Notification - excise duty on waste incineration - exemption for undertakings covered by the ETS

Please find below our notification concerning tax exemption for undertakings covered by the ETS. The EU has recently passed legislation that introduces a separate emission trading system for buildings, road transport and additional sectors, commonly referred to as ETS 2. In
this letter, the term ETS refers to the existing trading system, i.e. the trading system for industry, maritime transport and aviation, while the term ETS 2 is used when referring to the new trading system for buildings, transport and additional sectors. The notified exemption applies to activities subject to the existing trading system. Activities subject to a duty to surrender emissions allowances pursuant to ETS 2 are excluded from the scope of the notified measure.

1. INTRODUCTION

In its budget proposal for 2022 put forward 12 October 2021 the former government (the Solberg Government) proposed to introduce an excise duty on waste incineration, cf. Prop. 1 LS (2021-2022) Skatter, avgifter og toll 2022 item 9.9.5. The proposal is upheld by the present government (the Støre Government), cf. Prop. 1 LS Tillegg 1 (2021-2022) Skatter, avgifter og toll 2022. The tax was put into effect 1 January 2022.

The tax proposal did not include an exemption for emissions covered by the Climate Quota Act, i.e., undertakings covered by the Emissions Trading Scheme (ETS), but the intention is to introduce such an exemption if and when the Authority gives its approval. By this letter the Ministry notifies the tax exemption. 

It is the Ministry´s view that an exemption for undertakings covered by the ETS does not constitute state aid. The exemption is described and assessed below.

2. EXCISE DUTIES

According to the Norwegian Constitution excise duties are adopted annually by the Parliament. The Parliament adopts the tax object, the tax rate(s) and exemptions. Further regulations concerning excise duties are laid down in various regulations, including Regulation 11 December 2001 No. 1451 concerning Excise Duties.

Norwegian taxes, including excise duties, build upon a system of self-assessment. In short, this means that taxpayers comply with their basic tax obligations without the intervention of the tax authorities. The duty of self-assessment entails an obligation to submit factually correct information for assessing and calculating taxes as well as an obligation to apply the relevant tax rules on such information to be able to assess and calculate the taxes. The obligation to provide correct information etc. also applies to tax exemptions.

3. EXCISE DUTY ON WASTE INCINERATION – THE PROPOSED
EXEMPTION

The excise duty on waste incineration is a part of a system of different excise duties maintained for the purpose of reducing emissions of greenhouse gases.

The CO2 tax on mineral products was introduced in 1991. The aim of a CO2 tax is to reduce emissions of greenhouse gases from the combustion and use of mineral products. The tax is applied to ensure a more efficient use of resources and to reduce negative environmental effects. In 2024, the CO2 tax is levied on mineral oil, gasoline, natural gas, and LPG with
general tax rates all equivalent to approximately NOK 1 176 per ton CO2.

In recent years, the Government has been working with the aim to put a price on all emissions of greenhouse gases. Pricing of emissions may be done by including the emissions in the ETS or through other policy instruments, the most important being a tax on the emissions.

An excise duty on waste treatment was introduced in 1999. The tax consisted of two components, a tax on disposal of waste and a tax on waste incineration. The tax was levied per ton of waste. From 1 July 2004 the tax on waste incineration was levied on the actual emissions of several harmful substances, except for CO2 which was still levied on ton waste.
The tax on waste incineration was abolished 1 October 2010 and the tax on waste disposal was abolished 1 January 2015.

In 2022 emissions from waste incineration amounted to 0.99 mill. tons of CO2. To put a price on these emissions, the budget proposal for 2021 contained a proposal to introduce an excise duty on waste incineration, cf. Prop. 1 LS (2020-2021) Skatter, avgifter og toll 2021 item 10.10. A proposal for Regulation was sent on public hearing 30 April 2020. According to the
proposal, emissions covered by the Clime Quota Act, i.e. undertakings covered by the ETS, should be exempted from the tax. Estimated emissions from waste incineration that are covered by the ETS amount to 0.12 mill tons CO2.

In the budget proposal for 2021, the Ministry considered the exemption not to constitute state aid but stated that due to legal uncertainty, the exemption should be discussed with the Authority. The tax and the exemption were not to be put into effect before the Authority had
given its approval of the exemption. In a letter 19 July 2021 the Authority concluded that doubts regarding the non-aid character of the measure could not be ruled out. Based on the feedback in this letter, the tax on waste incineration was not put into effect.

A proposal to introduce an excise duty on waste incineration was again put forward in the budget proposal for 2022, cf. Prop. 1 LS (2021-2022) Skatter, avgifter og toll 2022 item 9.9.5, see Proposal for Parliamentary decision on page 334. The tax was put into effect 1 January 2022. The tax is continued for 2023 and 2024. In 2022 and 2023, undertakings under the ETS
 were levied the same tax rate as undertakings outside the ETS. In 2024, as a result of the revision of the General Block Exemption Regulation (GBER), a reduced rate equivalent to 20 pct. of the general tax rate was introduced for undertakings covered by the ETS, cf. GBER article 44a.

The tax does not include an exemption for undertakings covered by the ETS. However, the intention is to introduce such an exemption if and when the Authority gives its approval, see Parliamentary decision II. The Ministry is authorized to put the exemption into effect but will not do so until the Authority has given its approval. The motivation for the exemption is that
the emissions should not be levied both a quota price through the ETS and a tax on waste incineration. It is the Ministry´s view that it is within the logic of the tax to exempt emissions covered by the ETS from the tax, to avoid double regulation, see item 5.2.

According to the Parliamentary decision, the tax does not apply to emissions from waste incineration if the waste does not contain fossil material, see the Parliamentary decision, Section 1 second paragraph letter b. Incineration of such materials does not lead to greenhouse gas (GHG) emissions under the UNFCCC and should not be subject to the tax.

Furthermore, CO2 that is captured and stored permanently (CCS) does not lead to emissions of CO2. These emissions are also exempted from the tax, see the Parliamentary decision, Section 2 first paragraph letter b.

In addition to imposing a price on CO2 emissions, the tax also has other environmental purposes. In this respect, it is important both to prevent that the tax has negative environmental effects and to ensure that the tax contributes to reduce other negative effects from waste, including from hazardous waste, and hazardous waste is exempted from the tax, see the Parliamentary decision Section 2 first paragraph letter a. Hazardous waste is waