there are additional costs relating to infrastructure. As of 2020, there are only three liquefied biogas (LBG) filling stations for road vehicles, all in Eastern Norway. The infrastructure in other parts of Europe is fairly well developed, with filling stations for both LBG and LNG.

Large vessels are particularly difficult to electrify. For such vessels, both weight and volume are important factors, so biogas is suitable. Stakeholders are familiar with natural gas and have the technical expertise to use it. Natural gas blended with 10 % biogas is already available, and a number of new vessels along the coastal route Bergen–Kirkenes are to use biogas.

The number of trucks using biogas is increasing, but the number of biogas buses is levelling off. Still, this indicates that there are stakeholders using or buying transport services who are willing to pay somewhat extra for more environmentally and climate-friendly forms of transport. This, together with state aid to cover some of the additional costs, is helping to develop the biogas market.

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Source Statistics Norway table 11823 and Sund Energy (2016).

If tractor units running on biogas account for 10 % of new sales of tractor units by 2030, which is the figure used by the Norwegian Environment Agency in the mitigation analysis for Norway 2021–2030, emission reductions would total 0.47 million tonnes CO₂eq over the period 2021–2030. This is based on sales of 150 new tractor units per year. From 2018 to 2019, the number of registered gas-powered trucks increased by 124 with the current mix of policy instruments. Reaching a 10 % market share would require LBG production of roughly 300 GWh per year. By comparison, the world’s largest LBG plant, Biokraft Skogn, produces 125 GWh per year.

Biogas use is also sensitive to variations in prices of other fuels and to technological developments for other non-fossil fuel vehicles. But even if good battery-electric long-distance coaches or tractor units are available by 2030, there may still be fairly large market niches for biogas use. This is both because many users will already have purchased and become familiar with biogas vehicles and because of other advantages associated with these vehicles, such as their long range, the short time required for refuelling, and the good biogas infrastructure in other parts of Europe.

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Photo: Ole Berg-Rusten/NTB

3.5.5 Current and future biogas production9

The most common feedstocks (raw materials) currently used in biogas production in Norway are sewage sludge and food waste. This is because the first biogas plants here were set up by municipal and intermunicipal waste management companies as part of the waste management system. The world’s first biogas plant to process food waste only was established in Lillehammer ahead of the 1994 Winter Olympics.

In recent years, a number of commercial actors have entered the market, and more and more new feedstocks are being introduced. Examples include manure, fish silage, commercial food waste, slaughterhouse waste and forest residues. Since the main purpose of the private biogas plants is precisely to produce biogas, they have an incentive to streamline operations and test new feedstocks. At the same time, work is in progress at a number of private and publicly owned plants to develop value chains for the by-product streams, CO₂ and biofertiliser.

New technology, more efficient processes, increased interest from both public and private stakeholders, and the use of new feedstocks point to an increase in Norwegian biogas production in the years ahead. In an analysis of policy instruments to promote biogas use and production, the Norwegian Environment Agency estimates the total potential for biogas production in Norway in 2030 at 2.5 TWh. The analysis is limited to anaerobic digestion of organic waste and residues using currently available technologies. Biogas can also be produced using other technologies such as ‘power-to-gas’ (electrofuels) and biomass gasification, or it can be imported. The Environment Agency’s analysis does not include the production potential from these sources or from completely new feedstocks.

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Source Norwegian Environment Agency (2020)

3.5.6 Biogas production costs

Several factors influence the likelihood that different feedstocks will be used for biogas production in the future. Production costs are particularly important, and these vary widely between feedstocks. For production to approach the estimated potential level, it will be necessary to use some of the more expensive feedstocks, unless new alternatives can be found. Production costs for these feedstocks could be so high that production is not economically viable based on the current willingness to pay for biogas as fuel.

The most inexpensive feedstocks are sewage sludge and food waste, which are the feedstocks chiefly used today. Production costs for biogas produced from fish silage and fish sludge are also relatively low. Biogas producers are paid to accept these feedstocks, with the exception of sewage sludge, since this is considered to be a form of waste treatment.

Manure is one of the feedstocks with the highest production costs due to its low energy density. However, the fact that the biological digestion process starts in an animal’s stomach can play a part in stabilising the production process at a biogas plant, and in some cases make it possible to extract more energy from other feedstocks. Transport and production costs are nevertheless important barriers to the use of manure.

Manure is one of the few feedstocks that is already in use today, as fertiliser, and also one of the few feedstocks that yields a climate benefit when it is used to produce biogas. This is because biogas production greatly reduces the period during which manure is stored at farms, so that greenhouse gas emissions to the atmosphere are reduced and more methane is captured at biogas plants. Agriculture is also a key user of biofertiliser. Using manure for biogas production therefore reduces emissions at several stages of the value chain.

3.5.7 Climate benefits of biogas

Sustainable biogas is produced from waste, and waste quantities must be reduced. This applies particularly to food waste. Norway’s goal is to prevent and reduce food waste along the entire food value chain, from primary production to the consumer (see Chapter 3.6.6 about the agreement between the authorities and the food industry to reduce food waste). The biogas production process itself mainly releases methane, and these emissions must be minimised to ensure greater climate benefit. At the same time, emissions from biogas use in Norway count as zero in the national emission inventory, since this biogas is produced from biological material and the emissions are part of the short-term carbon cycle.

Biogas plays a role in reducing greenhouse gas emissions at several stages in the value chain and across sectors. Biogas reduces emissions when it is used to replace fossil fuels, while biofertiliser can reduce emissions from agriculture when used appropriately. In addition, CO₂ from biogas production can replace fossil CO₂ in the food industry.

It is possible for producers to document the climate benefits of the biogas they sell. Two Norwegian producers, Greve Biogass and VEAS, currently sell biogas that is Nordic Swan ecolabelled. In 2019, Avfall Norge (a Norwegian waste management and recycling association) introduced an industry norm for biogas to make it easier to document the climate benefits and sustainability of Norwegian biogas. This is based on criteria in the revised Renewable Energy Directive (REDII). In 2020, an extra module was added to the industry norm for calculating the effect of biofertiliser on emissions. A number of biogas plants have also begun to make use of the ‘green CO_2’ formed when biogas is upgraded to fuel quality, for example as dry ice or in carbonated drinks. This further increases the climate benefits.

Reporting of climate benefits is still voluntary but can help to professionalise the biogas industry. It may also strengthen demand for Norwegian biogas and digestate and for exports of biogas technology.

3.5.8 The international framework for biogas

Norway has a large volume of trade with the rest of the world, and is therefore influenced by changes in framework conditions in neighbouring countries. In the past 10–15 years, constant adjustments have been made to the design of support schemes for biogas in the EU.10 A number of countries in the internal market currently provide some form of operating support or production premium per kWh of biogas produced. Some provide extra support for upgrading and liquefaction, and some also differentiate support by feedstock. Sweden, Denmark and the Netherlands will be making changes to their support schemes in the next few years. The trend is for support to be shifted away from electricity and heat production and towards upgrading of raw biogas to biomethane.

The changes in Sweden are in response to a lack of harmonisation of the support regimes, particularly vis-à-vis Denmark. In Sweden, the taxation system provides incentives to use biogas, whereas Denmark provides production premiums. This has resulted in the export of Danish biogas to Sweden, where tax exemptions are granted for biogas that has already received a production premium. Swedish biogas producers have found it difficult to compete with the doubly subsidised imported biogas, and Swedish biogas production stagnated. In 2019, a Swedish Government Official Report11 on biogas was presented, which included proposals for a new support regime.

Norway is a small open economy, and any lack of harmonisation of policy instruments with neighbouring countries may affect both production and use of biogas, as in the Swedish case. But unlike nearly all its neighbouring countries, Norway uses almost no natural gas for heating, so its gas grid is not well developed. Infrastructure for biogas filling stations is being developed, and it is therefore uncertain whether biogas imports will rise if Sweden phases in production support. The Norwegian Government will monitor the situation closely to see how changes in the framework influence Norwegian biogas value chains. Biogas use is growing. Biogas is already important today, and will play an even more crucial role in the transition to a low-emission society and a circular economy.

3.6 Enhancing removals and reducing emissions in agriculture

The Government and the agricultural organisations have signed a letter of intent to enhance removals and reduce emissions of greenhouse gases in the sector. Norwegian farmers are also taking the initiative to reduce their own emissions. These efforts will play a part in ensuring that Norway can achieve its climate targets. In the letter of intent, the parties undertake to reduce emissions and enhance removals by a total of 5 million tonnes CO₂eq in the ten-year period 2021–2030. To support these efforts, the Government will provide a framework that facilitates sound climate-related choices by the agricultural sector. In parallel, the Government will promote changes in consumption patterns that will indirectly reduce greenhouse gas emissions from agriculture.

The Government will:

• Use the letter of intent between the agricultural organisations and the Government as a basis for climate-related work in this sector in the years ahead;

• Include assessments of climate-related measures and instruments in the agricultural sector as a natural part of the negotiations on the annual Agricultural Agreement;

• Require the mitigation effect of the annual Agricultural Agreement to be set out in the budget proposals for each year’s agreement;

• Together with the agricultural organisations, identify how policy instruments can best be designed to achieve Norway’s agricultural policy goals and at the same time strike a balance between these goals and climate and environmental targets;

• intensify efforts to improve the emission inventory for the agricultural sector;

• Assess the effects and impacts of introducing a tax on mineral fertiliser, and how it could be introduced. The purpose of the tax would be to reduce nitrous oxide emissions;

• Facilitate greater use of Norwegian feed resources, including rough grazing.

3.6.1 Emission trends

In 2019, emissions from the agricultural sector totalled 4.4 million tonnes CO₂eq (see the green-shaded parts of Figure 3.26). This corresponds to about 8.8 % of Norway’s total greenhouse gas emissions and about 18 % of non-ETS emissions.

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Source Statistics Norway and Norwegian Environment Agency

Since 1990, emissions from agriculture have declined by just over 6 %, but they have remained fairly stable since 2000. Emissions per unit of production have been reduced through long-term, systematic breeding programmes, good animal health, feed development and more precisely targeted fertiliser application. In the greenhouse gas inventory reported to the UN, emissions accounted for in agriculture do not include transport, land use and land-use change, or energy use in the agricultural sector. These emissions are accounted for in other sectors.

Agriculture is the largest source of methane and nitrous oxide emissions in Norway. In 2019, agriculture was responsible for about 103 000 tonnes of methane emissions, a reduction of 5.3 % from 1990, and almost 6 000 tonnes of nitrous oxide, a reduction of 1.1 % from 1990. Emissions from agriculture originate mainly from fertiliser application and livestock, in other words in connection with food production. As a result of the complex processes involved and diffuse emissions from soils, the level of emissions from the use of mineral fertiliser and manure is very uncertain.

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Source CICERO (2020): Metodikk for framstilling av klimaeffekt på kort og lang sikt (omarbeidd versjon) (In Norwegian, English summary.)

The emission projections published by the Ministry of Finance are for a ‘business-as-usual’ scenario, which only includes the effects of policy measures and instruments that have already been adopted. The projections presented in the 2021 National Budget for emissions that are accounted for under agriculture in the emission inventory indicate that emissions will total around 4.5 million tonnes CO₂eq per year up to 2030, in other words about the same as at present. If emissions that are accounted for in other sectors (transport, heating of buildings, and land use and land-use change) are included in addition to those that are accounted for under agriculture, the projections indicate total emissions of just over 7 million tonnes CO₂eq from agricultural activities in 2030.

It is vital to ensure that Norwegian agriculture is properly equipped to deal with a changing climate, including rising temperatures, higher precipitation, more flooding and drought, and increasing threats from various pests. Agriculture has always sought to adapt its practices as closely as possible to weather and climatic variability. Climate change in Norway may offer new opportunities for production that farmers can exploit, but it will also result in greater uncertainty. Technological advances and research-based, practical agronomical knowledge will be vital for success. Adaptation to climate change is not within the remit of this white paper, which presents the Government’s plans for reducing emissions and enhancing removals in the period 2021–2030.

Methane, which is a short-lived climate forcer, accounts for a large proportion of emissions from agriculture. The quantity of methane in the atmosphere is rising globally. Because methane has short-lived effects, the amount of warming it causes is primarily linked to emissions over the last ten years (see Box 3.17). Stable or weakly declining methane emissions do not contribute to any further warming.

In the last few years, climate researchers have developed a new emission metric, called GWP*, to express the warming effect of short-lived climate forcers over time. This methodology uses the established emission metric GWP100 as a basis for converting emissions to CO₂-equivalent emissions.12 Figures 3.27 and 3.28 use GWP* to show the annual and cumulative contributions, respectively, of Norwegian agriculture to global warming from 1990 to 2019. Expressed as annual emissions in CO₂eq, emissions from agriculture have made up about 8.8 % of total Norwegian emissions over this period. The cumulative contribution of these emissions to global warming since 1990 is about half this level, or about 4.4 % of Norway’s total contribution. This is because there has been some decline in methane emissions during the period. The situation could change quickly if methane emissions rise.

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Source CICERO (2020): Metodikk for framstilling av klimaeffekt på kort og lang sikt (omarbeidd versjon) (In Norwegian, English summary.)

3.6.2 The social mission of agriculture

Maintaining an active, sustainable agricultural sector throughout Norway will provide a variety of public goods for society. As Norway makes the transition to a low-emission society, the Government view it as important that greenhouse gas emissions are reduced and removals of carbon enhanced in ways that sustain food production and public goods, and that food production is based on the resources that are available in Norway.

Norway’s agricultural policy is based on objectives set out in a white paper on agricultural policy published in 2016 (Meld. St. 11 (2016–2017)). The four objectives are 1) safeguarding food security and maintaining preparedness, 2) maintaining agricultural production in all parts of the country, 3) increasing value creation, and 4) ensuring sustainable agriculture and lower greenhouse gas emissions.

The fundamental task of agriculture is to produce food, and it is not possible to eliminate emissions from the sector entirely. In the Government’s view, it is therefore reasonable that agricultural emissions are reduced less than emissions in other sectors. After Norway makes the transition to a low-emission society by 2050, emissions from agriculture will be some of the last remaining emissions.

Food from Norway has a reputation as safe, nutritious and of high quality. In addition, Norwegian food producers use smaller quantities of antibiotics and pesticides than those in other countries. The Government will continue to provide a framework that facilitates sound climate-related choices by the agricultural sector, and continue its efforts to ensure that Norwegian agriculture is world-leading in sustainability.

3.6.3 Ambitions for the agricultural sector: letter of intent between the Government and the agricultural organisations

In 2019, the Government signed a letter of intent with the two main agricultural organisations (see Box 3.18), which is divided into three main parts:

1. The contribution the agricultural sector itself is to make towards reductions in greenhouse gas emissions in the period 2021–2030.

2. The Government’s efforts to promote changes in consumption patterns that may indirectly reduce greenhouse gas emissions from the agricultural sector in the period 2021–2030-

3. Rules for implementing parts A and B and accounting rules for climate-related measures.

The agricultural sector is only responsible for the measures in part A, while the Government is responsible for those in part B. Together, the measures in parts A and B are intended to reduce greenhouse gas emissions by 5 million tonnes CO₂eq, and measures in part A are intended to bring about a substantial share of the reduction. The letter of intent must not put constraints on the policy instruments the Government can use in the future and must not be conditional on a rise in the level of subsidies.

The policy instruments the Government is proposing here are intended to play a part in enhancing removals and reducing agricultural emissions in line with the letter of intent. They are divided into the same two groups as in the letter of intent, so that Chapter 3.6.5 describes what the Government will do to follow up part A of the letter of intent, and Chapter 3.6.6 what it will do to follow up part B. Implementation of the letter of intent (part C) is discussed at the end of Chapter 3.6.

Figure 3.29 illustrates how the Government believes it will be possible to achieve the target of the letter of intent with the agricultural organisations to reduce emissions by 5 million tonnes CO₂eq in the ten-year period 2021–2030.

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3.6.4 Agriculture’s contribution to achieving the 45 % target in the period 2021–2030

The measures described for the agricultural sector in this chapter must contribute towards Norway’s climate targets, including the Government’s target of reducing non-ETS emissions by 45 %. The figures presented here therefore only include effects that can currently be credited in the greenhouse gas inventory, in line with the letter of intent between the Government and the agricultural organisations.

The agricultural sector is in a special position because some emissions from agricultural activities are not accounted for under agriculture in the emission inventory. For example, emissions from tractors and agricultural machinery are accounted for in the transport sector, while CO₂ emissions from agricultural areas are accounted for in the LULUCF sector. The letter of intent between the Government and the agricultural organisations applies to all mitigation measures for agricultural activities whose effects can be accounted for in the sectors agriculture, transport, heating of buildings and LULUCF (with the exception of forestry) in Norway’s official emission inventory. In the mitigation analysis for Norway 2021–2030 (see Box 3.19), the total emission reduction potential in the agricultural sector is estimated at 5.1 million tonnes CO₂eq for the period 2021–2030. This includes 0.6 million tonnes CO₂eq that can be achieved through action by the agricultural sector itself (part A of the letter of intent), and 4.5 million tonnes CO₂eq that can be achieved indirectly through the Government’s efforts to promote changes in consumption patterns (part B of the letter of intent). The estimates in the mitigation analysis also show that there is a potential for the agricultural sector to reduce emissions that are accounted for in other sectors by about 1.1 million tonnes CO₂eq. These figures include only measures whose effects are accounted for in Norway’s emission inventory.

In the letter of intent, the parties undertake to reduce emissions and enhance carbon uptake by a total of 5 million tonnes CO₂eq over the ten-year period 2021–2030. The emission reductions may be in several different sectors, and the share that is in the two sectors transport and heating of buildings will also make a contribution towards the target of reducing non-ETS emissions by 45 %. Changes in emissions and removals in the LULUCF sector can make a contribution towards the obligation to ensure that emissions from this sector do not exceed removals (the ‘no debit’ rule).

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Photo: Lars Sandved Dalen/ Norwegian Institute of Bioeconomy Research

The mitigation analysis for Norway 2021–2030 also included measures whose effects cannot currently be quantified or accounted for in the emission inventory. Such measures cannot at present play a part in achieving Norway’s climate targets, even though they could potentially be useful as mitigation measures. The Government is therefore seeking to build up more knowledge to make it possible for such measures over time to be accounted for in the emission inventory, but the level of uncertainty is high. The plan is therefore to achieve Norway’s climate targets on the basis of currently available methods and knowledge.

During the public consultation on the mitigation analysis, a large number of responses were received concerning the analysis of measures in agricultural sector. A number of them identified weaknesses in the analyses. This confirms that it is vital to maintain a focus on knowledge development, both to identify cost-effective measures for reducing greenhouse gas emissions from agriculture, and to identify their consequences for society.

As mentioned above, emission reductions that count towards the target in the letter of intent may be made in several different sectors. In other words, there are various different ways for the Government to meet its obligations. In this climate action plan, the Government uses the assumption that emissions accounted for in the agricultural sector will be reduced by 4 million tonnes CO₂eq. This corresponds to reducing emissions in the agricultural sector by about 9 % in the period 2021–2030 compared with the level in the current projections. These figures are based on the target in the letter of intent and the conclusions reached in the mitigation analysis on the potential for agriculture to reduce emissions that are accounted for in other sectors. Figure 3.31 shows the emission trajectory for the agricultural sector if the Government’s climate action plan is implemented.

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The parties recognise that some measures under the letter of intent will take time to phase in, and that it will also take time before their effects become apparent in the emission inventory, so that the letter of intent may not produce results until the latter part of the period 2021–2030. To reduce cumulative emissions by about 9 %, emissions must be almost 20 % lower in 2030 than in 2021 if measures are phased in so that there is a linear increase in their effects. The effect on global warming will depend on how emission reductions are split between the three greenhouse gases.

To follow up the 2019 letter of intent, the agricultural organisations drew up a climate action plan for the sector, published in 2020. This sets out how the agricultural sector intends to achieve the target of the letter of intent through action in defined focus areas, with the individual farm and what farmers can do themselves as a starting point. The plan also points to the importance of achieving emission cuts without reducing food production in Norway. It describes how farmers will make structured, targeted efforts to achieve the transition to more sustainable agriculture. The plan identifies eight focus areas, and estimates that action in these areas combined will achieve the target of the letter of intent and reduce greenhouse gas emissions from agriculture by 4–6 million tonnes CO₂eq over the next ten years. The estimated emission reduction potential for transport measures in the climate action plan from the agricultural sector is rather higher than the estimate in the mitigation analysis for Norway 2021–2030.

The discrepancy between these two estimates shows that it may be possible to achieve larger reductions in agricultural emissions than estimated in the mitigation analysis, and also that calculating the emission reduction potential of different measures and instruments is a very complex task. The agricultural sector considers it vital to achieve emission cuts without reducing production. If meat production declines in response to lower consumption, any resulting reduction in emissions will be additional to the estimates in the agricultural climate action plan.

A greenhouse gas calculator for Norwegian farms was launched on 15 October 2020 by an agricultural climate initiative. It is designed to document emissions at farm level and to help farmers to find good ways of reducing their own emissions. Advisory services will be important as a follow-up to this work, and in the 2020 Agricultural Agreement, NOK 3 million was set aside to develop a course plan for climate advisory services.

In the time ahead, the Government will take steps to follow up both part A and part B of the letter of intent it has signed with the agricultural organisations. Analyses show that it is possible to reduce emissions by more than the target set out in the letter of intent. The Government will provide a framework that facilitates sound climate-related choices by the agricultural sector. At the same time, it will facilitate sound choices by consumers as regards dietary choices and food waste. It is a challenging task to modify people’s behaviour, and it is also difficult to identify the exact effects of policy instruments on greenhouse gas emissions. In addition, the effects of various mitigation measures cannot at present be included in the emission inventory, either because no suitable methodology has been developed for calculating these effects, or because there is insufficient data to calculate the effects. It is therefore difficult to assess the shares of the emission reductions that will be achieved through parts A and B. The Government will follow up the letter of intent in line with part C to ensure that the target of reducing emissions by 5 million tonnes CO₂eq is achieved. Box 3.20 describes how selected EU countries are seeking to reduce agricultural emissions.

3.6.5 Greenhouse gas emissions and removals the agricultural sector itself can influence

This section discusses part A of the letter of intent, which concerns measures that the agricultural industry itself can determine and implement, The industry is free to determine which specific measures are used. In line with the letter of intent, measures that are introduced must not be conditional on a rise in the level of subsidies.

Part B of the letter of intent concerns the Government’s efforts to promote changes in consumption patterns that may indirectly reduce greenhouse gas emissions from the agricultural sector. These efforts are discussed in Chapter 3.6.6 below.

3.6.5.1 A shift to a more climate-friendly agricultural policy

Norwegian agricultural policy is developed on the basis of cooperation between the central government and the agricultural industry to achieve politically determined objectives (see Chapter 3.6.2). Policy instruments for achieving these objectives are set out in the annual Agricultural Agreement. This makes the negotiating process and the annual agreements the most important mechanism for designing and implementing policy instruments in the agricultural sector.

The main agricultural policy instruments are support schemes and regulatory measures. Support schemes under the Agricultural Agreement interact with other policy instruments (import protection, market regulation, legislation, quotas, price support, research/advisory services, etc) in efforts to achieve agricultural policy objectives. As a result, the Agricultural Agreement is also the main mechanism for achieving the objective of ensuring sustainable agriculture with lower greenhouse gas emissions.

Through the Agricultural Agreement, the central government allocates substantial funding to climate and environmental measures, investment, and research, development, and testing of more sustainable farming techniques, see for example Box 3.21. Research and development is vital for the transition to more sustainable agriculture with lower greenhouse gas emissions. In addition to research funding provided through the Agricultural Agreement, the Government allocates funding through the Research Council of Norway, Innovation Norway and Enova. For example, the Research Council has recently issued a call for proposals for a research project on how the various segments of food systems work together, and which parts of the system can and should be transformed. The goal is to build long-term, sustainable food systems that enhance the competitiveness of Norwegian business and industry and play a part in the transformation of Norway and the world as a whole.

The climate footprint of producing agricultural goods varies between products. Since general support schemes influence agricultural operations, they also have implications for the associated emissions and removals of greenhouse gases. Assessments of the measures and instruments that should be used in climate-related work in the sector form part of the negotiations on the annual Agricultural Agreements. When the Storting (Norwegian parliament) considered the 2016 white paper on agricultural policy (Meld. St. 11 (2016–2017)), it was decided that the Agricultural Agreement should be made more climate friendly in order to achieve agricultural climate targets.

To obtain a better overview of the climate-related effects of changes made during the annual negotiations on the Agricultural Agreement, the Government wishes the mitigation effect of the Agricultural Agreement to be set out in the budget proposals for each year’s agreement. The annual assessment is intended to ensure that the shift in a more climate-friendly direction is sufficient to achieve the target for reductions in agricultural greenhouse gas emissions. It will also provide a basis for the Government and the agricultural organisations to identify how Norway’s agricultural policy instruments can be designed to achieve agricultural policy objectives and at the same time strike a balance between these objectives and climate and environmental targets.

3.6.5.2 Priority areas

The text below discusses several priority areas for cooperation between the Government and the agricultural organisations to reduce emissions and enhance removals of greenhouse gases. These are 1) phasing out fossil fuels in agriculture, 2) improving production systems and resource use, 3) important initiatives for sustainable agriculture and 4) increasing carbon sequestration.

3.6.5.2.1 Phasing out fossil fuels for transport and heating

Both fuel consumption in agriculture (by tractors and agricultural machinery) and fossil energy use for heating purposes are subject to the carbon tax. The only remaining exemption from the carbon tax for mineral products applies to LPG (liquefied petroleum gas) and natural gas for use in greenhouse nurseries.

The use of fossil fuel, both for machinery and for heating farm buildings and greenhouses, results in total emissions of about 0.5 million tonnes CO₂eq per year from agriculture. The letter of intent between the agricultural organisations and the Government (part A) applies to these emissions.

Biofuels in agriculture: At present, almost all agricultural and forestry machinery uses fossil fuels. Practical tests as part of a project on biodiesel in Norwegian agriculture run by the research institute Ruralis have shown that biodiesel can be a suitable fuel for tractors.13 Unlike fossil offroad diesel, biodiesel is not subject to the carbon tax or the basic tax on mineral oil. Even so, the purchase price of biodiesel is substantially higher than that of fossil diesel. If the use of fossil fuel is phased out over ten years and it is replaced by renewable alternatives, the emission reduction potential is around 1.414 million tonnes CO₂eq over the period 2021–2030. The Government will seek to introduce a biofuel quota obligation for offroad diesel from 2022, which will gradually be increased up to 2030 to the same level as for road traffic. The actual effect on emissions of using biofuel in Norwegian agriculture will depend on how the biofuel quota obligation is designed.

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Photo: Erling Fløistad/ Norwegian Institute of Bioeconomy Research

Fossil-free heating in agriculture: greenhouse gas emissions from heating in agriculture originate from greenhouses and livestock housing. Diesel and oil are also used in generators at mountain summer farms and in grain dryers. Emissions from heating in agriculture have been reduced in recent years, largely because many farmers have switched from fuel oil to natural gas and bioenergy, and because of a reduction in total energy use. The greenhouse nursery sector has been making targeted efforts to reduce energy use for many years. It is now making use of more environmentally friendly energy sources than before, and emissions have been substantially reduced. Emissions from heating of buildings in agriculture have been reduced by 13 % from 1990 to 2019.

Innovation Norway and Enova have established grant schemes to promote the use of bioenergy in greenhouses and for other heating in the agricultural sector. In 2018, the Government decided that from 1 January 2025, the prohibition on using mineral oil to heat buildings will also include the use of mineral oil to heat farm buildings. If all use of fossil fuels in agriculture is phased out and they are replaced with renewable alternatives, the emission reduction potential is just over 0.415 million tonnes CO₂eq in the period 2021–2030.

3.6.5.2.2 Improving production systems and resource use

A number of the mitigation measures for the agricultural sector provide important public goods such as improvements in the aquatic environment, greater biodiversity and lower emissions to air (ammonia). These are win-win solutions: the sector can play a part in achieving national and international environmental targets and the measures implemented also reduce greenhouse gas emissions. Such measures can also have economic benefits, and a number of them also involve improvements in agronomic practices.

Improving fertiliser application and storage: Fertiliser is an important resource, but in several regions of Norway, typically those where livestock numbers are high, more fertiliser is produced and applied than is needed to ensure satisfactory crop growth. The use of both mineral fertiliser and manure results in nitrous oxide emissions. In 2019, 74 % of nitrous oxide emissions in Norway were from fertiliser application and other sources in the agricultural sector. Emissions of nitrous oxide from agriculture in 2019 were estimated at almost 6 000 tonnes N₂O, or about 1.8 million tonnes CO₂eq. Fertiliser use also results in nutrient run-off and eutrophication of water bodies, and in emissions of ammonia to air. Nutrient run-off from excess fertiliser use must be reduced in order to achieve the environmental objectives of the Water Framework Directive, which has been incorporated into Norwegian law under the EEA Agreement. The deadline for achieving the environmental objectives is in 2022. Norway is still exceeding its emission ceiling for ammonia under the Gothenburg Protocol, and will implement further measures to achieve its emission reduction commitment for the next period, which starts in 2020.

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Photo: Audun Korsæth/Norwegian Institute of Bioeconomy Research

Emissions to air and water from manure are being reduced by already established legislation and grant schemes. The application and storage of manure in Norway is governed by the regulations relating to fertiliser products of organic origin, which are currently under revision. The Norwegian Agriculture Agency, the Norwegian Food Safety Authority and the Norwegian Environment Agency have proposed various amendments. These include stricter requirements for storage facilities and storage capacity, and revised requirements for the spreading area required and the times when manure application is permitted. Norway’s regulations on nutrient management plans set out requirements that must be met for holdings to be eligible for agricultural support schemes. The annual Agricultural Agreements include funding for investments in upgrading manure storage facilities and effluent tanks and for environmentally friendly manure application systems. The introduction of a tax on mineral fertiliser is to be assessed, as mentioned in Chapter 3.3.2.

In the mitigation analysis for Norway 2021–2030, four different manure-related measures were considered: covers for manure storage facilities (for pig manure); environmentally friendly manure application; better timing of manure spreading and better storage capacity; and regulation of the spreading area for manure. The total emission reduction potential for these four measures is about 330 000 tonnes CO₂eq over the period 2021–2030.

Manure as a resource for biogas production: Emissions from manure can be reduced by using it as a feedstock for biogas plants. A grant scheme for deliveries of manure for biogas production has been operating since 2013. The 2019 Agricultural Agreement included a decision to appoint a working group that during the next year would consider further ways of designing existing and new policy instruments to increase the use of manure for biogas production and at the same time maximise climate and environmental benefits, which was discussed in connection with the National Budget (Prop. 120 S (2018–2019)). Following up this decision, the parties agreed during the negotiations on the 2020–2021 Agricultural Agreement to continue the grant scheme. NOK 9 million was allocated to the scheme, an increase of NOK 4 million from the previous year, and the size of the grants available was increased.

Biogas production is sensitive to market demand. Higher demand for biogas will make it possible to use more manure to produce biogas. Policy instruments that can be used to stimulate biogas production and use are generally cross-sectoral. The planned carbon tax increases will to some extent stimulate the demand side, but it is uncertain how much they will do this. (See Chapter 3.5 for more about biogas and the action plan for biogas.)

One of the measures considered in the mitigation analysis for Norway 2021–2030 was the use of livestock manure in biogas production, which has an emission reduction potential of 250 000 tonnes CO₂eq for the period 2021–2030. This figure is based on the assumption that the quantity of manure used in biogas plants increases gradually from the current level of 1 % to 25 % in 2030.

3.6.5.2.3 Important initiatives for sustainable agriculture

Continuing and intensifying initiatives for improvements in forage quality, animal health, fertility and breeding, and for better drainage, can lower the climate footprint of agriculture in two ways. On the one hand, there may be direct improvements in nutrient cycling in animals, plants and soils. Emissions per animal, unit area and unit of input can be reduced, but these changes are difficult to incorporate into the emission inventory. Such measures are therefore not accounted for directly in the emission inventory at present, but will be partly expressed through lower livestock numbers if yields increase or animal health is improved. Research and development activities are in progress with the aim of making it possible to quantify emission reductions and if possible include these measures in the emission inventory at a later date. On the other hand, improvements in these areas may mean that less fertiliser or fewer animals are needed to achieve the same level of production. These are quantitative effects that are included in the emission inventory. The effects these measures may have on greenhouse gas emissions through land-use change and changes in energy and fertiliser use must also be taken into consideration.

Better feed: the fibre content of feed for ruminants influences enteric methane emissions. Methane emissions from ruminants can be reduced by developing knowledge and improving routines for feeding and for feed production and harvesting practices. Knowledge is also being developed about the use of feed additives to reduce methane emissions from ruminants.

Better animal health, fertility and breeding: Improving productivity, particularly in animal husbandry, results in lower greenhouse gas emissions. The productivity of animal husbandry can for example be increased through improvements in animal health and fertility, and through breeding programmes. Certain improvements in productivity have been incorporated into the baseline projections. Further improvements may result in larger emission cuts.

Norway is a world leader in animal health. Healthy, fertile animals are better for the climate than animals that are in poorer health. In milk production, breeding programmes have resulted in a 10 % decrease in emissions per unit produced since 1980. In the 2017 Agricultural Agreement, NOK 15.5 million was earmarked for a breeding project to be run by Geno (the breeding company for Norwegian Red cattle), which will also match this funding. The funding will be used in a programme to breed dairy cattle that generate lower methane emissions without any adverse effects on other breeding goals such as better animal health.

The Agricultural Agreements include various grant schemes that are designed to boost productivity. They include support for breeding organisations, veterinary services and other joint measures and also grants to individual holdings. Higher productivity must be considered in conjunction with other agricultural policy goals. Farming more extensively, for example using of rough grazing to a larger extent, can be an important way of achieving other goals, such as maintaining the cultural landscape and safeguarding biodiversity.

Drainage: Well-drained soils provide favourable conditions for plant growth and nutrient uptake, and there is less risk of soil compaction. Emissions of nitrous oxide are also lower from well-drained soils, since drainage reduces the water content of soils. This in turn reduces the amount of the nitrogenous fertiliser applied that is converted into nitrous oxide.

The effect of improving drainage can be reflected in the emission inventory if it results in lower consumption of nitrogen in mineral fertiliser. Increasing the yield per unit area also reduces emissions per kg harvested, and improves income on a holding. Since 2013, the Agricultural Agreement has included a grant scheme for drainage of agricultural soils. Other hydrotechnical measures can be combined with drainage, and these are also eligible for grants. Grants are not provided for drainage or cultivation of new areas. Grants may not be awarded if measures will cause significant damage to other properties or to biodiversity, or if they entail a significant risk of flooding and water pollution or a risk of damage to cultural monuments and sites that have automatic legal protection.

Technological developments: Norway is a leader in the development and deployment of new technology that can reduce the climate and environmental footprint of food production. Innovative, smart technology adapted to large and small holdings will be an important part of the solution, and can make food production more resource effective and sustainable (see Box 3.22).

3.6.5.2.4 Enhancing carbon removals and storage and other climate benefits

Agricultural areas can provide important climate benefits in the form of CO₂ removals and methane oxidation in soils. Farming methods such as livestock husbandry that make use of grassland and pasture also maintain open landscapes and thus a higher ground albedo than in areas that become overgrown with shrubs and trees. The albedo of a surface is an expression of its ability to reflect light. Higher ground albedo counteracts global warming.

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Photo: Yngve Rekdal/Norwegian Institute of Bioeconomy Research

Healthy soils give better yields, provide important ecosystem services, remove more CO₂ from the atmosphere, play a part in climate change adaptation and water purification, and support a richer flora and fauna. If soil quality declines, runoff of nutrients and other substances and greenhouse gas emissions may become a problem. Over time, soils can become impoverished if their carbon content declines, causing problems for agriculture and in relation to climate change. It is vital to reverse these trends. In the time ahead, it will therefore be essential to build up knowledge and introduce better practices for increasing carbon sequestration in soils, improving soil health and sustainable use of agricultural areas.

Norway has therefore joined the ‘4 per 1000’ initiative, which was launched during the climate summit in Paris in 2015. The name ‘4 per 1000’ refers to the fact that if the soil carbon level increased globally by 0.4 % per year, this would significantly reduce annual CO₂ emissions to the atmosphere. This is not possible to achieve everywhere, and is not a substitute for emission cuts, but it is a common goal to improve carbon retention in soils. Emissions and removals of CO₂ from arable land and pasture are also included in the letter of intent between the Government and the agricultural organisations, but in Norway’s greenhouse gas inventory, these emissions are accounted for in the land-use change and forestry (LULUCF) sector.

The Agricultural Agreement includes various grant schemes for research on soil health and for practices that promote carbon sequestration in soils. Such measures are expected to result in more favourable trends for emissions and removals in agriculture than has been the case until now and used as a basis for the current projections.

Prohibition against new cultivation of peatland areas: Peatlands store large quantities of carbon. Intact peatlands are likely to remain in an equilibrium state over time as regards greenhouse gases, since carbon uptake through growth is balanced by methane emissions from anaerobic degradation. In addition, peatlands are important for water regulation and biodiversity, particularly birds and insects. Intact peatlands can play a part both in reducing the scale of climate change and in moderating its impacts in the form of droughts and flooding.

Drainage and other land-use change in peatlands trigger degradation processes in organic material, giving rise to emissions of carbon dioxide and nitrous oxide.

In 2019, the Storting considered amendments to the Land Act, including provisions on climate change considerations when cultivating new areas. On 2 June 2020, the Ministry of Food and Agriculture adopted amendments to the regulations on new cultivation of land. As a general rule, new cultivation of peatland is now prohibited. The municipalities are authorised to grant exemptions from this prohibition in special cases.

Emissions from peatland that is cultivated continue for some decades after drainage ditches are dug, until decomposition of the organic matter is complete. This means that action now also has important implications for future emissions. In reports to the UN and the EU, Norway has estimated that restrictions on cultivation of peatland will result in overall emission reductions of 450 000 tonnes CO₂eq over the period 2021–2030, of which a little under 400 000 tonnes CO₂ will be accounted for in the LULUCF sector and 70 000 tonnes CO₂eq (nitrous oxide) in the agricultural sector. It is not possible to give a precise estimate of how much peatland would have been cultivated in the years ahead without this prohibition.

The Government is already promoting the restoration of peatland and other wetlands as a combined climate change mitigation and biodiversity measure. In 2020, the Government allocated NOK 21 million to these efforts.

3.6.5.3 Intensifying efforts to improve the greenhouse gas inventory

Norway’s greenhouse gas inventory follows the international guidelines drawn up by the IPCC. The knowledge base is constantly developing, and there have been considerable advances in the accounting methodology for the agricultural sector. Nevertheless, the effects of various measures described in the mitigation analysis for Norway 2021–2030 cannot currently be registered in the emission inventory. This applies for example to carbon sequestration in soils, the use of catch crops and drainage of agricultural soils. This is because methods for calculating the effects of these measures on emissions have not yet been developed or because there is insufficient data.

In line with the letter of intent between the Government and the agricultural organisations, measures implemented by agriculture, but that are not included in Norway’s national greenhouse gas inventory in the period 2021–2030, will not be counted towards the target of reducing emissions by 5 million tonnes CO₂eq. However, a separate greenhouse gas inventory for such measures is to be established under the letter of intent. The ambition is to incorporate the effects of these measures into the national greenhouse gas inventory over time.

At present, about two thirds of the estimated emission reduction potential of the measures outlined in the climate action plan from the agricultural sector cannot be credited either towards the target of the letter intent or towards Norway’s climate targets, even though these measures will in practice result in reductions in greenhouse gas emissions. The Government considers it important to continue the development of methodology for measuring the effects of various measures on emissions from biological production. It is also important to develop mitigation measures further so that they can be used as widely as possible. The Government will therefore intensify efforts to improve the emission inventory for agriculture, so that the effects of new measures in the sector can be incorporated in the long term.

3.6.6 The Government’s efforts to promote changes in consumption patterns that may indirectly reduce greenhouse gas emissions from agriculture

The Government will:

• Continue and further develop work on the action points in the Norwegian National Action Plan for a Healthier Diet;

• Step up and further develop cross-sectoral work on diet and climate change, including cooperation with the food industry;

• Gradually step up efforts to raise awareness about and facilitate a shift to a healthy, sustainable and climate-friendly diet in day care centres, schools and out-of-school-hours care;

• Promote the inclusion of environmental and climate-related requirements and the use of established dietary criteria in public procurement processes for food and meal services. This will include providing advice for contracting authorities based on the current public procurement legislation;

• Carry out more frequent surveys of dietary habits in different population groups as part of efforts to promote a healthy, sustainable and climate-friendly diet, and to assess whether current policy is sufficient to achieve the aim of persuading the Norwegian population to follow dietary advice from the Directorate of Health;

• Consider the establishment of model for cooperation at county and municipal level to facilitate a shift to a healthy, sustainable and climate-friendly diet. This will include improving information on dietary habits and factors that can affect public health, in line with the Public Health Act;

• In dialogue with the food industry, look at the structure, funding and tasks involved in awareness-raising activities to ensure more consistent communication of dietary advice from the Directorate of Health;

• Ensure that central government agencies lead by example, and step up efforts to reduce food waste in the public administration in order to contribute towards the targets of the agreement between the authorities and the food industry on the reduction of food waste;

• Take steps to improve the overview and reporting on food waste in the public sector;

• Ensure that the main reports to be delivered in 2020 and 2025 under the agreement between the authorities and the food industry are included as part of the basis for assessing whether policy instruments need to be adjusted to achieve the targets of the agreement and contribute towards the 2030 climate target;

• Call on the ministries that have signed the agreement on the reduction of food waste to encourage more parties to endorse it;

• Engage in dialogue with agricultural information offices, the Norwegian Seafood Council and others on how they can intensify their efforts to reduce food waste;

• Consider the reduction of food waste in conjunction with gradually stepping up efforts to raise awareness about facilitating a healthy, sustainable and climate-friendly diet in day care centres, schools and out-of-school-hours care;

• Consider the reduction of food waste in conjunction with increasing the proportion of overall food resources harvested/cultivated that is utilised, including increasing the use of residual raw materials.

The agricultural sector is seeking to reduce emissions per unit of production, as described in Chapter 3.6.5. In addition, changes in food consumption may lead to changes in the composition of agricultural production, which in turn may influence greenhouse gas emissions from agriculture. The text below describes how the Government will follow up the part of the letter of intent (part B) that concerns the Government’s efforts to promote changes in consumption patterns.

The letter of intent lists the following examples of what the Government will seek to do:

• achieve the target of reducing food waste by 50 % by 2030;

• persuade the Norwegian population to change their food habits so that they are as far as possible in line with dietary advice from the Directorate of Health.

If the target of halving food waste is achieved, it will not be necessary to produce as much food. If efforts to encourage people to follow dietary advice from the Directorate of Health to a greater extent are successful, demand for red meat and processed meat will be lower. If consumption of food types such as red meat that result in high greenhouse gas emissions is reduced, farmers will adapt to the reduction in demand and produce less of these food types. Greenhouse gas emissions from agriculture will decline as a result. Dealing with the global problems of climate change will require collective action and behavioural change, according to the UN Environment Programme (UNEP). This is why changes in consumption patterns are included in the letter of intent between the Government and agriculture. The EU’s food and agriculture strategy Farm to Fork also deals with the entire food system and the links between healthy people, healthy societies and a healthy planet, see Box 3.23.

The Norwegian health authorities recommend a varied diet including plenty of vegetables, fruit and berries, whole-grain foods and fish, and limited amounts of processed meat, red meat, salt, sugar and saturated fats. The climate footprint of producing agricultural goods varies between products,16 and recommendations for a healthy diet coincide to a large extent with those for a more sustainable diet.17 The Government’s aim is for the Norwegian population to follow dietary advice from the Directorate of Health.

In 2018, at least 390 000 tonnes of food that could have been eaten was thrown away in Norway – by the food industry, wholesalers, retailers and consumers. In addition to ensuring that once food is produced it reaches people’s plates and is eaten, it is important to make better use of food resources that are harvested or cultivated. This also means avoiding the loss of valuable resources by using more of the residual raw materials.

The UN defines a sustainable food system as one that ‘delivers food security and nutrition for all in such a way that the economic, social and environmental bases to generate food security and nutrition for future generations are not compromised.’ Food produced from the land currently meets 95 % of people’s calorie requirements, and food from the oceans only 5 %. According to the UN Committee on World Food Security, sustainably produced seafood has an important but often overlooked role to play as regards food security and nutrition.

The seafood contribution is dependent on a clean and healthy environment and sustainable resource management and production. In addition, enough safe, healthy seafood must reach the end of the food value chains so that it can be eaten. An integrated approach is needed, involving cooperation between all sectors and stakeholders that are responsible for and influence different elements of the food value chain. Institutions such as the Institute of Marine Research, the Nofima research institute and the SINTEF group provide information as a basis for assessments relating to healthy, sustainable seafood.

The Nordic Council of Ministers is revising the Nordic Nutrition Recommendations before publishing a new edition in 2022. These recommendations form the basis for the official national dietary recommendations in the Nordic countries, and will be largely based on a health perspective. However, the new edition of the recommendations will integrate sustainability to a greater extent than before where there is sufficient scientific documentation.

3.6.6.1 Policy instruments

It is a challenging task to change people’s dietary habits, but nevertheless essential to persuade the Norwegian population to follow dietary advice from the Directorate of Health. All research and experience shows that changing people’s dietary habits requires a number of measures that interact across sectors, and depends on close cooperation between public, private and voluntary stakeholders. It is difficult to measure the effect of individual measures and to assess each measure separately from all the other actions taking place at the same time. According to reports from the World Health Organization and the Directorate of Health, a concerted, broad-based effort is needed to achieve results.

The Government will continue and further develop work already in progress on the basis of the Norwegian National Action Plan for a Healthier Diet (2017–2021/2023) and the 2019 white paper on public health policy (Meld. St. 19 (2018–2019)). In the time ahead, there will be a special focus on strengthening a sense of ownership of the action plan in the ministries, identifying responsibilities at municipal and county level, and increasing the involvement of the voluntary sector. Sustainability will also be emphasised more in this work.

In 2017, the Norwegian authorities signed an agreement with the food industry with the target of reducing food waste by 50 % by 2030. All food production results in greenhouse gas emissions. If less food is thrown away, it will not be necessary to produce as much food from the land and the oceans, either in Norway or in other countries from which Norway imports food. This will result in lower greenhouse gas emissions. As of November 2020, 103 companies had endorsed the agreement on food waste and undertaken to measure and report both on the scale of food waste and on what action they are taking. There is still a potential for wider participation in the agreement, including by entities in the public sector.

3.6.6.2 Priority areas

3.6.6.2.1 Children and adolescents

We develop habits early in life, and it is therefore important to help children and adolescents to establish good habits in order to reduce food waste and develop a healthy, climate-friendly and sustainable diet.

Sustainability will be given a more prominent place in work on people’s diets through competence-building measures and by sharing information on good models for food and meals for children in day care centres, schools and out-of-school-hours care. An already existing activity programme on food, health and the environment for children in out-of-school-hours care will be further developed as part of this work. The programme is run by a social enterprise called Folkelig in cooperation with the national centre for food, health and physical activity at the Western Norway University of Applied Sciences. The new framework plan for out-of-school-hours care will include sections on diets and meals as part of the follow-up to a 2019 white paper on a more inclusive education system (Meld. St. 6 (2019–2020)). The dietary advice from the Directorate of Health will be used as a basis.

Knowing about a healthy, sustainable diet, practical cooking, raw materials and ways of avoiding food waste is important for everyone. Important target groups include parents, staff at day care centres and out-of-school-hours care, and teachers whose subjects include food and health are important target groups.

Seafood consumption in Norway is lower than recommended by the Directorate of Health. A national nutrition programme, ‘Fiskesprell’, is designed to encourage children and adolescents to eat more seafood, in line with the Directorate’s recommendations. It includes courses for employees at day-care centres and schools, and provides teaching materials and financial support for purchasing seafood. Climate change and sustainability are to be integrated into the programme, including information on how eating more seafood and reducing food waste can contribute to the fight against climate change.

3.6.6.2.2 Cross-sectoral cooperation

Letter of intent between the health authorities and the food industry. The health authorities and the food industry have signed a letter of intent for the period 2016–2021. About 100 businesses have undertaken to work towards a healthier diet containing less salt, added sugar and saturated fats and more fruit, berries, vegetables, whole-grain foods and fish. The Government will maintain and intensify its cooperation with the food industry on these tasks. Work is now in progress on a revised letter of intent which will apply up to 2025.

Municipalities and counties: The local government level has a key role to play in efforts to encourage and facilitate sound eating habits and a good diet. The Public Health Act and the Planning and Building Act set out the obligations of municipalities, counties and central government relating to work on public health, including nutrition, and also taking climate change considerations into account. The voluntary sector has an important role to play in this area. The Government will therefore consider the establishment of a model for cooperation at county and municipal level to facilitate a shift to a healthy, sustainable and climate-friendly diet.

Formalised cross-sectoral cooperation would need to be grounded in a shared knowledge base and strike a balance between different interests, and any measures implemented should help to clarify local responsibilities. Such cooperation must be considered in conjunction with local government climate and environmental initiatives such as the Klimasats grant scheme. Other initiatives that are relevant here are the programme for municipal public health work, and Matgledekorpset and Matvett, which are discussed in box 3.25. A pilot project may be organised to assess the possible effects of cross-sectoral cooperation. The Directorate of Health has produced guidance for local public health work, which would be an important tool in this work. The purpose of a cross-sectoral model of cooperation would be to help and encourage people to eat a healthy, sustainable and climate-friendly diet. It would be possible to draw on experience from relevant work at municipal level in Norway, and also from countries such as Sweden and Denmark. To help the Government assess whether to initiate such cooperation, the Directorate of Health will be asked to draw up a proposal or a timetable for the work. This should include a brief description of possible models. An assessment of the proposal will be coordinated with the Norwegian Environment Agency and will include cost estimates.

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Source Photo: Jon Hauge/Aftenposten/NTB

3.6.6.2.3 Public procurement, nutrition and climate change

The Government will promote the inclusion of environmental and climate-related requirements and the use of established nutritional criteria in public procurement processes. The aims are to raise awareness among people responsible for purchasing goods and services, encourage the development of healthier products and make healthy food more easily available to consumers. This work should be coordinated with efforts to reduce food waste. It will include providing advice for contracting authorities based on the current procurement legislation. In 2020, the Directorate of Health is to publish guidance, incorporating input on procurement from the Norwegian Agency for Public and Financial Management. The advice will also draw on initiatives for healthy food in workplaces and in food service venues, and will refer readers to the Agency’s templates for green public procurement.

3.6.6.2.4 More frequent dietary surveys

Good forecasts of the demand for different types of products are needed to put primary producers and the food industry in a better position to make sustainable long-term investment decisions. The Norwegian Institute of Public Health and the Directorate of Health are responsible for monitoring changes in Norwegian diets at different levels and in different population segments. The Government has identified a need for a better overview, and intends to ensure more frequent dietary surveys to follow up efforts to promote a healthy, sustainable and climate-friendly diet. The surveys will also be used to assess whether current policy is resulting in sufficient progress towards the goal of persuading the Norwegian population to follow dietary advice from the Directorate of Health. In addition, dietary surveys will be important in following up the letter of intent between the Government and the agricultural organisations, and will provide valuable information that can be used to adjust agricultural policy to consumer demand.

3.6.6.2.5 Awareness, information and communication on healthy, sustainable and climate-friendly food

For many Norwegians, one barrier to eating a diet in line with advice from the Directorate of Health is uncertainty about what constitutes a healthy, sustainable and climate-friendly diet. It is therefore vital to communicate dietary information to the general public. The Government will seek to raise awareness both in the general public and among key personnel in supermarket chains, the education system and health and care services. The Directorate of Health will continue its communication activities. It is important to provide complete, consistent and scientifically based information on healthy, sustainable and climate-friendly diets.

3.6.6.2.6 Review of information activities

Norway currently has four information offices for different types of agricultural products, whose task is to encourage consumption of food produced in Norway. Their activities are funded through a statutory tax on sales paid by the producers, and the funds are managed by an independent body. The legislation makes it possible to use market regulation as an agricultural policy instrument. The Norwegian Seafood Council has a similar role for the fisheries and aquaculture industry. These bodies play an important role in communicating enjoyment of food and providing information on practical food preparation. It can be difficult for people to find the information they need to change their dietary habits to follow the Directorate of Health’s advice more closely. The Government will engage in dialogue with the agricultural information offices and the Seafood Council to review the structure, funding and tasks involved in awareness-raising activities. The aim is to achieve more consistent communication of the dietary advice provided by the Directorate of Health.

Providing complete information combined with awareness raising can improve people’s knowledge about issues such as the shelf life, storage and use of leftover food, which will help to reduce food waste. Various channels are used to communicate information on how everyone can reduce food waste, including matportalen.no, the Norwegian Food Safety Authority, Matvett (see Box 3.25), the agricultural information offices and the Seafood Council. The Government will engage in dialogue with Matvett, the agricultural information offices and the Seafood Council on how they can intensify their efforts to reduce food waste.

3.6.6.2.7 Encouraging more parties to join the agreement on the reduction of food waste

All the ministries that have signed the agreement with the food industry on the reduction of food waste will encourage more parties to join the agreement. The Government will also step up its efforts to reduce food waste in the public sector. Public procurement processes will be actively used as a tool in this work. In this connection, the Government will promote the inclusion of environmental and climate-related requirements in procurement processes for food and meal services. Contracting authorities will receive advice based on the current procurement legislation. Matgledekorpset and Matvett, which are discussed in box 3.25, can play a part in intensifying efforts to reduce food waste in the public sector.

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Photo: Fredrik Sandberg/NTB

Good data are needed to follow up the agreement and to determine whether its targets are being achieved. The Government will therefore seek to improve surveys of and reporting on food waste along the entire food value chain.

3.6.6.2.8 Reporting and identifying whether efforts to reduce food waste should be intensified

There are two subsidiary targets under the target of halving food waste by 2030 in the agreement: to reduce food waste by 15 % by 2020, and to reduce it by 30 % by 2025, both compared with the 2015 level. Under the agreement, the authorities undertake to coordinate reporting on food waste in different parts of the food value chain in order to identify where action is most urgently needed. The Ministry of Climate and Environment has overall responsibility for coordination and for ensuring joint reporting on the results achieved in 2020, 2025 and 2030. The agreement provides a good framework for achieving the target of reducing food waste by 50 % by 2030. The first main report will be published in 2021. It will describe progress towards the targets and identify areas where extra effort is needed. The main reports will form part of the basis for assessing whether policy instruments need to be adjusted in order to achieve the targets of the agreement and contribute towards the 2030 climate target.

3.6.7 Uncertainty, economic and administrative consequences, and effects on emissions

The letter of intent between the Government and the agricultural organisations sets out the target of reducing emissions and enhancing carbon uptake by a total of 5 million tonnes CO₂eq over the ten-year period 2021–2030. This target has been arrived at based on the effects of three different categories of mitigation measures. Firstly, it includes the effects of measures targeting agricultural production itself, which reduce emissions per unit of production. Secondly, it includes the effects of measures that influence energy use and transport on farms and enhance carbon removals. Thirdly, it includes the indirect effect of changes in dietary patterns and a reduction in food waste, since these will result in changes in the composition of agricultural production. The letter of intent also states that measures to reduce emissions and enhance removals from agricultural production itself are intended to bring about a substantial share of the overall reduction in emissions.

Agriculture has several special features that are not shared with other parts of the non-ETS sector. Two of these are that it influences many different sources of emissions and removals, and that emissions from the sector consist largely of methane and nitrous oxide. Since different greenhouse gases have different properties, the letter of intent also requires recording and reporting of emission figures for each greenhouse gas separately as well as expressed in CO₂eq.

If the targets for reducing food waste are achieved and efforts to encourage people to follow dietary advice from the Directorate of Health to a greater extent are successful, patterns of demand for agricultural products will change. The agricultural sector is responsible for adapting production to demand. The scale of the consequences for agriculture in Norway will depend partly on how quickly and to what extent food waste is reduced and diets change.

3.6.7.1 The mitigation effect of implementing the letter of intent between the Government and the agricultural organisations

The climate action plan from the agricultural sector presents assessments of a variety of possible measures. It concludes that greenhouse gas emissions from agriculture can be reduced by 4–6 million tonnes CO₂eq over the next ten years without reducing food production in Norway. This also includes a number of measures whose effects are accounted for under transport, energy use and LULUCF (excluding forest) in the emission inventory, and some measures whose effects cannot currently be quantified or accounted for in the emission inventory. These cannot at present play a part in achieving Norway’s climate targets, even though they could potentially be useful as mitigation measures. The Government is seeking to build up more knowledge so that the effects of as many as possible of these measures can over time be included in the emission inventory. The mitigation effect of the use of policy instruments in the agricultural sector will be set out in the budget proposals for each year’s Agricultural Agreement.

A group has been appointed to compile data on the mitigation effects of the letter of intent between the Government and the agricultural organisations (see Chapter 3.6.7.4), and will play an important role in further developing knowledge about mitigation measures in the agricultural sector and in providing input for further development of the greenhouse gas inventory for agriculture. The greenhouse gas calculator, which is designed to document emissions at farm level, will also be important for work in this field in the future.

However, it is uncertain to what extent this work will give results that are apparent in Norway’s greenhouse gas inventory within the time frame for the letter of intent, in other words by 2030. The plan is therefore to achieve the targets on the basis of currently available methods and knowledge. According to the mitigation analysis for Norway 2021–2030 and the climate action plan from the agricultural sector, the agricultural sector itself could reduce emissions by about 600 000–900 000 tonnes CO₂eq in the period 2021–2030 using measures whose effects can currently be accounted for in agriculture in the emission inventory.

These figures indicate that the Government’s contribution relating to dietary habits and food waste will also be needed to achieve the target of the letter of intent. The Government’s work on dietary changes is part of its public health work, but changes in people’s diets can also have implications for climate change mitigation. The estimated emission reduction potential in agriculture of changes in consumption patterns presented in the mitigation analysis for Norway 2021–2030 is based on scenarios for how people’s diets change and the effects of measures to reduce food waste.

In 2017, the Norwegian authorities signed an agreement with the food industry with the target of reducing food waste by 50 % by 2030. According to the mitigation analysis for Norway 2021–2030, achieving this target would make it possible to reduce emissions from agriculture by 1.5 million tonnes CO₂eq in the period 2021–2030. This would require broad-based cooperation across sectors and administrative levels, with the agreement with the food industry as the most important tool.

According to the mitigation analysis for Norway 2021–2030, greenhouse gas emissions could be reduced by 2.9 million tonnes CO₂eq over the period 2021–2030 if people change their dietary habits to follow the Directorate of Health’s advice more closely. Achieving this would require a broad range of policy instruments. Figures for the reduction in greenhouse gas emissions that can be brought about by dietary changes are very uncertain. The emission reduction potential depends on how people’s diets change. The average Norwegian eats about 500 g of red meat products and processed meat a week,18 but there are considerable differences between population groups. About 55 % of men and 33 % of women currently eat more red meat and processed meat than is recommended on health grounds.19 The calculations for the measure ‘transition from red meat to a plant-based diet and fish’ in the mitigation analysis are based on the assumption that the people who eat most red meat and processed meat will replace consumption exceeding the recommended amounts (500 g of meat products and processed meat such as meatballs, sausages, etc per week) with plant-based food and fish. It is assumed that the rest of the population will continue to eat the same amounts of red meat and processed meat as at present. In other words, only people who eat more red meat than the health authorities recommend are assumed to reduce their consumption in the mitigation analysis. The mitigation analysis also assumes that the share of people’s consumption of both meat and plant-based products produced in Norway will rise. The effects of other possible scenarios for dietary changes are also quantified in the mitigation analysis. The estimated emission reductions brought about in these scenarios range from 2 to 8 million tonnes CO₂eq.

It is difficult to identify the exact effects of policy instruments on people’s diets and in the next instance on agricultural production and thus greenhouse gas emissions. Nevertheless, the mitigation analysis for Norway 2021–2030 examined factors that are currently barriers to changing dietary behaviour so that it is in line with the advice of the Directorate of Health, and identified possible policy instruments for reducing these barriers. The policy instruments outlined in this climate action plan are a good basis for a plan for dietary change in 2021–2030, and largely continue and intensify existing policy. The policy instruments are in line with those outlined in the mitigation analysis, but not all of them are included.

If the proposed policy instruments do not have the desired effect on people’s diets, they can be adjusted during the period 2021–2030 as more knowledge is acquired on the dietary habits of different segments of the Norwegian population.

3.6.7.2 Cost-benefit analysis of mitigation measures

A number of the mitigation measures for the agricultural sector also provide co-benefits in the form of important public goods such as improvements in the aquatic environment, greater biodiversity and lower emissions to air. This applies for example to the fertiliser-related measures. Their overall social benefits may therefore be greater than shown by analyses of their climate impact only. Some measures may have negative side-effects in other areas, for example by making it more difficult to achieve goals such as maintaining agricultural production throughout the country and maintaining diverse agricultural landscapes. One example is the measure ‘transition from red meat to a plant-based diet and fish’. It is important to weigh up the effects of different measures and how they contribute towards agricultural goals.

The effects of a range of measures on greenhouse gas emissions are estimated in the mitigation analysis for Norway 2021–2030. In addition, it includes cost-benefit analyses of these measures. For example, it was found that the transition from red meat to a plant-based diet and fish would be socially profitable. The social co-benefits of changes in dietary habits are a longer life and a better quality of life for individuals, lower costs for health services and lower productivity losses (i.e. higher tax revenues as a result of lower absence due to illness, disability and death). There is considerable uncertainty associated with such calculations. The mitigation analysis also points out that lower meat consumption may have adverse side-effects on employment, settlement patterns and the cultural landscape.

The mitigation analysis is based on the assumption that Norway’s current system of policy instruments will be maintained. Not all co-benefits and adverse side-effects were analysed. Many of the responses to the public consultation on the mitigation analysis mentioned this as a weakness. The Government and the agricultural organisations should therefore consider how Norway’s agricultural policy instruments can be designed to achieve agricultural policy objectives and at the same time strike a balance between these objectives and climate and environmental targets. If demand for red meat and processed meat is reduced, it will be particularly important to continue to facilitate greater use of Norwegian feed resources.

Several of the fertiliser-related measures will have co-benefits in addition to their climate impact, because reducing runoff to water bodies and emissions of ammonia to air can improve water quality and help to achieve Norway’s emission reduction commitment under the Gothenburg Protocol. It is difficult to determine the monetary value of these effects, and this was not attempted in the mitigation analysis. The social profitability of the fertiliser-related measures depends on how ammonia, phosphorus and nitrate releases are valued. They can be valued on the basis of the costs of implementing abatement measures and/or on the basis of the costs of the damage caused by releases of these pollutants. The costs of the damage result from a combination of releases of particulate matter that is harmful to health, environmentally harmful eutrophication and acidification, and releases of nitrous oxide, which is a greenhouse gas. Norway has not established national monetary values for releases of these substances.

Reducing food waste can reduce resource use and have wide-ranging social benefits. Stensgård et al (2020)20 estimated that reducing food waste in line with the agreement between the health authorities and the food industry will yield overall benefits valued at NOK 19 billion. In other words, the agreement will both reduce social costs and reduce greenhouse gas emissions from Norwegian agriculture. There are uncertainties in the calculations, and it is difficult to establish whether these uncertainties combined result in over- or underestimation of emission reductions and costs.

3.6.7.3 Carbon leakage

Carbon leakage is used to refer to a situation where policies or activities in one country result in greenhouse gas emissions in another country. Norway should not achieve its climate targets in a way that contributes to higher emissions in other countries. For example, reducing production support for the agricultural goods with the largest climate footprint could result in higher greenhouse gas emissions in other countries if consumption of these goods remained stable in Norway. This is because Norway would then need to import goods that would otherwise have been produced in the country. This is the starting point for the letter of intent between the Government and the agricultural organisations, where the plan is for changes in consumption to come before changes in production. This will prevent a reduction in production in Norway from resulting in higher imports and carbon leakage.

When Norway imports goods for use in agricultural production, for example machinery and some raw materials for feed concentrates, their production has resulted in emissions in their countries of origin. Without access to imported raw materials for feed, livestock production and quality would decline. Steps are therefore being taken to facilitate greater use of Norwegian feed resources, for example so that more soya for agricultural purposes can be replaced with protein produced in Norway.

3.6.7.4 Assessing and adjusting the use of policy instruments during the period 2021–2030

It is vital to consider the overall picture when developing policy instruments to reduce greenhouse gas emissions from the agricultural sector. Policy must be developed so as to strike the best possible balance between agricultural policy objectives and other considerations, including climate change and the environment, food supplies, sustainability, the natural resource base and public health. More knowledge and better practices are also needed to increase carbon sequestration in soils, improve soil health and ensure sustainable use of agricultural areas. Assessments of climate-related measures and instruments in the agricultural sector are included as a natural part of the negotiations on the annual Agricultural Agreement.

A number of agricultural measures were considered in the mitigation analysis, but some of them cannot be quantified or accounted for in the greenhouse gas inventory, and some will result in emission reductions that are accounted for in other sectors in the inventory. Some measures will improve production systems and resource use in the agricultural sector. These are various fertiliser-related measures, use of animal manure in biogas production, improving livestock health, fertility and breeding, increasing grazing periods for milk cows, and measures dealing with drainage and feed. The measures have to be implemented at the level of individual holdings. Statutory requirements can be introduced to ensure that measures are implemented, but a substantial barrier is the lack of private profitability. Uncertainty about how beneficial they are for operations on a holding and whether they will have a climate impact can also be a barrier to implementing measures. Grants, information and guidance that can encourage and make it possible for farmers to carry out these measures are therefore useful policy instruments in addition to statutory requirements. One barrier to the use of animal manure in biogas production is the current lack of a profitable value chain, and particularly the high costs of transporting manure.

Another group of mitigation measures for the agricultural sector will increase carbon sequestration. These include using catch crops, carbon sequestration in biochar and halting new cultivation of peatland. Only the last of these can be accounted for in the emission inventory at present. These measures can be implemented where holdings change their operating practices. The most important barriers are a lack of private profitability, a lack of knowledge, and the lack of a value chain for biochar. Grants that compensate for higher costs can provide an incentive to implement measures.

Part C of the letter of intent between the Government and the agricultural organisations sets out rules for implementing parts A and B and accounting rules for climate-related measures. A group including representatives of the parties and experts has therefore been appointed with responsibility for the greenhouse gas inventory for agriculture. The group will present status reports on progress towards the target in connection with the annual negotiations on the Agricultural Agreement. Every third year (in 2023, 2026 and 2029), a more in-depth report is to be produced as a basis for assessing whether progress is satisfactory. The Government will then consider whether it is necessary to adjust the use of policy instruments. The parties recognise that some measures will take time to phase in, and that it will also take time before their effects become apparent in the emission inventory, so that the letter of intent may not produce results until the latter part of the period 2021–2030.

The letter of intent between the Government and the agricultural organisations is an agreement on cooperation and provides a shared platform for further efforts to reduce emissions and enhance removals. Agriculture is important as part of the solution to how Norway can achieve its climate change obligations. The letter of intent demonstrates that the agricultural sector is taking this responsibility very seriously.

3.7 Reductions in other non-ETS emissions

In addition to emissions from transport and agriculture, non-ETS emissions include those from heating buildings, waste management and the use of fluorinated gases (F-gases) in products. A small proportion of emissions from manufacturing, petroleum activities and power and heat generation are also non-ETS emissions. The Government will act to reduce emissions in these sectors in line with its target of reducing non-ETS emissions by 45 % by 2030. Raising climate-related taxes is the most important step. The Government is promoting the replacement of fossil energy with emission-free energy carriers, better handling of F-gases, and measures targeting petroleum activities. The Government will ensure emission reductions while at the same time fostering a competitive business sector and maintaining a secure energy supply.

The Government will:

• Raise taxes on non-ETS greenhouse gas emissions to NOK 2 000 per tonne CO₂eq in 2030 (see Chapter 3.3.2);

• Consider a gradual increase in the tax on waste incineration;

• Assess policy instruments to reduce the use and emissions of sulphur hexafluoride (SF₆);

• Provide more information about the legislation on HFCs and intensify inspection and enforcement activities;

• Work towards gradual phase-out of the use of fossil fuels for energy purposes in industrial installations that are outside the scope of the EU ETS by 2030, and of the use of natural gas for heating and drying buildings during construction by 2025. An important means of achieving this will be the gradual increase in the carbon tax rate. If necessary, the Government will consider introducing further policy instruments, including a prohibition on the use of fossil fuels for these purposes.

• Consider making direct emissions of methane and non-methane volatile organic compounds (NMVOCs) from onshore petroleum installations subject to the carbon tax, provided that satisfactory measurement and calculation methodology is available;

• Raise the tax on natural gas emissions to air to the standard tax rate for non-ETS emissions.

3.7.1 Emission trends and ambitions

Roughly 24 % of non-ETS emissions stem from sectors other than transport and agriculture. They include emissions from manufacturing, petroleum activities, energy supply, heating buildings, waste management, the use of fluorinated gases in products, and certain other sources. Figure 3.37 shows how non-ETS emissions are split between different sources.

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Other non-ETS emissions have declined by 23 % since 2005. The projections indicate that with the current mix of policy instruments, emissions will continue to fall to a level about 41 % lower in 2030 than in 2005. There has been a particularly large reduction in emissions from heating buildings, and this is expected to continue in 2020. Non-ETS emissions from manufacturing and petroleum activities have been considerably reduced since 2005. The projections indicate that there will be a slight reduction in emissions from manufacturing up to 2030, while emissions from petroleum activities will be more or less stable. With the current mix of policy instruments, non-ETS emissions from manufacturing and petroleum activities, heating buildings, energy supply and other sources are projected to total about 50 million tonnes CO₂eq over the period 2021–2030.

The Government has not specified ambitions for reducing non-ETS emissions by sector other than for transport and agriculture, but will provide a framework for reducing emissions in the other sectors in line with the Government’s target of reducing non-ETS emissions by 45 % by 2030. In the Government’s view, the policy instruments set out in this climate action plan could reduce non-ETS emissions from the other sectors by approximately 4 million tonnes over the period 2021–2030 compared with the current baseline projections. Figure 3.38 shows the calculated emission trajectory for non-ETS emissions if the Government’s climate action plan is implemented.

Box 3.26 discusses the main results for measures for other non-ETS emissions assessed in the mitigation analysis for Norway 2021–2030.

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3.7.2 Policy instruments

Policy instruments are already in place to reduce emissions from manufacturing, petroleum activities, energy supply, heating, F-gases and waste management.

Climate-related taxes already apply to a proportion of these emissions, see Chapter 3.3.2, and increases in the tax rates will also apply to these emissions. Mineral oil, natural gas and LPG are subject to the carbon tax. These energy carriers are used particularly for energy purposes in manufacturing and for heating buildings. A climate-related tax (carbon tax on methane) applies to about three-fourths of emissions from cold venting in the oil and gas industry. There are also taxes on the import and production of HFCs and PFCs, which are primarily used in cooling and air conditioning systems. These taxes are levied at the standard carbon tax rate, which will increase gradually to NOK 2 000 per tonne CO₂eq in 2030, see Chapter 3.3.2. This will have an impact on emissions from manufacturing, petroleum activities, heating of buildings, and the use and management of F-gases, as discussed further in Chapter 3.7.3.

Manufacturing, petroleum activities, waste management, the use and management of F-gases, and heating of buildings are regulated under the Pollution Control Act, either through permits or by regulations. Chapter 3.3.3 deals further with regulatory measures.

Grants, for example through schemes run by Enova, help to cover additional costs for stakeholders seeking to invest in ways to reduce emissions. Enova grants are also intended to promote accelerated market introduction of new technologies and make them more widely available. Read more about Enova in Chapter 3.3.5.

Making the general policy instruments more effective, as discussed in Chapter 3.3, will play a part in reducing emissions. In addition, the Government will use some policy instruments in specific sectors. Figure 3.39 shows policy instruments for reducing non-ETS emissions from these sectors.

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The policy instruments proposed by the Government in this white paper can cut these emissions by roughly 4 million tonnes CO₂eq in the period 2021–2030. The main reductions in emissions are expected to be from declining use of fossil fuels in manufacturing and an increase in the proportion of used HFCs recovered and destroyed, but emissions from buildings, the oil and gas industry and waste incineration are also expected to decrease. Increasing climate-related tax rates is expected to have the greatest effect, see the discussion of estimates of quantitative effects and the uncertainties relating to them in Chapter 3.1.2.

The gradual increase in the carbon tax rate is an important means of phasing out heating using fossil fuels in the manufacturing sector. If necessary, the Government will consider introducing further policy instruments, including a prohibition on the use of fossil fuels for this purpose. The Government will work towards phase-out of the use of natural gas for heating buildings during construction by 2025.

Emissions of HFCs and PFCs are expected to decrease considerably as a result of higher taxes and a corresponding increase in tax refunds, combined with an increase in advisory activities and inspection and enforcement of the legislation on these gases.

There is considerable uncertainty surrounding the figures for estimated effects of tax increases on emissions in these sectors. The actual emission reductions will depend on decisions made in the future. The calculations used here are based on the assumption that all emissions are subject to the same carbon price, including emissions that are not taxed today and those taxed at lower rates than the standard carbon tax rate for non-ETS emissions. The Government has proposed the introduction of a tax on waste incineration from 2021, and will consider a stepwise increase in the tax rate. The Government will also raise the tax rate for natural gas released to air on the continental shelf to the standard rate for non-ETS emissions, and will consider introducing a methane tax on emissions from onshore petroleum installations.

3.7.3 What are the effects of the policy instruments on the different sectors?

3.7.3.1 Manufacturing: reducing emissions by increasing the carbon tax rate

Non-ETS emissions from manufacturing totalled 0.8 million tonnes CO₂eq in 2019. Roughly two-thirds of this came from the use of fossil fuels, with the remaining emissions coming directly from processes.

The Government expects to see the use of fossil fuels for energy purposes in industrial installations that are outside the scope of the EU ETS gradually phased out by 2030. An important means of achieving this will be the gradual increase in the carbon tax rate. If necessary, the Government will consider introducing further policy instruments, including a prohibition on the use of fossil fuels for these purposes.

Most manufacturing enterprises are technically able to switch to energy carriers other than oil, gas and coal. The most suitable alternatives are electricity and biofuels. Where it is available, district heating can be a competitive solution. For certain activities, other solutions such as heat pumps can be of interest. Biofuels include solid biofuel (for example wood pellets), biogas and bio-oil. In many cases, existing oil- and gas-fired boilers can run on biogas or bio-oil after some modifications. More use of electricity may have consequences for the power supply system in certain areas, see Chapter 10.

A rising carbon tax rate will make it more costly to use oil and gas for heating, providing an incentive to switch to other energy carriers.

Manufacturing enterprises in a number of different industries use oil and gas. The food industry and asphalt manufacturing have the highest non-ETS emissions from oil and gas use. There are also some non-ETS emissions from use of oil and gas in the metallurgical industry, the chemicals industry, petroleum refining and the pulp and paper industry, but the bulk of emissions from these sectors come within the scope of the EU ETS.

There are about 22 000 manufacturing enterprises in Norway. It is not known how many of these use mineral oil and natural gas. Non-ETS emissions from oil- and gas-fired stationary heating originate from businesses with relatively small-scale combustion installations. Installations over 20 MW are in the ETS sector.

Some exemptions from the carbon tax on mineral oil and natural gas still apply in 2020. The Government will make natural gas and LPG used in certain power-intensive processes subject to the carbon tax from July 2021 at the earliest, as set out in the 2020 budget (Prop. 1 LS (2020–2021) and Innst. 3 S (2020–2021)). The tax rate will be set at 25 % of the standard carbon tax rate in 2021 and will apply to areas of use for which there is currently a tax refund scheme.

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Photo: Olav Håland/TINE.

3.7.3.2 Heating: reducing emissions by increasing the carbon tax rate

In 2019, emissions from heating buildings totalled 1.0 million tonnes CO₂eq, primarily from the use of natural gas. Fuelwood use also generates some methane emissions. Raising the carbon tax rate will encourage building owners to switch from natural gas to other energy carriers such as electricity, biofuels, district heating and heat pumps.

The construction industry uses mineral oil and natural gas for heating and drying buildings during construction and renovation. The use of mineral oil for this purpose will be prohibited from 2022, and the Government will work towards phase-out of the use of natural gas by 2025. Natural gas in this context includes all gases of fossil origin, including propane, the most commonly used gas for heating buildings during construction. An important means of achieving this will be the gradual increase in the carbon tax rate. Raising carbon taxes may encourage stakeholders to switch from natural gas to other energy carriers such as electricity or bioenergy such as biogas. If necessary, the Government will consider introducing further policy instruments, including a prohibition on the use of fossil fuels for this purpose. The use of natural gas in greenhouses is exempt from the carbon tax, so raising the tax rate will not reduce emissions from this source.

3.7.3.3 Waste incineration: reducing emissions through CCS and taxation

The Government intends to introduce a tax on waste incineration from 2021, as set out in connection with the 2020 budget (Prop. 1 LS (2020–2021) and Innst. 3 S (2020–2021)). So as not to introduce large extra costs without giving the industry time to adapt, the Government has proposed a tax rate of NOK 149 per tonne CO₂ in 2021, corresponding to 25 % of the standard carbon tax rate. The Government will return to the question of increasing the tax rate in the 2022 budget.

This tax is intended to provide an incentive to reduce emissions from incineration of material of fossil origin, for instance by increasing sorting of waste and recycling. Increasing recycling rates has other environmental benefits in addition to reducing greenhouse gas emissions. Moreover, stricter recycling requirements will be phased in under new EU directives.

CCS will be an important technology for reducing emissions from waste management. Some waste is of biological origin. Capturing and storing emissions from incineration of biological material results in net negative emissions, since these emissions are regarded as climate-neutral.

Emissions that are captured and stored and emissions from incineration of hazardous waste are exempt from the proposed tax. An increase in the carbon tax rate to NOK 2 000 per tonne CO₂eq, which is to be the standard rate in 2030, will make CCS more economically attractive but may not be sufficient to make CCS at waste incineration plants profitable by 2030. However, DNV GL concludes that stakeholders may find CCS to be profitable at a carbon tax rate of NOK 2 000 per tonne CO₂eq, provided that the capacity of the carbon storage facility is used effectively, lessons are learned and there are some cost reductions. Since about half of emissions from waste incineration are from biological material, and therefore not included in the tax base for the tax on waste incineration, the tax will provide less incentive to implement CCS in this sector than in other sectors.

The Government intends to co-fund the CCS project at Fortum Oslo Varme’s waste incineration plant, provided that the company provides sufficient funding of its own and obtains funding from the EU or other sources, see Chapter 6.5.2 in this white paper and the white paper Longship – Carbon capture and storage (Meld. St. 33 (2019–2020)). The plant will be able to reduce emissions by 0.4 million tonnes CO₂eq per year, half of which will be of biological origin.

Successful implementation of the Government’s Longship project will lower the threshold for establishing new carbon capture projects. Future Norwegian carbon capture plants will have to compete for investment and operational funding from general grant schemes, for example under Enova and from the EU’s Innovation Fund. The state will not engage in direct negotiations on state aid with individual stakeholders. In the long term it may be possible to capture carbon from several waste incineration plants, which could lead to large cuts in emissions.

Owners of the waste incineration plants in Bergen, Trondheim, Stavanger, Kristiansand and elsewhere in Norway can apply for funding for studies of carbon capture projects under the CLIMIT programme, which is run by Gassnova SF, and from other public funding agencies. Under the CLIMIT programme, funding has been awarded to projects at the waste incineration plants in Trondheim and Kristiansand.

3.7.3.4 Reducing emissions of fluorinated gases through information and taxation

Fluorinated gases (F-gases) are used in cooling systems, air conditioners, heat pumps, high-voltage electronics and certain other products. Hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF₆) are all potent greenhouse gases. In Norway, the use and sale of these gases is governed by regulations under the Pollution Control Act, the Road Traffic Act and the Product Control Act.

Emissions of SF₆ are currently low in Norway. SF₆ use in the power supply sector is expected to rise up to 2030 due to expansion of the power grid. Only a very small proportion of the installed SF₆ leaks out of equipment, less than 1 % under normal conditions. Nevertheless, its use should be reduced, including in new, large-scale installations in the power supply sector, since there is some risk of leakages wherever SF₆ is installed. About half of SF₆ emissions come from the power supply sector. It is important to minimise emissions of SF₆. The Government is assessing policy instruments to reduce its use and emissions.

In the years ahead, a number of air conditioning systems and a good deal of cooling and freezing equipment will be taken out of use. Increasing the collection rate for used HFCs can prevent their release into the atmosphere from products that are discarded or repaired. To increase the quantity of HFCs collected, the Norwegian Environment Agency will distribute information about the obligation to collect HFCs and about the refund scheme and collection points. The Environment Agency will also step up inspection and enforcement activities targeting companies that deal with products containing refrigerants. Providing more information and intensifying inspection and enforcement of the legislation on HFCs will require more resource use by the Environment Agency.

There is a tax on production and import of HFCs and PFCs. The tax is refunded if end-of-life products are returned to approved collection points so that the HFCs and PFCs can be destroyed.

As the tax rate is raised, the amount refunded will also increase. This will provide a strong incentive to collect and destroy used HFCs and PFCs. Even though it will pay for operators to return used HFCs and PFCs, it may be necessary to make better arrangements for return and provide better information about the rules on handling these gases. With adequate information and good return arrangements, calculations indicate that higher tax and refund rates can cut emissions considerably in the period 2021–2030.

The European Commission plans to revise the F-gas Regulation, which regulates the production, import and use of F-gases, by the end of 2021. Once the EU adopts the amendments, Norway will assess whether they are EEA-relevant and whether the Norwegian legislation needs to be amended. Norway does not consider the EU import regime for HFCs to be EEA-relevant and does not participate in it.

3.7.3.5 Consider a new energy supply system in Longyearbyen

The energy supply system in Longyearbyen is based primarily on coal. Emissions from this source are neither subject to the carbon tax nor included in the ETS. In connection with its consideration of the white paper Svalbard (Meld. St. 32 (2015–2016)), the Storting asked the Government to initiate a broad-based review of the options for the future energy supply system in Svalbard based on sustainable, renewable solutions, as set out in the recommendations from the Standing Committee on Foreign Affairs and Defence (Innst. 88 S (2016–2017)). In 2018, an external review was conducted and an open meeting was held to obtain input. In the course of 2019 and 2020, the Ministry of Petroleum and Energy and the Norwegian Water Resources and Energy Directorate quality-assured the reviews and the input they received. Additional assessments, for example of energy solutions in a transitional phase between the current coal-powered plant and a new, long-term solution, have also been carried out. The Ministry of Petroleum and Energy is conducting more thorough cost-benefit analyses for a short list of energy solutions and combinations of solutions. The Government’s position is that the future energy supply system must be reliable, sustainable and cost-effective.

3.7.3.6 Petroleum activities

Non-ETS emissions from petroleum activities in 2019 totalled about 0.8 million tonnes CO₂eq, and originated from cold venting, point sources and fugitive emissions such as leaks. The non-ETS emissions consist of methane and NMVOCs. Emissions can be reduced through recovery, operational optimisation and flaring. There are also emissions of methane and NMVOCs during offshore loading of crude oil, and these can be reduced through recovery and by using recovered VOC vapour as fuel.

Emissions of natural gas to air from petroleum activities on the Norwegian continental shelf are subject to the carbon tax. This is currently levied at a lower rate than the standard rate for non-ETS emissions. The Government will raise this to the standard rate for non-ETS emissions. Higher tax rates can promote emission reductions, for example through operational optimisation and higher recovery rates.

Emissions of methane and NMVOCs from onshore petroleum installations are not subject to the carbon tax, partly because of a lack of precise enough measurement methods. Work is under way to improve the measurement and calculation methodology. Provided that satisfactory methodology is available, the Government will consider making direct emissions of methane and NMVOCs from onshore petroleum installations subject to the carbon tax, in line with the policy that the standard tax rate should apply to all non-ETS emissions.

3.7.4 Uncertainty and economic and administrative consequences

Businesses that use fossil fuels will incur higher costs as a result of increases in climate-related tax rates. The cost of delivering waste for incineration may also rise slightly for businesses. Users of SF₆ may face higher costs related to policy instruments to reduce emissions.

Other parts of the business sector, such as companies that supply energy solutions based on renewable energy sources, may become more profitable due to the effects of policy instruments. There will also be more financial incentive to deliver used HFCs and PFCs for destruction in accordance with the rules.

Costs will rise for households that use natural gas for heating as the carbon tax rate is increased. It will be possible for them to switch to other energy solutions. Households may also see a slight rise in costs related to the tax on waste incineration.

State revenue will rise when the carbon tax and the tax on waste incineration are increased. A tax on SF₆ would also boost revenue. The Norwegian Environment Agency will need to dedicate more resources to information activities and guidance relating to the legislation on HFCs.

Both central and local government bodies will incur greater costs as a consequence of the increased carbon tax if they use fossil fuels, and from the tax on waste incineration, in the same way the business sector and households are affected. Some municipalities own incineration plants and operate them on a partly commercial basis. Such plants may become less profitable as a result of the tax on waste incineration.

The overall effect of the Government’s climate policy is to redistribute wealth away from greenhouse gas emitters, whether they are in the business sector, the public sector or households, and towards stakeholders that have lower emissions or are involved in developing and deploying emission-free solutions.

The risk of carbon leakage depends particularly on the extent to which companies are exposed to international competition and on the proportion of their total costs that is energy-related. Non-ETS manufacturing includes very different industries, and there is probably wide variation in the degree to which they are exposed to international competition. A few companies compete primarily with companies that are within the scope of the EU ETS. For these companies, a tax rate that is substantially higher than the price of EU emission allowances could be a particular disadvantage. However, there are probably few companies that have non-ETS emissions from energy use and are engaged in energy-intensive production. This means in most cases, a company’s energy costs, including the carbon tax, are likely to make up a relatively small proportion of its total costs. The tax on waste incineration will weaken the competitive position of waste incineration plants in Norway vis-à-vis plants in Sweden, which could lead to carbon leakage.

3.8 Use of flexibility mechanisms

The EU legislation for non-ETS emissions provides for countries to use flexibility mechanisms to achieve their emission targets; in other words, a target can be achieved in other ways than through mitigation measures for domestic emissions. Examples of flexibilities are that countries can buy emission units from other European countries (i.e. surplus units that they do not need to achieve their own targets), access emission allowances from the EU ETS, and access credits from the land use sector. A country that has a surplus of emission units after achieving its target for a specific year may also bank the surplus for use in later years.

The impacts of greenhouse gas emissions do not depend on where the emissions occur. The flexibility mechanisms that are part of the EU system are intended to allow more cost-effective implementation of emission cuts across the EU. Norwegian emissions can be offset by corresponding emission reductions in EU countries. It may cost less to contribute to emission reductions in EU countries than to achieve the entire reduction through domestic measures in Norway. We do not know what the price of emission allowances under the Effort Sharing Regulation will be until agreements have been concluded for 2021–2030. Using the current price of emission allowances under the EU ETS as a basis, the cost of cooperating with EU countries on the necessary reductions may be around NOK 250 per tonne. This is clearly lower than the cost of many domestic mitigation measures. As Figure 5.5 shows, it is anticipated that the price of emission allowances in the EU ETS will rise, and that the rise will be particularly steep if it is assumed that the EU increases its 2030 target to a 55 % cut in emissions relative to 1990. The figure is based on an analysis by Refinitiv (Thomson Reuters).

In the period 2013–2020, it has also been possible to use international credits from countries or mitigation projects outside the European Economic Area. This flexibility is not being maintained for the period 2021–2030.

The Government’s political target is for Norway to reduce its non-ETS emissions by 45 % by 2030. If strictly necessary, flexibility mechanisms will be used. This climate action plan provides a credible path making it likely that the 45 % target can be achieved without the need to use the flexibility mechanisms. However, the effects of the policy instruments it sets out are uncertain, and it is also uncertain when these effects will become apparent. Technological and economic developments and population growth are all factors that will strongly influence emissions in the years ahead. It may therefore be necessary to adjust the action plan described in this white paper.

In the time ahead, the Government will evaluate whether it is necessary to make policy instruments more effective or make use of flexibility mechanisms. For more about evaluation of the use of policy instruments during the planning period 2021–2030, see Chapter 9. If the climate action plan, with any necessary adjustments during the period, does not have sufficient effect, it may be necessary to make use of flexibility mechanisms to achieve the emission reduction commitment Norway has agreed with the EU. This will enable Norway to meet its commitment and prevent emissions to the atmosphere from exceeding its target.

Under the Effort Sharing Regulation, Norway is required to report annually on non-ETS emissions. If emissions are higher than the number of emission units Norway has been allocated or has banked for the year in question, it is possible to borrow a limited number of emission units from the following year. If this situation arises, it will be necessary to consider more extensive mitigation measures or make use of the flexibility to access allowances from the EU ETS or from bilateral agreements with individual EU countries.

Norway had the option to access a limited amount of allowances from the EU ETS that can be used to offset emissions in the effort sharing sectors, and notified the European Commission before the deadline that it wished to make use of the full amount of this flexibility for the period 2021–2030. In principle, this means that the same number of allowances will be subtracted from Norway’s auctioning volume in the ETS for each year of the period. This corresponds to up to 5.7 million ETS allowances for the whole period 2021–2030. Using ETS allowances in this way guarantees Norway access to flexibility in the event that it is strictly necessary to meet its emission commitments. However, notification that Norway intends to make use of this flexibility does not necessarily mean that the allowances will in fact be used under the Effort Sharing Regulation. The allowances are deducted from Norway’s auctioning amount under the EU ETS account and are placed in a closed account under the Effort Sharing Regulation. Allowances from this account may only be used if Norway has a shortfall, in other words has not met its annual emission budget through domestic emission reductions or by using other flexibility mechanisms. Allowances in the account that originate from the EU ETS and that are not used to achieve Norway’s target under the Effort Sharing Regulation or in the LULUCF sector will be cancelled at the end of the compliance period. In this way, they will be used towards overachievement of the EU-wide emission reduction target. In any case, Norway will pay for these allowances through lower auctioning revenue from EU ETS allowances. It is possible to decide not to use the flexibility or request a downward revision of the percentage of ETS allowances to be used to offset emissions in the effort sharing sectors for the second five-year period, in other words from 2026. It will also be possible to use the allowances accessed from the EU ETS indirectly towards compliance with the ‘no debit’ rule for the LULUCF sector. Chapter 4.7 describes the use of flexibility mechanisms in the LULUCF sector.

4 The Government’s plan for enhancing removals and reducing emissions in the LULUCF sector

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4.1 Introduction

Forest and other land categories must be protected and managed sustainably. Land use and land-use change influence both removals and emissions of greenhouse gases. Forests absorb CO₂ and store carbon in living biomass and soils. In contrast, the conversion of forest, peatland and agricultural areas to other forms of land use results in substantial greenhouse gas emissions.

In the context of climate change, land use, land-use change and forestry (LULUCF) is treated as a separate sector, which includes forest land, cropland, grassland, wetlands, settlements and other land, and also harvested wood products. Land-use change, the conversion of land from one of these categories to another, is also reported. Under its climate agreement with the EU, Norway has an obligation to ensure that emissions from the LULUCF sector do not exceed removals over the period 2021–2030, calculated using the accounting rules of the EU legislation (this is often known as the ‘no debit’ rule).

In 2018, net removals in the LULUCF sector in Norway totalled 23.7 million tonnes CO₂eq, as reported in the greenhouse gas inventory according to the rules of the Climate Change Convention. The high level of removals in the forest land category in Norway is partly a result of extensive post-war planting, and partly due to the fact that forest planted in this period has now reached its fastest-growing phase. A large quantity of carbon has been sequestered in living biomass and soils. The total carbon stock in Norway, including carbon in soils, is estimated at 7 billion tonnes, which is equivalent to about 26 billion tonnes CO₂. This carbon stock is split as follows: 32 % in forest, 33 % in mountain areas, 21 % in wetlands, 13 % in aquatic ecosystems and 3 % in cultural landscapes.

All land categories are included in the greenhouse gas inventory, but only anthropogenic emissions and removals are estimated and reported. In Norway, managed land areas make up about half of the total land area.

4.2 Projections for the LULUCF sector

The Norwegian Institute of Bioeconomy Research published emission projections for the LULUCF sector in 2019.21 Figure 4.2 shows that net removals in the sector are expected to decline over the next 20 years, before stabilising and then increasing somewhat in the second half of this century. These developments are primarily related to changes in net removals in forest. The projections are based on historical levels of activity in the reference period 2010–2017, and the trends may change if activity levels change.

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Source Norwegian Institute of Bioeconomy Research (2019)

Figure 4.3 shows that if emissions and removals in the LULUCF sector follow the projections from the Norwegian Institute of Bioeconomy Research, Norway’s overall accounted net emissions from the sector under the rules of the EU legislation for the period 2021–2030 are likely to be about 18 million tonnes CO₂eq (annual figure in Figure 4.3 multiplied by 10). This is based on the assumption that Norway makes use of the managed forest land flexibility, or compensation mechanism, set out in the EU legislation. Certain conditions have to be met to make use of the compensation mechanism, and Norway will be able to compensate accounted net emissions of up to 35.5 million tonnes CO₂eq from managed forest land. According to the projections, Norway’s accounted net emissions from managed forest land will be 9 million tonnes CO₂eq, less than the ceiling of 35.5 million tonnes CO₂eq available through the compensation mechanism. If Norway does not make use of the compensation mechanism, the total emissions gap in the LULUCF sector as a whole may be 27 million tonnes CO₂eq. Much of this is a result of large annual emissions from deforestation.

For a country to use the compensation mechanism, there must be EU-wide compliance with the ‘no debit’ rule, and the country in question must have planned or initiated measures to maintain or enhance carbon stocks in forest and other land categories. The compensation mechanism applies only to accounted emissions from managed forest land, and may not be used to offset emissions from deforested land, afforested land, managed grassland, managed cropland or managed wetland.

Figure 4.3 shows the land accounting categories used in the EU legislation. Areas where land use is reported as managed forest land are currently forest and remain as forest land during the reporting period. Afforestation and deforestation generally involve permanent changes in land use. Afforested land is converted to forest either through planting or through natural spread of forest. Deforested land is converted for other purposes, for example for use as cropland, for roads or for buildings. CO₂ emissions from managed cropland and grassland are reported as LULUCF emissions, whereas methane and nitrous oxide emissions from the same areas are reported as emissions from agriculture, and are therefore accounted for in the non-ETS sector. Managed wetlands, including peatlands and water bodies, are to be included as a land accounting category for the period 2026–2030, but are not included in Figure 4.3, since this would have little effect on the overall picture.

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Source The figure is based on projections published by the Norwegian Institute of Bioeconomy Research (2019), using updated figures from Norway’s official greenhouse gas inventory (2020) and a revised reference level for managed forest (November 2020).

Figure 4.3 shows projected emissions and removals from the different land accounting categories and overall net emissions from the LULUCF sector, both without and with use of the compensation mechanism. Overall emissions for the ten-year period are expected to be highest from deforested land, at 24 million tonnes CO₂eq. Net accounted emissions from managed forest land over the ten-year period are projected to be about 9 million tonnes CO₂eq. CO₂ removals in managed forest land are expressed relative to a reference level. If actual removals are lower than the reference level, Norway will report accounted net emissions. If actual removals are higher than the reference level, Norway will report net accounted removals. The actual level of harvesting relative to the reference level strongly influences accounted removals in managed forest land. The figure for Norway’s projected net emissions from managed forest land, 9 million tonnes CO₂eq, is based on forest management practices in the reference period 2000–2009, and on the subsequent rise in the harvesting level. Net removals in forest are therefore projected to be lower than the reference level. It will be possible to use the managed forest land flexibility to compensate for some net emissions from managed forest land. Afforested land is projected to yield net removals of 6 million tonnes CO₂eq over the period. These areas include both land where forest is planted and areas where forest spreads naturally. Emissions from managed cropland and grassland are projected to total 0.3 and 0.1 million tonnes CO₂eq respectively over the ten-year period. Managed wetlands are to be included as a land accounting category for the period 2026–2030, but are not included here, since this would have little effect on the overall picture.

The estimates are very uncertain, partly because changes in actual harvesting levels have a strong influence on removals in managed forest, and partly because it is difficult to make reliable estimates of future land-use changes. Any net accounted emissions in the LULUCF sector must be compensated either by larger emission reductions in the national non-ETS sector or by using other flexibility mechanisms. This is discussed further in Chapter 4.7.

Forests provide raw materials in the form of timber, fibre, feed and energy for many sectors. For example, wood can replace building materials associated with higher emissions, and forest residues can be used to produce biofuels, thus reducing emissions from transport. Emissions from timber harvesting are accounted for in the LULUCF sector, whereas the benefits of lower emissions during use of the timber appear in the non-ETS or ETS sector.

4.3 The Government’s plans for the LULUCF sector

To enhance removals in forest, the Government will:

• Continue to use existing mitigation measures for forest to enhance removals and consider ways of strengthening them. The Government will focus on measures that have a positive climate impact and positive or acceptable environmental impacts.

• Consider new mitigation measures in managed forest land that offer a high potential for enhancing CO₂ removals and are easy to implement. This applies specifically to improving practices for tending young-growth stands, treatment of stumps to control conifer root rot, and choosing suitable tree species for restocking after felling.

• Introduce requirements relating to minimum ages for tree felling in the Forestry Act and regulations relating to sustainable forestry, in line with the requirements in the current Norwegian PEFC Forest Standard.

• Facilitate afforestation of new areas as a mitigation measure on the basis of clear environmental criteria.

To reduce emissions from the development of green areas, the Government will:

• Take steps to ensure that municipalities, counties and central government agencies receive sound guidance and good tools so that they can take carbon-rich areas into consideration in spatial planning.

• Further develop the knowledge base on land-use change.

• Emphasise that spatial planning processes should be used to promote the development of compact towns and urban areas, and that the potential for densification and transformation should be used before new areas are developed.

• Ensure that carbon-rich areas are taken into consideration as part of the basis for decision making in central government transport projects.

• Ensure that carbon-rich areas are taken into consideration in licensing procedures for energy installations.

• Seek to reduce the conversion of peatland for other purposes through planning under the Planning and Building Act and other appropriate measures. The Government will develop a specific strategy to prevent the conversion of peatland.

To reduce emissions from other forms of land use, the Government will:

• Continue to promote a shift from peat-based to peat-free products.

• Consider amendments to the requirements for labelling peat-based products in connection with the revision of the regulations relating to fertiliser products.

• Consider the introduction of a tax on greenhouse gas emissions from peat extraction.

• Consider the introduction of a ban on opening new sites for peat extraction and measures under the Planning and Building Act to avoid the granting of new licences for peat extraction before a decision has been made on a ban.

• Consider requirements and procedures for the conversion of forest land to pasture to ensure that conversion does not involve evasion of regeneration obligations under the forestry legislation.

• Continue the restoration of peatlands and other wetlands.

It is not possible to determine exactly how far this climate action plan will contribute towards compliance with the ‘no debit’ rule for the LULUCF sector. It is particularly difficult to quantify the effects of action to reduce emissions from the conversion of forest and other land categories. In addition, the reference level for managed forest land and reference levels for the other land categories will be adjusted when calculation methodology and activity data in the emission inventory are updated in future. The rest of this chapter describes how the Government plans to enhance removals and reduce emissions in the LULUCF sector.

4.4 How the Government plans to enhance removals and the carbon stock in forests

4.4.1 Introduction

Forests at high northerly latitudes, like those in Norway, are slow-growing. This means that there are few policy instruments and measures that can give measurable effects by 2030. The measures that will have the greatest short-term effects are improving practices for tending young-growth stands, reducing harvesting of young-growth stands and fertilisation. However, the slow pace of growth also means that it is important to start other, more long-term measures. These will have effects in the period from 2030 and up to 2050, when Norway’s target is to be a low-emission society.

Net removals in forest have been declining since 2009, and this trend will continue up to 2050 unless new measures are introduced or the existing measures are strengthened. Strengthening existing mitigation measures will result in more rapid reversal of the declining trend in removals, and a much higher long-term level of removals in forest (see Figure 4.7). The Norwegian Institute of Bioeconomy Research and the Norwegian Environment Agency have estimated that the long-term effect of the measures discussed in this white paper may be to increase annual net removals in forest to about 6.5–8 million tonnes CO₂ by 2100, depending on the scope of the measures and when they are implemented (see Table 4.1). There will be additional removals from afforestation of new areas. This estimate is based on a number of assumptions, and there are several sources of uncertainty, but scaling up these efforts will in any case have a substantial effect. Thus, forest-related measures will contribute towards the aim of the Paris Agreement of reaching a balance between emissions and removals at global level in the second half of this century. Resilient forests where the level of CO₂ removals is high and the overall carbon stock in forest is increasing will be important for the climate, biodiversity and the forestry and wood industry both now and in the future. Forests can also function as an important supplier of biomass, which can be used to reduce emissions in other sectors in the years ahead. The demand for biomass in other sectors is discussed in the relevant chapters.

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Photo: Colourbox

To enhance carbon removals in forest, it is important to consider carbon uptake at all stages of production. A great deal is already being done, and the Government will further develop existing mitigation measures for forest. This can provide benefits for business and industry and a basis for increasing value creation and employment in Norway. Biodiversity, outdoor recreation and other environmental interests must be taken into account when measures and policy instruments are initiated in this sector.

4.4.2 Grants for higher planting densities, forest tree breeding and fertilisation of forest

In 2016, three grant schemes were introduced with the aim of increasing CO₂ removals in forest. The first is designed to encourage planting seedlings at higher densities when regenerating forest after harvesting. This increases the standing stock and thus CO₂ removals in forest. The second is a grant scheme to improve forest tree breeding. The aim is to use the genetic variation in forest trees to breed tree seed that yields higher production than unimproved seed from ordinary forest stands, and that is more resilient to climate change. The third grant scheme is for targeted fertilisation of forest as a climate mitigation measure, with accompanying environmental criteria. In forest areas where a lack of nitrogen is a limiting factor for growth, application of nitrogen fertiliser results in increased growth in tree height and diameter over a ten-year period. This also increases CO₂ uptake by the trees. The grant scheme for fertilisation of forest is to be reviewed in 2021.

Modelling shows that there is still a potential for further enhancing CO₂ removals through the three grant schemes. This is limited in the short term, but increases towards 2100. Together with stricter follow-up of obligations relating to regeneration after harvesting (Chapters 4.4.6 and 4.4.7), these three schemes have an overall long-term potential to increase annual removals by 3.5 million tonnes CO₂. The figure is based on assumptions described in a report from the Norwegian Institute of Bioeconomy Research.22 The economic cost of all these measures is estimated to be below NOK 500 per tonne CO₂. Their effect in 2100 will depend on when they are implemented in specific forest areas and the scope of the grant schemes, particularly in the case of regeneration after harvesting. The Government will continue and consider whether to expand the grant schemes. Actions that will have a positive climate impact and a positive or acceptable environmental impact will be given priority. The three grant schemes were discussed in the white paper Norway’s Climate Strategy for 2030 (Meld. St. 41 (2016–2017)).

4.4.3 Tending young-growth stands

Tending young-growth stands involves selecting good-quality trees and ensuring that they are optimally spaced, so that stand growth and quality are as good as possible. Tending young-growth stands at the right time ensures that the trees develop straight, high-quality trunks. This timber can be used for climate-friendly construction products that will continue to store carbon for long periods of time. In addition, wooden materials can replace materials associated with higher greenhouse gas emissions, thus yielding climate benefits. Forest owners can tend young-growth stands to promote variation in species composition, which may enhance biodiversity. Tending young-growth stands also makes forests more resilient to windthrow, snow damage and other climatic factors. Thus, tending young-growth stands is important in the adaptation of forestry to a changing climate. The Norwegian PEFC Forest Standard is the dominant forest certification scheme in Norway, and is used for almost all timber that is harvested for sale. According to the PEFC Standard, owners must ensure that there is a substantial proportion of broad-leaved trees where climatic conditions and soils are suitable. The standard also requires that when tree species replacement is to be carried out, an owner must take steps to ensure that broad-leaved trees make up at least 20 % of trees on the property. Tending of young-growth stands is needed in an area totalling about 40 000 hectares per year, but on average, only about 27 000 hectares per year was tended in the ten-year period 2009–2018. This means that a substantial backlog is being built up. Tending a larger proportion of young-growth stands at the right time could increase removals by 0–0.5 million tonnes CO₂ per year up to 2030, rising to 0.9–1.3 million tonnes CO₂ in 2050 and 1.5-3.3 million tonnes CO₂ in 2100. The economic cost of the long-term benefits is less than NOK 500 per tonne CO₂. Tending young-growth stands will to some extent be profitable for owners. However, activity in this area is low since forest owners are cautious about making investments that will only give a return for future generations. The Government will give further consideration to the need to expand tending of young-growth stands as a climate mitigation measure.

4.4.4 Requirements relating to minimum ages for tree felling

The timing of harvesting influences the capacity of forests to absorb CO₂ and the quantity of carbon stored over time. If trees are felled when they have reached harvesting age, CO₂ uptake will be higher than if they are harvested earlier. This will not have a negative impact on biodiversity and may provide more timber for industrial use. The Norwegian Institute of Bioeconomy Research has estimated that a prohibition on harvesting young-growth stands corresponding to the requirements of the Norwegian PEFC Forest Standard could increase CO₂ removals by 0.3 million tonnes a year. This is based on the assumption that the stands are healthy and not exposed to damage or to pests such as insects or root rot. The Government will introduce requirements relating to minimum ages for clear cutting and seed tree felling in the Forestry Act and the regulations on sustainable forestry. These will correspond to the requirements of the PEFC Forest Standard. It will be possible to apply to the municipality for exemptions from the new provisions, according to the rules already included in the legislation. The Government will start the process of amending the legislation as soon as possible.

Delaying harvesting beyond the minimum ages set out in the Norwegian PEFC Forest Standard until stands reach economic maturity may increase long-term carbon removals by a further 0.7 million tonnes CO₂ per year, according to the Norwegian Institute of Bioeconomy Research. The Institute emphasises that this figure may be an overestimate, since it is based on the assumption that tree density in the stands used in the calculations is optimal and they are not affected by climate-related damage or different types of pests. However, even after correction for this, there is a substantial remaining potential for enhancing removals. The Government will therefore commission a study of why forest owners choose to fell stands before they reach harvesting age. The results will be used as a basis for assessing the need for policy instruments to promote later harvesting, with a view to enhancing carbon removals in forest. The Government will also assess whether the statutory minimum ages for felling should be higher than the current requirements in the PEFC Forest Standard.

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Photo: Steinar Johansen

4.4.5 Reducing damage caused by conifer root rot

Norway spruce grows quickly where site quality is medium to good, but is also vulnerable to various types of rot fungi. Conifer root rot is most widespread and accounts for about 80 % of the problem. Inspection in connection with harvesting shows that every fifth spruce tree in Norway is infected with conifer root rot. About 500 000 m³ of the volume of sawlogs harvested in Norway in 2019 was damaged by conifer root rot. This affects the annual increment in Norwegian forests, and results in decomposition of biomass and the release of CO₂ to the atmosphere. In addition, it reduces the quality of the timber and means that it cannot be used for long-life materials. The energy content of the timber is also lower.

The most important way of reducing conifer root rot in spruce forest is to prevent its spread to healthy forest. The fungus spreads less easily in lower temperatures or when the ground is snow-covered. If stands are thinned or timber is felled when there is no snow cover or during mild weather in winter, stumps should be treated with a fungicide. Most modern logging machinery is fitted with equipment for the application of fungicides, but this is not widely used in Norway. In areas where root rot is a particularly serious problem, it may be appropriate to harvest stands earlier than the normal age. Other measures include tree species replacement and encouraging the growth of mixed forest where root rot is a problem.

It is not realistic to eliminate root rot entirely from spruce forest, but it is possible to limit the problem using fairly simple measures. Reducing damage caused by root rot will have a positive effect both in the context of climate change and for the forestry industry, and the economic cost of the measure is under NOK 500 per tonne CO₂. In addition, this is normally in the interests of forest owners. However, the benefits are not felt until the next generation, and stump treatment is therefore rarely used. Taking these factors into consideration, the Government will consider how best to promote the reduction of damage caused by root rot.

4.4.6 Following up obligations relating to regeneration after harvesting

The Forestry Act and the regulations relating to sustainable forestry require owners to take steps within three years of felling to ensure satisfactory regeneration. The regulations specify the minimum legal seedling density and the recommended density depending on growing conditions (site quality). The municipalities are responsible for ensuring compliance with the provisions of the regulations. Figures from the National Forest Inventory and from surveys of the results of environmental and forestry measures show that tree density in about 20 % of regeneration areas is lower than required by the regulations relating to sustainable forestry. This means that the full potential for carbon removals will not be achieved in the years ahead. The Norwegian Agriculture Agency has developed a system for checking compliance with obligations relating to regeneration. This is based on whether there is agreement between the figures for harvesting and for regeneration in the financial management system for the forestry industry. Failure to comply with the obligations relating to regeneration may result in a coercive fine, or the authorities may implement regeneration measures at an owner’s expense. If owners do not ensure suitable conditions for regeneration, they may be required to notify the authorities of subsequent harvesting operations, and notification may also be sent to the relevant certification body. Action to follow up regeneration obligations will continue to be important in the years ahead.

Forest owners are free to decide whether forested areas are to be converted to managed grassland. The obligations relating to regeneration under the Forestry Act apply to rough grazing, but not to managed grassland. If forest is converted to managed grassland, the area is deforested, and the resulting emissions must be accounted for in accordance with the EU legislation. The Ministry of Agriculture and Food, in consultation with the Norwegian Agriculture Agency, will consider a proposal to require documentation that conversion of an area to managed grassland is based on a real need. This is further discussed in Chapter 4.6.2.

4.4.7 Use of suitable tree species for regeneration

As mentioned above, figures from the National Forest Inventory and from surveys of the results of environmental and forestry measures show that tree density in about 20 % of regeneration areas is lower than required by the regulations relating to sustainable forestry. This percentage is somewhat higher if only the tree species that are best suited to growing conditions at a site are included. If the regulations are amended so that only the tree species that are best suited to a site count towards the minimum density requirements, carbon removals in forest could be enhanced. The Government intends to amend the regulations relating to sustainable forestry to include such a requirement.

4.4.8 Clearing drainage ditches in productive forest

About 2700 km² of managed forest in Norway has a network of drainage ditches designed to increase timber production. Most of this area (93 %) is now productive forest. In 2006, a prohibition on draining peatland for forestry production was introduced. Over time, established drainage systems become blocked by twigs and branches, moss and other organic material, and water accumulates. Clearing ditches provides better conditions for forest to become established after felling, resulting in optimal forest growth and CO₂ removals. This is particularly important where ditches may have been damaged by logging machinery and offroad transport.

Surveys of the results of environmental and forestry measures show that the area where ditches need to be cleared totals about 4 500 hectares a year, which corresponds to 10 % of the area that needs to be regenerated each year. These are areas that have already been drained, not new areas. The Norwegian Institute of Bioeconomy Research estimates that clearing ditches after final felling in relevant areas could result in an increase in net uptake of CO₂ in living biomass (wood) of about 2 million tonnes per year towards the end of this century. Any changes in the soil carbon stock and effects on other emissions of other greenhouse gases such as nitrous oxide and methane would be additional to this. However, it is not possible to quantify the effects of ditch clearing on the soil carbon stock and other greenhouse gases on the basis of current knowledge. There has been little research in this field, but given a rise in above-ground biomass, empirical observations suggest that soil carbon will increase because litter input will rise to exceed the decomposition rate for existing soil carbon. The Institute of Bioeconomy Research considers soil carbon in previously drained forest soils to be more resistant to further decomposition than soil carbon in recently drained forest soils. There has been little research on the possible impacts of clearing existing ditches on biodiversity and the environment; work has focused on the effects of constructing new drainage ditches. However, clearing ditches will probably have less impact than constructing new ditches. The Government is willing to consider including ditch-clearing as a mitigation measure, but more knowledge needs to be obtained about other effects this may have. For example, possible impacts on biodiversity, water quality and other environmental factors should be investigated.

In parallel with this, the Government has initiated a revision of the regulations relating to sustainable forestry. This process will include the introduction of a prohibition on clearing old drainage ditches in areas where no productive forest has been established. A 2016 white paper on policy for the forestry and wood industry (Meld. St. 6 (2016–2017)) made it clear that peatland restoration efforts should give priority to areas of drained peatland where there is no productive forest.

4.4.9 Afforestation of new areas

Expanding the area of forest land is another way of enhancing CO₂ removals. This can be done by afforestation of areas that are not currently managed forest land or where there is little forest. It can also happen through the natural spread of forest in areas of cultural landscape that are no longer in active use, which is a continuous process. In 2012, in the updated cross-party agreement on Norwegian climate policy, the Storting (Norwegian parliament) decided that the Government should develop a strategy for increasing afforestation. In the period 2015–2018, a pilot project was carried out to gain experience of various measures and ways of organising the work. The Norwegian Environment Agency and the Norwegian Agriculture Agency presented an evaluation in 2019 and recommended some changes after the pilot phase. These recommendations were intended to increase the climate impact of afforestation, reduce conflict with environmental interests and find less bureaucratic ways of organising the work. In its political platform, the present Government states that it will continue work on cost-effective mitigation measures such as afforestation using native tree species.

The Government will facilitate afforestation of new areas on the basis of clear environmental criteria. The evaluation by the Norwegian Environment Agency and the Norwegian Agriculture Agency will be used as a basis for continuing this scheme, and the Government will ask the two agencies to prepare a set of guidelines on the basis of experience gained during the pilot phase. The Government will follow the recommendation that areas of very high site quality should not be given priority for afforestation, since such areas offer suitable conditions for the development of broad-leaved forest, which is important for biodiversity.

Some areas are of national and/or significant regional environmental value. The Government’s position is that afforestation should not take place in these areas. The non-native tree species that are most widely used in Norway grow better and therefore absorb more CO₂ than Norwegian tree species. However, they are also placed in the ‘severe impact’ category in Norway’s Alien Species List. A grant scheme for afforestation of new areas will therefore apply to the use of Norwegian tree species only.

If the area of forest land is increased or tree species are replaced in areas where natural spread of forest is in an early phase, CO₂ removals will increase up to 2050 and 2100. The cost of this measure is estimated at under NOK 500 per tonne CO₂. Forest products can also be used to replace materials associated with higher emissions. The Government will therefore facilitate afforestation of new areas as a mitigation measure on the basis of clear environmental criteria.

4.4.10 Measures to reduce the level of climate risk

Norway has large areas of mature forest that can be harvested in the period up to 2030. After harvesting, owners must according to the legislation take steps to ensure regeneration within three years. Norwegian forests are slow-growing, and decisions made now will have consequences for managed forest land up to the end of the century. It is therefore vital to take a long-term approach. Long-term climate change adaptation in forestry can enhance CO₂ removals, reduce greenhouse gas emissions and reduce the risk of damage that may affect life and health, material assets, biodiversity and the economic base. Forests must therefore be managed in a way that makes them more resilient to a changing climate.

An emergency preparedness and response system is vital in both the long and the short term to deal with events such as insect outbreaks, wildfires and wind damage. Storms can cause huge damage to forests, and combined with shorter periods of frozen ground, higher precipitation and more frequent and more intense extreme precipitation events, will destabilise stands of trees. Windthrow has negative impacts on both the climate and the forestry industry, and can also be a threat to life and health and damage infrastructure. After large-scale windthrow, assistance from the forestry industry will be needed to clear blown trees that have damaged key infrastructure. Using forestry machinery for this purpose can delay efforts to clear and salvage blown timber in forests. In the next instance, this may affect forest hygiene and preparedness against secondary pests such as bark beetles. Preparedness analyses are needed to identify the best ways of dealing with these challenges. However, forest owners can also play a part in planning and action to reduce natural hazard damage. In the short term, the timing of thinning is important for resilience to high winds. In addition, the risk of damage can be reduced by designing clearcuts so as to avoid instability in transitional zones to the surrounding forest. In the longer term, forests can be made more resilient to high winds by tending young-growth stands at the appropriate time, so that the trees that are retained can develop symmetrical crowns and root systems that allow them to withstand wind and snow damage better. Another option is to consider tree species replacement where this may reduce the risk of damage.

The Norwegian Institute of Bioeconomy Research and the Norwegian Forest Seed Centre are engaged in cooperation to breed seeds and forest trees that are better adapted to a changing climate. As the climate warms, some foreign tree species and Norway spruce from more southerly latitudes may prove to be more suitable than native trees. However, foreign tree species may also have negative impacts, for example on biodiversity. Regulations issued under the Nature Diversity Act therefore require a permit for any new planting or sowing of foreign tree species to avoid negative impacts on biodiversity. Forest tree breeding in Norway has so far focused on Norway spruce, but the Forest Seed Centre has started a project to scale up breeding and production of Scots pine seeds.

Forest roads must be planned and designed for higher precipitation, so that access is maintained and the roads do not result in unexpected flood damage or trigger erosion and landslides. Forest roads are also important for emergency preparedness, since they can function as firebreaks or provide access if public roads are closed because of landslides, avalanches or flooding. Regulations under the Forestry Act apply to areas of protective forest, where the forest provides protection for other areas of forest or against natural hazards. These regulations should be reviewed as part of climate change adaptation in the forestry industry.

Since wildfires release CO₂, methane and soot, a good wildfire preparedness and response system is also important in the context of climate change. However, certain forest species are dependent on forest fires. The number of days when there is a risk of fire is expected to rise in forested areas, and the wildfire season may become considerably longer. A well organised wildfire preparedness and response system is crucial for limiting damage. The right forest management practices can also lower fire risk. Wildfires can be prevented or made less intense and therefore easier to extinguish by creating a mosaic of forest of varying species composition and age.

In many parts of Norway there are large populations of cervids that cause grazing damage to forest. This can make it difficult to use tree species other than Norway spruce for forestry purposes. Measures to protect regeneration areas against grazing damage should therefore be considered, together with ways of adjusting cervid populations to the available grazing resources without undermining commercial interests or depleting the carbon stock in forests in the long term.

A research project called Climate-Smart Forestry Norway 2020–2024 has been established to identify robust forest management approaches and provide management guidelines and advice that will make forests more resilient to climate change. The research project also aims to help forest owners ensure higher, sustainable economic returns from their forests and to contribute to reductions in greenhouse gas emissions through the replacement of fossil raw materials with wooden products. The project is funded through research funding for agriculture and the food industry administered by the Norwegian Agriculture Agency and through the BIONÆR research programme, and is coordinated by the Norwegian University of Life Sciences. The project involves cooperation between Norwegian, Finnish and Dutch forest research institutes.

In addition to this long-term research project, the Ministry of Agriculture and Food and the Ministry of Climate and Environment believe that a study of climate change adaptation in the forestry industry is called for. This would provide a basis for management advice that would also take into account effects on the industry, biodiversity, outdoor recreation and other interests.

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Photo: Irene Lindblad/ Ministry of Climate and Environment

4.4.11 Overall effect of mitigation measures in managed forest land

Annual net removals in forest in Norway have been declining since 2009. Net removals in 2009 totalled 35 million tonnes CO₂eq, but were down to just under 28 million tonnes CO₂eq in 2018 (National Inventory Report 2020). The decline in annual net removals is expected to continue in the years ahead unless new measures are introduced. The volume of net removals will gradually level off and then start to increase again.

In 2016, the Government initiated several measures to increase net removals in forest. The three grant schemes for forest tree breeding, higher planting densities after harvesting and fertilisation of forest were introduced, and at the same time, follow-up of compliance with regeneration obligations was intensified. If these measures are scaled up and the new measures for enhancing removals in managed forest land described in this climate action plan are introduced, the declining trend in CO₂ removals may be reversed more quickly, and removals may rise to a higher level in the long term. This is illustrated in Figure 4.7.

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Source Norwegian Institute of Bioeconomy Research (6(153), 2020)

Table 4.1 shows possible effects of various forest-related mitigation measures as analysed in several reports, including the mitigation analysis for Norway 2021–2030 and a report from the Norwegian Institute of Bioeconomy Research.23 The analyses use different calculation methodologies and are based on different assumptions, so that results for different measures are not directly comparable. Because of interaction between measures, it is not possible to add the figures together directly. However, the estimates do show that scaling up mitigation measures will have a considerable long-term effect, perhaps as much as 6.5–8 million tonnes CO₂eq by 2100. There will be additional removals from afforestation of new areas. The actual effects of the measures will depend on their design and scope, which the Government will return to at a later date.

4.5 Cutting emissions from the development of green areas

4.5.1 Introduction

The conversion of forest, peatland and agricultural areas (green areas) for other purposes results in emissions of about 2 million tonnes CO₂ a year. Most of this is from the development of forest land. The conversion of green areas also has negative impacts on biodiversity and the environment. Through the climate agreement with the EU, Norway is accountable for emissions from the conversion of green areas to a greater extent than before.

Land is being used to build homes, holiday homes, roads, commercial buildings, sports facilities and a variety of other structures. These processes will need to continue, but it is also vital to take into consideration the value of green areas, so that the conversion of green areas for other purposes is kept to a minimum. In other words, smart and effective spatial management is needed. For example, former industrial sites can be re-used, and new developments can be sited away from the most carbon-rich areas such as peatlands and highly productive forest.

In 2020, the European Commission proposed a wide-ranging biodiversity strategy for 2030. This is influenced by the serious decline and loss of nature that has already occurred. Restoring nature, particularly carbon-rich ecosystems, is therefore a key element of the strategy, together with large-scale expansion of nature protection. Norway is in a better position than many European countries, but the negative trends are apparent here too. Spatial management need to be improved to avoid severe losses, including economic losses, in the future.

Statistics Norway has estimated (Notater 2020/10) that the total area in Norway developed for buildings and infrastructure in the period 2008–2019 was 540 km². More than 80 % of this was previously natural habitat or agricultural land. Zoning provisions in current municipal master plans allow for the development of a further 2 777 km², of which 56 % is currently forest land, 20 % other land, 8 % peatland and 6 % agricultural land.

4.5.2 Spatial planning at municipal level

The municipalities are the main spatial planning authorities under the Planning and Building Act, but the central government determines the overall framework through regulations, government expectations for regional and municipal planning (under section 6-1 of the Act) and central government planning guidelines (under section 6-2 of the Act). The Government will continue to emphasise that spatial planning processes should be used to promote the development of compact towns and urban areas, and that the potential for densification, transformation and re-use of areas and buildings should be used before new areas are developed. This approach will reduce transport needs and thus emissions from transport. It will also mean that less nature and agricultural land that is converted for buildings and infrastructure, and will reduce emissions from these types of land-use change. Last but not least, this approach to spatial planning can contribute to the development of dynamic communities that are attractive to live in.

The Government will take steps to ensure that municipalities and counties receive sound guidance and good tools so that they can take carbon-rich areas into consideration in spatial planning. At the request of the Norwegian Environment Agency, the Norwegian Institute of Bioeconomy Research developed a greenhouse gas inventory for the LULUCF sector for all municipalities in Norway for 2010 and 2015. Municipalities and counties can use this information as a basis for efforts to reduce emissions and enhance removals linked to different types of land use in the municipalities. The Environment Agency has also developed a calculation tool that enables municipalities to estimate the effects of planned changes in land-use on emissions and removals. This can be used to compare the effects of different options for land use. Any conversion of forest and other green areas will result in greenhouse gas emissions, but the volume of emissions will depend on the land category that is to be developed (peatland, forest, agricultural land, etc).

4.5.3 Forest and peatland

The main cause of emissions from land-use change in Norway is deforestation, which in turn is largely for construction and infrastructure development. It is therefore crucially important to reduce the conversion of forest for other purposes in order to approach compliance with the ‘no debit’ rule for the LULUCF sector.

It is also vital to prevent the conversion of peatland as far as possible. These areas store large quantities of carbon in the form of dead plant material that accumulates over thousands of years and becomes peat. Peat accumulates because the waterlogged conditions in the soil prevent complete decomposition of the plant material. The deeper the peat, the larger the carbon stock. Peatlands are also important for biodiversity, particularly birds and insects, and provide other ecosystem services in addition to carbon storage. Peat has a unique ability to retain water and release it slowly, thus moderating both drought and flooding.

When an area of peatland is used for construction or infrastructure development, part or all of the area is drained and excavated. The large carbon stock in the peat becomes a major source of emisssions, and emissions per unit area are often much higher than when other types of land are developed. However, it is not a straightforward matter to compare the climate impacts of developing peatland with those of developing highly productive forest, because the reduction in future carbon sequestration must also be taken into account. The carbon stock is normally much higher in peatland than in forest on mineral soils, but annual carbon uptake is higher in forest.

The Government will seek to reduce the conversion of peatland for other purposes through planning under the Planning and Building Act and other appropriate measures. The Government will develop a specific strategy to prevent the conversion of peatland. This process must include an evaluation of ways of preventing the conversion of peatland without increasing pressure to develop forest and agricultural land. Special consideration must also be given to areas of forest growing on peat soils. These areas are often former peat bogs that have been drained and planted. The conversion of such areas for other purposes may result in even higher emissions than similar developments on peatland that has not been drained.

The Ministry of Climate and Environment will also consider issues relating to the conversion of peatland for other purposes in connection with follow-up of the white paper Nature for life – Norway’s national biodiversity action plan (Meld. St. 14 (2015–2016)).

4.5.4 Tax on greenhouse gas emissions resulting from land-use change

The current projections indicate that Norway’s net accounted emissions in the LULUCF sector are likely to be about 18 million tonnes CO₂eq for the period 2021–2030 (if Norway makes use of the compensation mechanism), mainly as a result of the conversion of forest to other land categories. To comply with the ‘no debit’ rule in the agreement with the EU, Norway must offset these emissions by purchasing LULUCF credits from other countries or emission allowances under the Effort Sharing Regulation. We do not know what the price of purchased LULUCF credits will be until an agreement has been negotiated with a country that has credits to sell. Assuming as an example that the price is NOK 200 per tonne, net emissions of 18 million tonnes in the period 2021–2030 will cost about NOK 3.6 billion. Currently, developers are not required to pay for greenhouse gas emissions that result from the conversion of forest or other green areas. The conversion of such areas results in the degradation of various ecosystem services, including carbon storage. The polluter-pays principle could justify the introduction of a tax on land conversion for construction and infrastructure development, and perhaps on other forms of land-use change that result in greenhouse gas emissions. It would be a complicated process to introduce a tax of this kind. The Government is not proposing the introduction of a tax now, but will consider the question further.

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Photo: Irene Lindblad/Ministry of Climate and Environment

4.5.5 Guidelines for planning holiday homes

The Ministry of Local Government and Modernisation is revising the guidelines for planning holiday homes. The new guidelines will include a thorough discussion of the siting of new holiday homes. Most new developments are now ‘cabin villages’ of varying sizes, and a decreasing are single scattered buildings. The guidelines will also deal with the climate-related effects of constructing holiday homes and of transport to and from them. There may be conflicts of interest as regards biodiversity, the cultural environment, landscapes, agriculture, climate change and transport. These will also be discussed in the guidelines. For example, it is undesirable to allow the construction of holiday homes above the treeline in the mountains in order to avoid developments on forest land. The guidelines will recommend that new holiday homes should be sited within or near areas already developed areas, that the green structure should be taken into consideration, and that construction on peatland should be avoided.

4.5.6 Assessing the need for central government planning guidelines for mountain areas

A call for tenders has been issued for a study intended to provide a basis for deciding whether there is a need for central government planning guidelines for mountain areas. This is in line with the Government expectations for regional and municipal planning, and follows up recommendations in several white papers. The guidelines for planning holiday homes will be a key consideration in this work. It has not yet been decided how the scope of central government planning guidelines for mountain areas would be delimited.

More than 40 % of all holiday homes in Norway are situated less than 100 m above sea level, and a large proportion are on the coast, in the 100-metre belt nearest the shoreline where the general rule is that new construction is not permitted. The central government planning guidelines for the shoreline, which provide for regional differentiation of the management regime, are being revised. Together, the new guidelines on planning holiday homes, the revised central government planning guidelines for the shoreline, and possible new central government planning guidelines for mountain areas will provided sound guidance for municipalities, counties and central government agencies, so that they can take carbon-rich areas into consideration in spatial planning.

4.5.7 Central government transport projects

The Norwegian Public Roads Administration has developed a method and a manual for environmental impact assessment (EIA) of road transport projects.24 The method is based on cost-benefit analysis of potential impacts, both those that are priced (quantified in economic terms) and those that are not. Greenhouse gas emissions as a result of land-use change in the area directly occupied by a transport project, for example the area occupied by construction of a new road, are included in the priced impacts. The manual describes a method for estimating greenhouse gas emissions from the area occupied by a project, based on average factors for five different land categories: forest land, divided into high, medium, and low site quality; agricultural land; and peatland.

Transport projects may also lead directly or indirectly to the conversion of land for other purposes: for example, a new road may make it attractive to develop residential areas or to site commercial buildings in new areas. The transport authorities have no control over such secondary effects, and their impacts are difficult to quantify. Some transport projects may facilitate more climate-friendly land use than others, for example by encouraging densification around transport nodes. The manual indicates that when this is a key consideration, the EIA process should include sensitivity analyses of different patterns of land use to investigate how different options may influence CO₂ emissions. The manual describes when and how such supplementary analyses should be included.

The methods for assessing the impacts of land-use change described in the manual are relatively new (2018), and the way the manual is used in practice varies a good deal.

During the preparation of the National Transport Plan 2022–2033, the Ministry of Transport and the Ministry of Climate and Environment will consider the transport projects included in the plan with a view to estimating greenhouse gas emissions from the area occupied by each project. For large-scale projects in the transport plan, the area of land to be converted will be estimated for each project. Areas will be estimated for the following land categories:

• Forest – high site quality

• Forest – medium site quality

• Forest – low site quality

• Agricultural land

• Peatland.

This process will give a rough estimate of CO₂ emissions from the land that will be required for the different large-scale projects. Further development of the methodology is needed. The Ministry of Transport will continue to develop good practice for these assessments in dialogue with other agencies and companies, and will consider whether any amendments to the manual are needed.

4.6 Cutting emissions from other forms of land use

4.6.1 Conversion of peatland to agricultural land

The Government has adopted a prohibition against new cultivation of peatland, as further discussed in Chapter 3.6. In recent years, the area of peatland converted to agricultural land has been roughly the same as that converted for construction and infrastructure development. The prohibition against new cultivation is therefore an important way of safeguarding peatland. Peatlands contain large carbon stocks, and are important for biodiversity and ecosystem services.

4.6.2 Conversion of forest land to agricultural land

In the period 1990–2017, conversion of forest to managed grassland accounted for 19 % of deforestation and 8 % of emissions from deforestation in Norway. The conversion of cropland for other purposes and the prohibition against new cultivation of peatland may add to pressure on forest land. To counteract the pressure to convert forest land to agricultural land, it is important to continue the active use of existing cropland and grassland. Important measures include reducing the conversion of agricultural land for other purposes and maintaining agricultural production in all parts of the country. Both of these measures continue current agricultural policy.

Under the Land Act, forest land may after harvesting be converted to managed grassland without the need to apply to or receive approval from the municipality. For areas converted in this way to be included in the basis for production grants for grazing, they must meet certain requirements set out in the classification system for land cover used by the Norwegian Institute of Bioeconomy Research. They must be clearly cultivated, and must be dominated by grazing-tolerant grasses and herbs. They must have been cleared of bushes, scrub and felling waste so that they are suitable for the livestock that use the area. The obligations relating to regeneration under the Forestry Act apply to rough grazing, but not to managed grassland. There is no requirement to fence areas of managed grassland, since virtual fencing systems are available. The rules are not entirely clear, and it is therefore necessary to consider how to ensure that any conversion of forest to managed grassland is based on a real need. The Ministry of Agriculture and Food, in consultation with the Norwegian Agriculture Agency, will assess amendments to the legislation to ensure that this is the case.

4.6.3 Cutting emissions from peat extraction

Peatlands store large quantities of carbon and are important for biodiversity. Peat is a limited resource, and its extraction and use results in greenhouse gas emissions. Most peat is extracted from raised bogs, which are a threatened habitat type in Norway and in Europe more generally. In the period 2012–2017, about 330 000 m³ of peat a year was extracted in Norway. It is therefore important to develop peat-free and low-peat alternatives quickly, to make use of renewable resources and to reduce the use of peat. The Norwegian Environment Agency has drawn up a proposal for a plan for the transition from peat-based to peat-free products. In the plan, the Agency assesses the availability of alternative growing media and gives a preliminary account of policy instruments that could be used to phase in the use of peat-free products. Commercial peat extraction is only permitted in areas that are designated for raw material extraction in municipal land-use plans under the Planning and Building Act. Peat is currently being extracted from 21 areas covering a total of about 11 km². Six more areas are designated for raw material extraction in municipal land-use plans, but have not so far been used for peat extraction. At the current rate of extraction, the producers could operate for another 20 years in the 27 areas that have already been designated for this purpose. The best measure for countering the negative impacts of peat extraction and use on the climate and biodiversity is to prevent extraction from new areas. However, this requires that sufficient quantities of alternative products are available, so that peat from Norway is not replaced with imported peat.

The Government will therefore consider the introduction of a ban on opening new sites for peat extraction. The Government will also consider measures under the Planning and Building Act to prevent new licences for peat extraction from being granted before a decision has been made on a ban. In parallel with this, the Government will continue to promote a shift from peat-based to peat-free products.

The Government will also consider the introduction of a tax on greenhouse gas emissions from peat extraction.

The peat and growing media industry has special expertise on the growing media and soil conditioners that will be needed by a low-emission society. The Government will encourage the industry to shift towards more climate and environmentally friendly products, and will give the industry plenty of time to develop such products. The Government will continue to promote a shift from peat-based to peat-free products. If this is successful, it will reduce the risk of carbon leakage. The public administration will follow up the plan proposed by the Environment Agency within the existing budgetary framework. The Ministry of Climate and Environment and the Ministry of Agriculture and Food have allocated funding for research and analysis to the Research Council of Norway and other institutes.

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Photo: Pål Martin Eid/Norwegian Nature Inspectorate, Oslo

4.6.4 Restoration of peatlands and other wetlands

Drained peatlands release greenhouse gases because the low water table allows oxygen to enter the peat, which speeds up decomposition of the organic material in the peat soil. Blocking drainage ditches reduces the loss of carbon. Restoration projects for peatland and other wetlands in Norway have been in progress for the past five years, headed by the Norwegian Environment Agency. So far, 190 km of drainage ditches have been blocked in more than 80 different areas. Most of the restored peatland areas have deep peat and have been restored because of their importance both in the context of climate change and for biodiversity. The Government will continue restoration projects of this kind and similar solutions that are both climate-friendly and environmentally sound. Examples include restoration along river systems and the establishment of wetlands and grassed waterways to stop runoff from agriculture. The Norwegian Environment Agency has been tasked with revising the restoration plan, which will apply for a new five-year period.

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Photo: Pål Martin Eid//Norwegian Nature Inspectorate, Oslo

4.7 Flexibility mechanisms under the EU land use and forestry regulation

Under the EU land use and forestry regulation, countries must ensure that their accounted emissions from the LULCF sector do not exceed accounted CO₂ removals over the period 2021–2030. This is known as the ‘no debit’ rule. The regulation provides for several types of flexibility, depending on whether a country has net emissions or removals in the LULUCF sector. Certain conditions have to be met to make use of these flexibilities. These were discussed in Prop. 94 S (2018–2019) requesting the Storting’s consent to the agreement between Norway and the EU (in Norwegian only).25

If emissions exceed removals, compliance with the ‘no debit’ rule can be achieved through extra national reductions in non-ETS emissions, for example in the transport and agriculture sectors. These will be additional to the commitment for reductions in the non-ETS sector. The alternative is to buy emission units from other European countries, either emission units available in their non-ETS sector or credits from the LULUCF sector. Non-ETS emission units bought from other countries can be used to offset emissions either in the non-ETS sector or in the LULUCF sector. However, LULUCF credits bought from other countries may only be used towards compliance with the ‘no debit’ rule for the sector, not to satisfy the commitment in the non-ETS sector. The legislation also includes a compensation mechanism, managed forest land flexibility, which Norway can use to compensate for accounted net emissions of up to 35.5 million tonnes CO₂eq over the period 2021–2030. This means that under certain conditions, Norway can harvest about 2 million m³ more than the reference level for managed forest without having to report net accounted emissions (this is further explained in Chapter 4.2). The compensation mechanism applies only to accounted emissions from managed forest land and not to other emissions, for example from deforestation or drainage of peatland.

If removals from managed forest land are higher than the reference level, the credits can be used to offset some emissions from other land categories, such as deforested land and wetlands converted to other land accounting categories. However, there is a cap on how much of a country’s net accounted removals from managed forest land can be used in this way. For Norway, the cap is about 1.75 million tonnes CO₂ per year. The increase in the carbon stock in harvested wood products (HWP) is not subject to this limitation, and credits from this sector can be used in full. If a country has overall net accounted removals for the LULUCF sector, it may use some of the surplus removals to close an emission gap in its national non-ETS sector. For Norway, this is limited to a maximum of 1.6 million tonnes in total over the ten-year period. If there are net accounted removals in the LULUCF sector in the first five-year period (2021–2025), a country may also bank the surplus and use the credits in the next five-year period (2026–2030). Alternatively, it can sell LULUCF credits to other European countries.

4.8 Uncertainties

The Government has developed plans for enhancing CO₂ removals in forest and reducing emissions from land use and land-use change. According to current estimates, it is nevertheless likely that under EU accounting rules, Norway will have substantial net accounted emissions from the LULUCF sector. There is considerable uncertainty in the estimates of removals and emissions. It is difficult to make reliable estimates of future land-use changes such as deforestation, and of how actual harvesting rates will develop. Actual harvesting levels relative to the reference level strongly influence accounted removals in managed forest land. Norway is expected to report net accounted emissions from managed forest land, but even with a figure of zero here, there would be net emissions from the LULUCF sector as a whole because there will be net emissions from the other land categories combined. The reference level for managed forest land will be adjusted in future to reflect updates of the background data and the methodology for the greenhouse gas inventory. In addition, natural processes such as forest fires and insect outbreaks may result in emissions, and these are difficult to estimate in the projections. Any net accounted emissions in the LULUCF sector can be offset using flexibility mechanisms or by scaling up measures to reduce emissions from the domestic non-ETS sector. This is discussed in Chapter 4.7.

4.9 Economic and administrative consequences

Value added in the value chains for forest and forest products

Climate mitigation measures for forest are intended to make it possible for CO₂ removals and the carbon stock in forests and harvested wood products (HWP) to stabilise at a higher level than would otherwise be the case. This can be achieved through management practices that improve forest growth and by expanding the use of HWP. Mitigation measures for forest differ from those in other sectors because a general increase in the growing stock also has the co-benefit of increasing value added in the forestry and wood industry. This applies both to primary production and to forest-based manufacturing.

Biodiversity and outdoor recreation

Forestry operations have a visual impact, alter the surroundings for outdoor activities and the quality of people’s experience, and influence living conditions locally for plants and animals. Most of the climate mitigation measures for forest discussed here will involve more intensive production and could have negative impacts on biodiversity and other environmental factors. Whether climate change and biodiversity considerations come into conflict, and if so to what degree, will depend on the specific mitigation measure, where it is implemented and on what scale, and how it is implemented. The impacts of mitigation measures on biodiversity are likely to be more acceptable in areas that are already being actively used for forestry production than in areas that are currently under more extensive management. The Government believes that it is possible to design mitigation measures so that the environmental impacts are acceptable.

Various ways of incorporating environmental considerations into Norwegian forestry policy have been developed over the years to avoid unacceptable pressure on biodiversity and the environment. Environmental and outdoor recreation interests are taken into account through forest certification schemes, the Forestry Act and the regulations relating to sustainable forestry, the Nature Diversity Act, and environmental criteria that apply to economic instruments for the forestry industry. Similar requirements will be included if new climate mitigation measures for forest are established.

Afforestation of new areas and tree species replacement are the mitigation measures for forest that appear to be most likely to affect outdoor recreation and people’s enjoyment of forest landscapes. Other mitigation measures will have less impact on these interests provided that opportunities for shared use are provided for in the normal way.

Uncertainty

Climate mitigation measures for forest generally have effects in the long term. Carbon stocks in forest and soils change slowly, and measuring change is a complicated task. The estimates of the long-term effects of mitigation measures are therefore uncertain. Some sources of uncertainty are described in this chapter. Developing methodology for measuring emissions and removals of greenhouse gases, for example in peatland and other wetlands and in forest soils, is a challenging process. In addition, as long as climate change continues, it is very uncertain how Norway’s forests will develop in the next 50–100 years. This will depend both on the scale of climate change and on how trees and other vegetation respond. The growing risk of diseases, outbreaks of pests, wildfires and storm damage that may affect CO₂ uptake and timber production and quality is also part of the picture.

Municipal responsibilities

Amendments to the regulations relating to sustainable forestry including requirements relating to minimum ages for tree felling (see Chapter 4.4.4) may give the municipalities some additional forestry-related administrative tasks. The statistics show that these requirements will apply to 3–4 % per year of the area of managed forest land, or about 1400 hectares. Using the average size of clearcuts as a basis, this would correspond to 400–500 clearcuts a year. Assuming that these are evenly distributed across the country, each municipality would have to deal with one to two applications per year.

5 The Government’s plan for cutting ETS emissions

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5.1 Figures and projections for emissions in the ETS sector

The EU Emissions Trading System (EU ETS) applies to a large proportion of emissions from industrial production, the petroleum industry and aviation. In 2019, Norway’s ETS emissions totalled 25.626 million tonnes CO₂eq, or about half of its overall emissions. They originate largely from oil and gas production and industrial processes.

The overall volume of emissions included in the EU ETS is being reduced gradually. There are no national emission targets for ETS emissions as there are for non-ETS emissions.

Emissions from industrial production, the oil and gas industry and aviation are mainly in the ETS sector (see Chapter 2, Figure 2.6, showing the split between ETS and non-ETS emissions). Under half of emissions from the energy supply sector are ETS emissions. Figure 5.2 shows Norway’s ETS emissions split by sector in 2019.

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Source Statistics Norway, Norwegian Environment Agency

Industrial production: I 2019, emissions from industrial production included in the ETS sector totalled 10.7 million tonnes CO₂eq, or about one fifth of overall Norwegian greenhouse gas emissions. The manufacturing industries responsible for the largest volumes of ETS emissions are the ferro-alloy, aluminium, cement, mineral fertiliser, pulp and paper and chemicals industries. Major sources of greenhouse gas emissions are the use of coal as a reducing agent in the metal industry, the use of fossil inputs in the chemical industry, and the cement industry. Point sources of emissions in the cement industry include energy production and manufacturing processes, the largest being decarbonisation of limestone to produce clinker.

In recent decades, greenhouse gas emissions from industrial production in the ETS sector have declined, particularly emissions of fluorinated gases (F-gases) from aluminium production and emissions of nitrous oxide from production of mineral fertiliser. This is because new technology has been developed and deployed and better control systems have been introduced.

The petroleum industry: In 2019, greenhouse gas emissions from ETS installations in the petroleum industry totalled 13.2 million tonnes CO₂eq. This is equivalent to about one fourth of Norway’s overall greenhouse gas emissions. These emissions are expected to decline from 13.4 to 9.7 million tonnes CO₂eq in the period 2020–2030, to a large extent because of increasing electrification of petroleum installations. These emissions are largely from gas turbines that either generate electricity or are used to operate pumps and compressors on oil and gas platforms.

Power and heat generation: In 2019, greenhouse gas emissions from power and heat generation included in the EU ETS totalled 0.7 million tonnes CO₂eq, or 49 % of total emissions from energy production. Large combustion installations that supply energy to businesses are included in the EU ETS, but not installations for the incineration of household waste.

Aviation: In 2019, greenhouse gas emissions from aviation totalled 1.2 million tonnes CO₂eq. Over 90 % of domestic aviation is included in the EU ETS, which currently covers emissions from flights within the European Economic Area (EEA). Small commercial operators that operate few flights and have low emissions are not included in the EU ETS, and nor are police and SAR flights.

Table 5.1 and Figure 5.3 show Norway’s historical ETS emissions from 1990 to 2019 and projections from the 2021 National Budget (Prop. 1 (2020–2021)).

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Source Statistics Norway, Norwegian Environment Agency, Ministry of Finance, Ministry of Climate and Environment

The Government presented updated emission projections for Norway up to 2030 in the 2021 budget. The projections do not serve as a plan for reducing emissions, but are an assessment of the emission trajectories based on policy measures and instruments adopted at the time the projections were prepared.

Given the assumptions on which the projections are based, ETS emissions are expected to decline by about 4.3 million tonnes CO₂eq, or about 17 %, from 2019 to 2030. This corresponds to a reduction of 6.4 million tonnes CO₂eq, or about 23 %, from the 2005 level. The largest reductions in the years ahead are expected to be achieved in the oil and gas industry.

Projections for emissions from oil and gas production are prepared by the Norwegian Petroleum Directorate and are based on reporting by the oil and gas companies. These are supplemented with data on emissions from onshore facilities associated with onward transport of petroleum products.

Projections for other ETS emissions are prepared by the Ministry of Finance in consultation with the Norwegian Environment Agency.

5.2 Policy instruments for reducing ETS emissions

The price mechanisms linked to the EU ETS are intended to be the main drivers of mitigation measures in the ETS sector. The EU ETS is designed to ensure that the most cost-effective measures are implemented to achieve specific goals. It pays for companies to implement measures that are based on already available technology and cost less than the current price of emission allowances.

The oil and gas industry, most domestic aviation and industrial use of natural gas are subject to the carbon tax in addition to being included in the EU ETS. In addition, there is an air passenger tax on all domestic flights, and an advanced biofuel quota obligation for domestic aviation.

A stable, predictable carbon price in the years ahead will provide a strong incentive to invest in and adopt zero-emission technology, and will also simplify planning for companies and other stakeholders. The Government therefore intends to raise the carbon tax for domestic aviation and emissions from oil and gas extraction that are within the scope of the EU ETS in line with the rise for non-ETS emissions (see Chapter 5.5 and 5.7 and Box 5.1). Rises in the carbon tax will be considered in conjunction with the price of emission allowances in the EU ETS, to that the total carbon price does not exceed NOK 2 000 per tonne CO₂eq in 2030, measured in fixed 2020 NOK, unless the price of emission allowances alone is higher than this.

The Government will not introduce a carbon tax on ETS emissions that are not currently subject to the tax.

A sustained initiative for technology development will be of crucial importance for restructuring Norwegian business and industry as part of the transition to a low-emission society. The authorities are supporting research and innovation that can result in the development of new solutions and low-emission technologies in the ETS sector. Businesses that have plans to develop such solutions can receive support, and at the same time the authorities are providing a framework that encourages business and industry to reduce emissions and change to production and products that are consistent with a low-emission society. In the Government’s view, policy instruments for the industrial sector should be even more clearly targeted than at present to encourage the phase-in of new technologies. Energy-efficient industry with low emissions is essential in the transition to a low-emission society.

The Government has given Enova a clearer climate profile for the next four-year period, and the transition to a low-emission society and innovation that contributes to this are important goals for Enova in the new agreement period, see Chapter 3.3.5.2 for more about Enova. Enova’s role is particularly important in the case of ETS emissions, since public funding for research and development is an important supplement to the emissions trading system. Enova provides support for technology development and innovation in the ETS sector that can make it possible to reduce production-related emissions, see Box 5.2.

New industries will need to be developed to meet future needs. Expanding production of renewable energy from offshore wind and solar power and making greater use of hydrogen and battery technology will offer opportunities for new commercial activities related to production, maintenance, control systems and other services.

The EU Innovation Fund

The EU Innovation Fund is funded through the auctioning of 450 million allowances in the EU ETS. It will provide grants for commercial demonstration of innovative low-carbon technologies in the period 2021–2030. The projects will focus on renewable energy, energy-intensive industries, energy storage and carbon capture, use and storage.

The funding available will depend on the price of emission allowances in the EU ETS. According to estimates from the European Commission, the fund will provide around EUR 10 billion in the period 2021–2030 if the price of emission allowances is EUR 20 per tonne CO₂, while EUR 15 billion will be available with an allowance price of EUR 30 per tonne of CO₂.

Norway is eligible to make full use of the fund, and Norwegian companies can apply for funding in the same way as those in EU member states. The fund will provide up to 60 % of the additional costs of using innovative energy and climate technology instead of conventional technology. This applies to both capital and operational costs of projects. Both direct and indirect reductions in greenhouse gas emissions may be included in the calculations. Enova has a special responsibility for administering Norwegian applications to the fund.

5.3 The EU Emissions Trading System and how it functions

The EU ETS sets a cap on emissions from industrial processes, the petroleum industry, power and heat generation and aviation. For every tonne of greenhouse gases emitted, a company must hold an emission allowance (see Box 5.4). The EU ETS is a long-term policy instrument that gradually tightens restrictions on emissions.

In line with the EU’s target of reducing overall emissions by at least 40 % compared with the 1990 level,27 the number of emission allowances is being reduced every year to ensure that emissions are 43 % lower in 2030 than they were in 2005 for the sectors covered by the EU ETS, see Figure 5.4.

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Source European Commission, Ministry of Climate and Environment

There is currently a surplus of allowances in the EU ETS. To achieve the level of ambition for the period 2021–2030, the number of emission allowances issued per year is being reduced at a higher rate than previously. In addition, a Market Stability Reserve has been operating since 2019. This reduces the overall surplus of emission allowances in the system by transferring allowances from the market to the reserve when the surplus exceeds a pre-determined threshold. From 2023 onwards, allowances held in the reserve in excess of the previous year’s auction volume will be permanently cancelled. In this way, the reserve will contribute to a tighter cap on emissions and higher carbon prices, thus strengthening the incentive to cut emissions within the scope of the EU ETS. This system does not currently apply to aviation, because the emission allowances for this sector are not included in the basis for calculating the volume of allowances to be transferred to the Market Stability Reserve.

Under the rules of the EU ETS, it is also possible to purchase and voluntarily cancel emission allowances. Cancelling allowances reduces the volume of emissions within the emissions trading system. In principle, cancelling one emission allowance reduces emissions by one tonne CO₂eq. However, as long as the surplus in the EU ETS exceeds the threshold for transfer to the Market Stability Reserve, the effect of voluntarily cancelling allowances may be less than one tonne per allowance. This is because voluntary purchase and cancellation of emission allowances will reduce the surplus of allowances circulating in the market, and thus the number of allowances that are transferred to the reserve.

The EU ETS covers about 140 stationary installations in Norway, including various forms of industrial production, oil and gas facilities and combustion installations. In the aviation sector, there are six operators that report to Norway. Aviation within the EEA has been included in the EU ETS since 2012. The system encourages operators to adapt by making investments and adjusting their operations when the cost of action is lower than the price of emission allowances.

In most European countries, emissions in the ETS sector are dominated by electricity generation for industrial purposes and general energy supplies.

The EU ETS plays a part in driving higher electricity prices in Europe. When the carbon price rises, the price of electricity production from coal and natural gas also becomes more costly, and it becomes relatively more profitable to develop renewable energy. Thus, the EU ETS provides incentives to develop renewable energy production and decarbonise the energy sector in Europe.

Norway is integrated into the European power market through cross-border interconnectors, mainly to Sweden, Denmark and the Netherlands. Changes in electricity prices in other parts of Europe therefore influence prices in the Norwegian power market. In 2020 and 2021, new interconnectors with Germany and the UK are being completed. This will enable Norway to take advantage of differences between different power systems and ensure reliable electricity supplies.

The EU considers it important to avoid carbon leakage, the term used of a situation where businesses transfer their operations to other countries because of costs related to the EU ETS. Industries that are most at risk of carbon leakage therefore receive a larger share of emission allowances free of charge, and some sectors are also eligible for compensation for increases in electricity costs as a result of the EU ETS. Compensation arrangements were introduced in 2013, and participation was optional. Norway chose to take part, and in all, 46 Norwegian installations are currently entitled to compensation for these indirect emission costs. Most of them are in the aluminium, silicon and ferro-silicon, pulp and paper and chemical industries. In Norway’s 2021 budget proposal, NOK 2 567 million was allocated to compensation for indirect emission costs. Disbursements in 2021 provide compensation for costs incurred in 2020.

The European Commission has revised the guidelines for compensation for indirect emission costs for the period 2021–2030. The Government is now considering how to organise Norwegian arrangements for this period.

5.4 The price of emission allowances in the period up to 2030

The price of emission allowances in the EU ETS has varied between EUR 0 and a little over EUR 30 per tonne CO₂eq since the market was established in 2005. In the most recent years it has generally been over EUR 20 per tonne, after remaining consistently well below EUR 10 per tonne for many years.

Future prices of emission allowances are influenced by many different factors, and the level of uncertainty is high. As in other markets, prices are largely determined by supply and demand. The planned reduction in the volume of emission allowances will reduce supply. All other things being equal, this will drive prices upwards. However, it is uncertain how high demand for emission allowances will be in the future. As businesses take part in the transformation process and reduce their emissions, they will need fewer emission allowances, thus reducing demand.

Expectations about the EU’s level of ambition for emission reductions and how this will be reflected in the supply of emission allowances within the EU ETS constitute one of the most important drivers of the price of emission allowances. The EU’s ambition of becoming climate-neutral by 2050 and its more ambitious target for 2030 are examples that will affect expectations.

The EU’s more ambitious climate target for 2030 may entail amendments to the EU ETS that result in a rise in the price of emission allowances.

Unexpected economic events also have impacts on the carbon market. This became clear during the financial crisis of 2007–2008, when the price of emission allowances dropped substantially.

The scope of the emissions trading system and the opportunities available for trading with other markets are other factors that influence the price of emission allowances. Possible future developments such as linking the EU ETS to other emissions trading systems and expanding it to include the transport sector may also influence prices.

Considered in isolation, the Market Stability Reserve is a factor that drives the price of emission allowance upwards because it reduces the number of allowances available.

Figure 5.5 shows historical data for the period 2008 to October 2020, futures prices for 2021–2025, and medians derived from various scenarios containing prognoses of emission allowance prices up to 2030, from a number of analytical firms and financial experts.2829 The estimates are based on a range of assumptions about different market drivers. The estimates included in the scenarios were published before the EU announced its more ambitious 2030 target. The figure also includes Refinitiv’s analysis, published on 14 October 2020, which reflects the proposed more ambitious 2030 target (55 % reduction in emissions, 65 % EU ETS share). The futures prices are market prices adjusted for interest rates (source ICE-ECX).

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Source Refinitiv (formerly Thomson Reuters), Carbon Pulse poll

The prognoses for the period 2021–2030 from various scenarios indicate that the market expects the price of emission allowances to rise steadily up to 2030. The level of uncertainty is high. For 2030, the median price given by the set of scenarios is just over EUR 51 per tonne, while the range is from EUR 42 to EUR 90 per tonne. According to Refinitiv’s scenario, the emission allowance price is expected to rise from 2026 and ends up at about EUR 90 per tonne in 2030, on the assumption that the EU adopts its more ambitious 2030 target. Futures prices rise to about EUR 27 per tonne in 2025, using the price of emission allowances in October 2020 as a basis.

The implementation of mitigation measures in response to the price of emission allowances depends on whether there are measures available that cost less than the emission allowance price. The ETS sector was not included in the terms of reference for the mitigation analysis for Norway 2021–2030. This means that there is no overview of mitigation measures and their economic costs for ETS-sector industrial production and oil and gas activities corresponding to that for the non-ETS sector. However, there are other sources of information. In 2020, the Norwegian Water Resources and Energy Directorate surveyed the technical potential for electrification of large land-based industrial plants. The report does not include information on the costs of the electrification measures. Towards the end of 2020, the strategic forum Prosess21 (see Box 5.6) published reports on mitigation measures and policy instruments for process industries in the ETS sector. In addition, the Norwegian Petroleum Directorate, in cooperation with the Norwegian Water Resources and Energy Directorate, the Petroleum Safety Authority and the Norwegian Environment Agency, published a report on power from shore to the Norwegian continental shelf30 in June 2020 (see Box 5.5). This includes assessments of the costs of electrification of various fields on the Norwegian continental shelf.

5.5 Cutting emissions from oil and gas activities

The Government will:

• Raise the carbon tax on ETS emissions from domestic aviation and from the oil and gas industry in line with the rise for non-ETS emissions, so that the overall carbon price in 2030 (tax + price of emission allowances) is about NOK 2 000 per tonne CO₂, measured in fixed 2020 NOK. The overall carbon price must not exceed NOK 2000 in the period 2021–2030.

5.5.1 The Norwegian oil and gas industry

The overall objective of Norway’s petroleum policy is to provide a framework for profitable long-term production of oil and gas. The Government’s climate policy is designed to ensure that it pays to develop and deploy technologies and solutions that reduce greenhouse gas emissions. The oil and gas industry has been a cornerstone of the Norwegian economy for several decades, and will continue to play an important role in the economy in the years ahead. The petroleum industry is currently Norway’s largest, measured in terms of value added, state revenues, investment and export value. About 200 000 people are directly or indirectly employed in the oil and gas industry and associated industries.

The COVID-19 pandemic and low oil prices have created a difficult situation for the oil and gas industry because of national and global infection control measures and the subsequent drop in economic activity. The Storting (Norwegian parliament) therefore adopted temporary amendments to the petroleum taxation system (Innst. 351 L (2019–2020)) allowing accelerated depreciation, thus delaying tax payments and improving companies’ liquidity. These amendments have helped to maintain activity levels and retain expertise in the industry during the crisis. It has been made clear that the oil and gas companies are expected to make use of the opportunities they have been given to continue work on economically viable projects, including projects designed to reduce emissions.

The Storting has also requested the Government, together with the oil and gas industry, to present a plan for reducing emissions from oil and gas production by 50 % by 2030 compared with the 2005 level, on the basis of current policy instruments. The plan must also take into account the importance of finding cost-effective measures for reducing emissions, including further electrification of existing oil and gas fields and the use of low- and zero-emission technology on new fields, and the consequences for the onshore power supply system. This work is to be completed in the course of 2021.

In 2021, the Government is to present a white paper on long-term value creation from Norwegian energy resources. In addition to value creation and industrialisation based on the natural resources on the Norwegian continental shelf, the Government will use the white paper to discuss important drivers of change in the energy market and technological developments, the global framework, international agreements, and European climate and energy policy. The Government will also use the white paper to follow up the Government’s request for a plan for reducing emissions from oil and gas production by 50 %.

We are facing major changes in the global energy market, which are driven by factors including new technology, stricter climate policy and the steadily increasing demand for energy. This is creating new challenges and new opportunities for the oil and gas industry on the Norwegian continental shelf. In the long term, global demand for oil and gas will be influenced by the mitigation action countries take to achieve their targets under the Paris Agreement. This will require a transition from fossil to renewable energy production and use, which will also influence Norwegian oil and gas production. The Norwegian offshore industry has previously shown its ability to adapt to change and make use of new opportunities. However, it is too early to conclude what impacts a global energy shift may have on Norwegian oil and gas production and activity on the Norwegian continental shelf.

Uncertainties relating to future oil and gas prices and the future costs of emissions from production are economic risk factors that stakeholders in the industry take into account when making decisions.

As set out in Norway’s long-term low-emission strategy for 2050 (Prop. 1 S (2019–2020)), the Government will follow up the recommendations of Norway’s Climate Risk Commission, and require oil and gas companies to identify climate-related risks in their plans for development and operation. This will be further discussed in the 2021 white paper on long-term perspectives on the Norwegian economy. Climate risk is further discussed in Chapter 6.4.

5.5.2 Policy instruments for reducing emissions

Raising the overall price of CO₂ emissions from oil and gas activities

The Norwegian authorities have been using effective policy instruments to reduce emissions from petroleum extraction for many years. The carbon tax and the emissions trading system are the main instruments of climate policy for the Norwegian continental shelf. Today, the EU ETS applies to about 95 % of greenhouse gas emissions from the oil and gas industry. In addition, emissions are subject to a carbon tax, and the industry is directly regulated, one example being that flaring is prohibited except when necessary for safety reasons. The overall price companies pay for their emissions has risen in recent years to about NOK 750 per tonne CO₂ in 2020. The carbon tax rate will probably be increased by a further 7 % in the 2021 budget after adjustment for inflation, to NOK 543 pr tonne CO₂. This will probably result in an overall price of more than NOK 800 per tonne CO₂ in 2021, depending on price developments in the EU ETS. The price of emissions from the Norwegian continental shelf is higher than for most other industries in Norway, and already considerably higher than in other petroleum-producing countries.

The Government intends to raise the carbon tax on ETS emissions from the oil and gas industry in line with the rise for non-ETS emissions between now and 2030, so that the total carbon price reaches about NOK 2 000 per tonne CO₂eq in 2030, measured in fixed 2020 NOK. The overall carbon price must not exceed NOK 2000 in the period 2021–2030.

Ensuring a stable, predictable and high price for emissions provides incentives to invest in and use low- and zero-emission technologies, and is an important driver of a long-term transition. The gradual increase in the overall price of emissions from the petroleum industry will provide support for climate action by the oil and gas companies, which is already well under way. It will encourage the adoption of technology that would not have been taken into use on the basis of the price of ETS emission allowances alone. This policy also means that the price will be the same for all emissions from oil and gas activities that are ETS emissions and/or subject to the carbon tax, which will encourage cost-effective emission reductions in the sector. It is difficult to estimate how much it may be possible to reduce emissions as a result of the rising price. This is discussed further in Box 5.1 and Chapter 5.8.

Other policy instruments

Gas flaring has been generally prohibited since petroleum activities began on the Norwegian continental shelf. It is only permitted when necessary for safety reasons. Permits for flaring are issued by the Ministry of Petroleum and Energy. In connection with new developments, there is a requirement to use the best available technologies (BAT). Technological developments influence what is regarded as BAT, which over time results in stricter requirements for the use of technology to reduce emissions on the Norwegian continental shelf.

In connection with new independent developments and major changes to fields that are on stream, licensees are required to assess whether to use power from shore. Operators include the following factors when considering whether to use power from shore: the cost of using other options such as gas turbines to generate power, the cost of full or partial electrification of offshore installations, the availability of power from the onshore grid, electricity prices, gas prices and the expected cost of emissions. The high cost of emissions gives the operators an incentive to implement projects to use power from shore provided that the cost is less than that of the price of emission allowances and the carbon tax combined. The authorities deal with energy solutions for petroleum installations as part of their administrative procedures for the plans for development and operation (PDO) and plans for installation and operation (PIO) submitted by the operators.

Experience shows that these policy instruments function as intended. On average, emissions per unit produced on the Norwegian continental shelf are about half of the average for other petroleum-producing countries.

The authorities are also supporting research on solutions to reduce emissions. Since 2010, the Ministry of Petroleum and Energy’s goal has been for at least NOK 25 million per year of the funding allocated to petroleum research to be used for projects on energy efficiency and the reduction of greenhouse gas emissions. From 2019, this goal was increased to NOK 35 million.

In the period 2010–2019, 39 of the projects funded through the petroleum research programmes PETROMAKS2 and DEMO 2000 were specifically dedicated to reducing emissions or improving the efficiency of energy use. In the same period, the programmes also funded 167 projects of considerable relevance to improving energy efficiency and reducing greenhouse gas emissions, even though this was not their primary purpose.

A new low-emission research centre for the petroleum industry, LowEmission, was established in 2019. The centre is an arena for cooperation between research groups and the petroleum industry, and its purpose is to develop technology and solutions that will help the industry to achieve its long-term target of zero emissions in 2050. The Research Council of Norway is providing NOK 120 million in support over an eight-year period through the PETROSENTER scheme.

5.5.3 Potential emission reductions in the petroleum industry

The main source of emissions from the Norwegian continental shelf is the gas turbines that are used to generate electricity or heat or run pumps and compressors on the platforms. These turbines account for more than 80 % of energy supplies to offshore installations.

Several types of measures can be used to achieve further reductions in emissions from the Norwegian shelf. Power from shore offers the greatest emission reduction potential. Individual power-from-shore projects often result in substantial emission reductions. The costs and emission reduction potential of using power from shore vary widely from one field to another. The economic cost of this measure therefore varies widely from one installation to another. Costs are generally higher for existing installations than for new ones because major alterations are needed.

Energy efficiency measures are the category with the next highest emission reduction potential. These are often small-scale projects, and the costs vary widely. Emissions can be reduced by replacing old, inefficient turbines with new, more efficient turbines. The cost of doing this varies considerably from one installation to another, depending among other things on their remaining lifetime. It is also possible to take steps to reduce emissions from flaring, but because there is little flaring on the Norwegian shelf, the overall emission reduction potential is much smaller than for power-from-shore and energy efficiency projects.

Offshore wind power is another solution for reducing emissions from power supplies to offshore installations. The operators of the Gullfaks and Snorre fields are building a floating offshore wind farm, the Hywind Tampen wind farm, which will supply electricity to the Gullfaks A and Snorre A platforms. It is planned to start operating in 2022. Hywind Tampen is also a project designed to develop technology for new renewable electricity production. The project has received NOK 2.3 billion in support from Enova and NOK 566 million from the NO_x Fund. The project is playing a part in further technological development. The aim is that in the long term, this will be an economically viable solution without support, and competitive with other forms of electricity production.

Natural gas is the dominant energy commodity used by oil refineries and gas processing plants in their operations. Parts of several of these facilities have been electrified. The Norwegian Water Resources and Energy Directorate has published a study of the technical potential for further electrification of large land-based industrial plants, including the onshore facilities in the petroleum industry. This is further discussed in Chapter 5.6 below.

More use of power from shore on the Norwegian continental shelf and electrification of onshore facilities will result in a rise in electricity consumption and may require investments in the electricity grid in Norway. This is further discussed in Chapter 8.

5.6 Cutting emissions and industrial restructuring

5.6.1 Norwegian industrial production in the ETS sector

Industry can play several roles in the transition to a low-emission society. In addition to reducing its own emissions, industry contributes to the green transition by supplying materials, technologies and solutions that make emission reductions possible in other areas of activities and sectors, both in Norway and internationally. The Norwegian process industries supply materials and raw materials that are used in a wide range of green products, including aluminium for the production of electric and hybrid vehicles, and nickel, which is a vital component in battery manufacture.

The process industries account for a large proportion of Norwegian industrial production in the ETS sector. They include the manufacture of aluminium and ferro-alloys, the chemical industry, mineral industry, manufacture of mineral fertilisers, refineries and the pulp and paper industry. The availability of electricity supplies from renewable sources is a key reason for the establishment of Norwegian process industries, which often account for substantial local value creation.

Products and materials from Norwegian industry are of high-quality and much sought-after, and a large proportion of the production from the process industries is exported. The export value of physical goods from Norwegian process industries is about NOK 170 billion per year, which corresponds to around 17 % of the total value of Norwegian exports (Statistics Norway, 2018). If refinery products are excluded, the value of exports from the process industries is about NOK 100 million per year. Standard products make up a large proportion of products from the process industries, but it has been reported that there is a shift under way towards advanced speciality products, in cooperation with customers and end users.31 This is an important way of increasing value creation in the process industries.

Products from the process industries form part of major value chains, for example in construction, the transport sector and the energy sector. The most important export markets are Germany, Sweden, the UK, the Netherlands and the US.

Electricity consumption by the process industries totals about 42 TWh per year, making the sector the largest electricity consumer in Norway. Norway has good supplies of renewable electricity and a highly skilled business sector. Businesses tend to have a flat structure, and there is a culture of cooperation between leading centres of expertise, innovative start-ups and established industries, which drives the development of innovative solutions. A report published by Menon Economics32 in 2019 concludes that the process industries are one of the sectors that will be most important in increasing Norwegian exports, and that they can also play a part in reducing global greenhouse gas emissions.

5.6.2 Policy instruments for restructuring and emission reductions

A suitable overall framework is required so that business and industry can make use of the resources and skills available in Norway to develop competitive industries in international markets.

Both direct climate policy instruments, such as the emissions trading system, compensation for indirect emission costs and support for research and innovation, and the general framework, including the taxation system, access to energy and the availability of knowledge and skills, must be consistent with the targets that have been adopted. For example, access to renewable energy is a vital basis for the introduction of climate mitigation measures by industry.

The strategic forum Prosess21 provided input to this white paper, and has identified measures and instruments that may be important for restructuring and continued innovation in the Norwegian process industries. Prosess21 has put forward various proposals, including establishing markets for climate-neutral and circular products, and intensifying work on the circular economy and the bio-based process industry. Important factors are adequate power supplies at competitive prices and greater access to EU funding and EU cooperation. Prosess21 identified the potential for green growth related to an initiative for a national battery value chain and pointed out that further support for R&D and innovation will be necessary for the development of the low-emission solutions that will be needed in industry.

The Government intends to support continued emission cuts and action to strengthen new green industries. As discussed in Chapter 6.2 on research and innovation, the Green Platform initiative was recently launched by the Government as a tool for coordinated, enhanced and targeted efforts to promote a green transition in the business sector. Innovation Norway, the Research Council of Norway and SIVA (the Industrial Development Corporation of Norway), together with Enova, are cooperating on this initiative.

The Government will ensure satisfactory participation in EU programmes, so that Norwegian companies can make use of EU research and have opportunities to obtain research funding. The Government’s aim is to build up expertise in Norwegian industry and promote the green transition through access to joint European research and cooperation. There are many programmes that are important for industry, in fields including carbon-neutral and circular industries, battery technology, hydrogen and circular bio-based solutions. Chapter 6.2 describes the Government’s plans for increasing Norwegian participation in international research and innovation cooperation.

5.6.3 Possible climate mitigation measures for industrial production in the ETS sector

The implementation of mitigation measures by industrial installations in the ETS sector will depend on whether there are solutions that can be realised on the basis of existing technology, and that are cheaper than buying emission allowances. Many solutions are not yet available, either because the technology has not been developed, or because the cost is too high.

The development and deployment of low-emission technology often involves very long development pathways. Deployment of new technology frequently requires a period of 10–30 years, including R&D, pilots and testing, depending on the complexity of the project. For example, it took 14 years of development and testing to complete Hydro’s pilot aluminium plant on Karmøy, which received a grant of NOK 1.55 billion from Enova (see Box 5.2). Over the coming 10 to 20 years, research and innovation must be used to reduce the cost of existing low- and zero-emission solutions. New solutions must also be developed and deployed to make it possible to achieve the 2050 target.

As we approach 2050, it will be crucial for the Norwegian process industry to have achieved its ambition of making production entirely or nearly emission-free. The ferrosilicon and aluminium industries, for example, are already largely electrified and their combustion emissions are therefore low. However, they generate CO₂ emissions through the use of coal as a reducing agent. In other process industries, there are emissions of process gases from fossil inputs used in production. Emission reductions will largely have to be realised using new technologies and solutions.

It is very uncertain which solutions will be successful. A greater R&D effort will help to clarify which solutions will be possible to use in the future.

Carbon capture and storage (CCS)

The Government will implement the Longship project, a full-scale Norwegian CCS demonstration project that comprises CO₂ capture, transport and storage. The Government’s proposal is to implement CO₂ capture at the Norcem Brevik cement plant in Porsgrunn. This would be the first full-scale carbon capture plant in the world at a cement factory. It could reduce emissions from Norcem Brevik by about 400 000 tonnes CO₂ per year, which corresponds to about half of total emissions from the plant (for further detail see Chapter 6.5).

Circular solutions

Many businesses are taking circular solutions into use. They are for example making more use of recycled materials, which reduces life-cycle emissions from products.

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Photo: Marius Motrøen

The process industry sector has been identified as one of four sectors that will be particularly important for the development of a circular economy in Norway, together with construction and buildings; wholesale and retail trade; and the bio-based sectors (agriculture and forestry, and aquaculture and fisheries) (Deloitte, 202033). The Norwegian process industries are considered to have a comparative advantage in a global circular economy through the availability of large quantities of electricity from renewable sources. This allows them to produce and reprocess critical raw materials with only low greenhouse gas emissions, and to use by-products and residual raw materials from their own operations or other industries. Industry clusters that exchange and make use of by-products provide examples of solutions for making better use of energy and local residual raw materials. The role of the process industries in the transition to a more circular economy will be further discussed in the Government’s strategy for developing a green, circular economy.

Various companies are also looking into CCU (carbon capture and utilisation) solutions. These involve using CO₂ from waste gases to produce fuels, chemicals, and other carbon-based products such as plastics. The climate benefits depend on a number of factors, such as whether emissions are captured and whether they are of fossil or biological origin. Another relevant factor is how the captured carbon is used, and whether it replaces other fossil emissions. If CCU only postpones carbon emissions, there is little climate benefit. Deploying CCU can play a part in the development of carbon capture technologies.

Bioresources are part of the solution

The wood processing and woodworking industries supply a wide range of products that are important for society and the green transition. The wood processing industry produces biobased chemicals and is developing advanced biofuels. The woodworking industry, in cooperation with the construction industry, has developed products to increase the use of wood in buildings. Both buildings constructed of cross-laminated timber and glued laminated timber structures provide climate benefits in the form of low emissions during the manufacturing process, and carbon storage throughout product lifetimes. In some parts of the process industries, biocarbon can be used to replace fossil carbon as a reducing agent.

The industrial sector is dependent on ready access to sustainable timber, since a large number of products produced from carbon of biological origin will be needed to reduce fossil emissions. Carbon of biological origin can also be recycled and re-used. At present, this can be done by re-using and recycling construction products, but in future it will also be possible to capture and use CO₂ from chemicals and fuels based on biological materials. The use of materials of biological origin is an essential basis for achieving negative emissions from carbon capture and storage (bioenergy with carbon capture and storage, or BECCS).

In the longer term, it may be possible to use carbon derived from algae and other aquatic biomass for industrial purposes.

Photo: Rockwool

Electrification reduces emissions and provides opportunities for new industries

Norway is playing a leading role in electrifying the transport sector, the petroleum industry and industry. Research, innovation and the development of battery production are essential for large-scale electrification of the transport sector both in Norway and internationally. The process industries claim to have considerable potential for growth linked to the production of raw materials for batteries, the manufacture of battery cells, and green recycling of materials from spent batteries. Several Norwegian firms are planning to establish battery production based on different technologies and at several stages of the value chain, from inputs to recycling. A few plants are already operational, and other firms are at the planning stage or have started pilot plants. The industry has identified a further need for support for research, innovation and industrialisation to make battery production cheaper, greener and more effective and to increase capacity so that production becomes more competitive. It has been pointed out that the overall framework for stakeholders in the Norwegian battery industry must be comparable with those for the rest of Europe, so that they are not in a weaker competitive position internationally.

Emissions from the use of fossil fuels in industry, both for heating and for industrial processes, can be reduced through electrification and by using electric boilers and furnaces. For example, electric furnaces have been replaced by fossil-fuel furnaces at the Rockwool plant in Moss (see Box 5.2).

The Norwegian Water Resources and Energy Directorate has published a study of the technical potential for electrification of large land-based industrial plants so that they can switch from using fossil fuels. Seven industrial plants reported that emission cuts are technically feasible through direct electrification. The costs of the specific measures have not been calculated. These measures combined could reduce CO₂ emissions by 2.3 million tonnes. Five of the seven measures are based on technology that is already available. The measures identified would require investment in the power grid, some of which would need to be on a large scale and would take a long time to implement. Whether these electrification measures are implemented will depend on whether the companies themselves consider them to be economically viable. Two of the seven plants for which the report discusses electrification measures are the Yara fertiliser plant on Herøya and Borregaard’s biorefinery in Sarpsborg. Yara is now developing a pilot electrification project to demonstrate the potential, with support from by Enova.

5.7 Cutting emissions from aviation

The Government will:

• Seek collaboration with the other Nordic countries on assessing how emissions from international aviation can be reduced in the period up to 2030. This will include evaluating whether to remove the constraint on taxation of fuel supplied to international aviation in the standard Scandinavian air services agreement.

• Raise the carbon tax on ETS emissions from domestic aviation in line with the rise for non-ETS emissions, so that the overall carbon price in 2030 (tax + price of emission allowances) is about NOK 2 000 per tonne CO₂, measured in fixed 2020 NOK. The overall carbon price must not exceed NOK 2000 in the period 2021–2030.

• Continue the cooperation between the European Union Aviation Safety Agency (EASA) and the Civil Aviation Authority Norway on the early introduction of low- and zero-emission aircraft.

• Continue to advocate a higher level of ambition for both the EU ETS and CORSIA.

• Provide a suitable framework for Norway to become an arena for testing and developing low- and zero-emission aircraft, and ask the Civil Aviation Authority Norway and Avinor to take steps to make ground-based infrastructure and air space available.

• make use of existing funding instruments, for example under Enova, to develop and phase in low-emission technology more rapidly.

• encourage the deployment of low- or zero-emission technologies, and require their use once technologies are mature.

In 2019, aviation accounted for about 2.5 % of global emissions. Emissions from domestic civil aviation corresponded to just over 2 % of total Norwegian emissions in the same year. Greenhouse gas emissions from flights within and from Norway have risen in recent years. From March 2020, emissions dropped sharply as a result of the COVID-19 pandemic. Future developments in air traffic are uncertain.

Norway is to become a low-emission society by 2050, meaning that emissions will have been reduced by 90–95 %. This will involve low emissions in all sectors, including aviation. The national greenhouse gas inventory includes only emissions to Norwegian territory. Emissions from international aviation are generally not included in the nationally determined contributions (NDCs) countries communicate to the Paris Agreement. Nor are emissions from international aviation included in the statutory targets of Norway’s Climate Change Act.

Using low-emission technology and phasing in sustainable aviation fuels will help to make aviation more climate-friendly and better adapted to the low-emission society. Internationally, the possibility of developing an ecolabelling system for aviation is also being considered. An Official Norwegian Report (NOU 2019: 22) on aviation made a number of recommendations on the further development of climate policy relating to aviation. Avinor and the Civil Aviation Authority Norway have presented the Ministry of Transport with a proposed programme for the introduction of electric aircraft in Norway. This includes recommendations for further measures to promote low- and zero-emission aviation.

Efforts to reduce emissions from aviation are being pursued both at national level and in international forums such as the UN’s International Civil Aviation Organization (ICAO), EASA, and the European Civil Aviation Conference (ECAC). The Nordic aviation authorities work together to reduce the environmental impacts of aviation in forums including a working group specifically for this purpose. In June 2019, the Civil Aviation Authority Norway concluded a binding multiannual agreement to collaborate with EASA on the early introduction of zero- and low-emission aircraft. The agreement includes cooperation on technology development, the regulatory framework and other measures and incentives that can accelerate developments. As a continuation of the cooperation established through this agreement, the Civil Aviation Authority Norway and EASA, together with other key stakeholders in the European aviation sector, are taking part in the High-level Task Force for Zero-emission Aviation.

5.7.1 Policy instruments currently in use in the domestic aviation sector

Emissions from domestic aviation are largely subject to the carbon tax and included in the EU ETS. The ETS sets an annual cap on emissions included in the system.

In 2016, an air passenger tax of NOK 80 was introduced for each passenger flying from a Norwegian airport. From 1 April 2019, the tax was altered and two different rates were brought in. In 2020, the rate for flights to destination countries where the capital city is less than 2 500 km from Oslo, and to all EU/EEA countries, was NOK 76.50 per passenger. For countries where the capital city is more than 2 500 km from Oslo, the 2020 rate was NOK 204. The air passenger tax is primarily a fiscal tax, but may also provide an environmental benefit by reducing demand for flights.

The COVID-19 pandemic has put the aviation sector in a very difficult position, and the air passenger tax was therefore temporarily repealed in 2020 and 2021.

In 2020, a biofuel quota obligation of 0.5 % advanced jet biofuels was introduced for aviation, calculated as a percentage of total aviation fuel sales each year. Norway was the first country in the world to adopt a biofuel quota obligation for jet biofuels used in aviation. So far, Norway is the only EU/EEA country that levies a carbon tax on domestic aviation. Through Enova, companies in the aviation sector are eligible for grants for developing and phasing in low-emission technology.

5.7.2 Policy instruments currently in use in the international aviation sector

Emissions from international aviation within the EU/EEA are largely included in the EU ETS. Obligations for international aviation to reduce emissions are partly addressed by ICAO`s market-based mechanism CORSIA (the Carbon Offsetting and Reduction Scheme for International Aviation).

ICAO has adopted an aspirational goal of carbon-neutral growth from 2020 onwards. This is to be achieved through technological and operational improvements, the use of sustainable aviation fuels, and offsetting of emissions. In June 2020, the ICAO Council decided to use emissions in 2019 as the reference level, rather than the average of 2019 and 2020, in view of the steep reduction in air traffic due to the pandemic. Emissions exceeding the 2019 level must be compensated for by purchasing emission units from other sectors. ICAO’s goal of carbon-neutral growth from 2020 onwards is not compatible with the targets of the Paris Agreement.

5.7.3 Policy instruments for the period up to 2030

The Government intends to take steps to make its climate policy for the aviation sector more effective. The carbon tax and the emissions trading system are the most important policy instruments for reducing greenhouse gas emissions from aviation. A stable, predictable carbon price provides an incentive to invest in and adopt low- and zero-emission technology as it becomes available, and also makes planning easier for stakeholders and companies. The Government will therefore increase the carbon tax on ETS emissions from domestic aviation so that the overall carbon price is about NOK 2 000 per tonne CO₂ in 2030, measured in fixed 2020 NOK. Providing a signal that the tax will be increased also enhances the credibility of the transition to a low-emission society.

The Government intends to promote the rapid phase-in of low- and zero-emission technology in Norwegian aviation, for example by making it easy and attractive for innovators to use Norway as an arena for testing and developing low- and zero-emission aircraft. The Government will take a technology-neutral approach, and stakeholders in the aviation industry will be eligible for grants from Enova and other funding agencies for research and innovation and for phasing in low-emission technologies.

Future developments in the aviation industry are uncertain as a result of the COVID-19 pandemic. If the pandemic results in a permanent reduction in the demand for flights, this will reduce emissions from aviation. When air services are reduced, airlines are first expected to phase out the oldest aircraft, which have the highest emissions and fuel costs. This may reduce emissions per flight. Pre-COVID-19 signals from aircraft manufacturers indicate that small electric aircraft could probably be introduced on commercial routes during the period 2025–2030. However, it is possible that the industry’s focus on zero-emission technology will be disrupted by the pandemic. The Government will encourage the continuation of these efforts after the pandemic is over. The Civil Aviation Authority Norway and Avinor should take steps to make ground-based infrastructure and air space available for testing of low- and zero-emission technology. The Government has in addition proposed that flights using low- and zero-emission aircraft should be exempt from the air passenger tax, provided that this is approved by the EFTA Surveillance Authority, in order to speed up the introduction of such aircraft.

The Government will consider whether to make use of public procurement as an instrument for increasing demand for low- and zero-emission aircraft. The central government purchases air services on routes where the market alone does not result in satisfactory scheduled air services, under the rules for public service obligations. The scheduled services to which public service obligations apply are to be administered by the counties from 2022 in the three northernmost counties and from 2024 in the rest of the country, when the current central government contracts expire. The Government will monitor technological developments and assess whether environmental requirements should be imposed once the technology is mature. The counties will be free to include environmental requirements in the public procurement processes.

International cooperation is also vital in the green transition for the aviation sector, and the Government will continue to advocate a higher level of ambition for both the EU ETS and CORSIA. The Government will also seek collaboration with the other Nordic countries on assessing how emissions from international aviation can be reduced in the period up to 2030. This will include evaluating whether to remove the constraint on taxation of fuel supplied to international aviation in the standard Scandinavian air services agreement.

5.8 Uncertainties and economic consequences

Consequences of inclusion in the EU ETS and support for industrial restructuring

Industries on the Norwegian mainland will pay the same price for emission allowances as those elsewhere in Europe. In Norway, the proportion of ETS emissions in industry linked to industrial processes is higher than in other countries. In most other European countries, the largest volume of emissions is from energy production.

Eliminating a large proportion of process emissions will require new technologies and new solutions. The development of new technology takes time and is often costly. There are various uncertainties related to the actual development pathways. It is for example uncertain which technologies will be developed and whether they will be successful. Industries that succeed in cutting emissions can gain a competitive advantage in markets where there is a demand for low-emission products.

Support from Enova and the Green Platform initiative and research cooperation at national and international level (see Chapter 6) provide incentives for developments that will give emission reductions and promote the green transition in Norwegian business and industry. Regular assessments of whether the policy instruments in use are sufficient to reach the adopted targets will be needed.

Risk of carbon leakage

The risk of carbon leakage depends particularly on the extent to which companies are exposed to international competition and on the proportion of their total costs that is related to energy and greenhouse gas emissions.

An ambitious climate policy requires a special focus on the risk of carbon leakage. Industries and companies may transfer their operations away from Norway if the overall costs are higher and the framework less favourable than in competing countries. If the price of emissions is higher in Norway than in other countries, this may affect the competitiveness of Norwegian businesses. Carbon leakage may be a gradual process, where businesses invest less in existing factories and plants, or sudden, where plants are closed down while capacity increases in other countries. Such developments might limit the global effect of mitigation measures on emissions, while Norway could lose key businesses and expertise.

Businesses in the Norwegian process industries are to a large extent engaged in supplying raw materials or intermediate products for further processing and production in other countries. The sector operates in markets that are highly exposed to international competition, with many global actors. The operating framework is very important for their ability of businesses to compete globally.

The Government will take steps to counteract the risk of carbon leakage, among other things through the compensation arrangements for indirect emission costs for energy-intensive industry. The compensation arrangements will counteract the effect of rising costs related to power consumption by industry. The Norwegian Government is seeking to ensure that compensation arrangements continue after 2020. In addition, grants for the development of low-emission technologies will reduce the risk related to higher prices for emission allowances in the future.

Consequences of increasing the carbon tax for the petroleum industry and the aviation sector

The carbon tax on ETS emissions from domestic aviation and from the oil and gas industry is to be increased, as explained in Chapter 5.5 and 5.7.

The effect on emissions of a carbon tax in addition to inclusion in the EU ETS has not been calculated exactly, but this gives businesses a stronger incentive to reduce emissions and to develop and deploy new solutions and technologies. Levying a carbon tax on emissions that are included in the EU ETS may however reduce the demand for emission allowances. All other things being equal, this could reduce the price of emission allowances, and more allowances could become available in the market for use by other businesses in the EU ETS.

For the EU as a whole, the effect of the carbon tax may be to reduce emissions or to maintain them at the same level as would have been the case otherwise. There is currently a surplus of emission allowances in the market. The Market Stability Reserve (MSR), which is discussed in Chapter 5.3, will reduce the number of emission allowances available in the system, giving an overall reduction in emissions.

It has not been decided how Norway’s carbon taxes are to be increased. The consequences for different industries and individual businesses have therefore not been evaluated.

The oil and gas industry: The market determines oil and gas prices, and oil and gas produced in Norway competes with production from other countries. Higher costs, including emission costs, may influence investments and the level of activity in the industry. At the same time, if the cost of greenhouse gas emissions rises, this provides an incentive to use and invest in low-emission solutions to reduce emissions. The effect on emissions will depend on whether low-emission solutions are available, the costs of mitigation measures and whether it is feasible to implement them. Of the mitigation measures that have been analysed, using power from shore will give the largest emission reductions. The costs vary widely from one oil or gas field to another, and are generally higher for existing installations than for new ones.

Domestic aviation has not traditionally been exposed to stiff competition, and rising costs have therefore to a large extent been shifted to customers. It is reasonable to assume that increasing the carbon tax will result in higher ticket prices and higher costs for businesses and individual people who buy air transport services. The consequences of raising the carbon tax will therefore depend among other things on whether consumers have other transport options, and whether airlines take zero- and low-emission solutions into use when they reach the market.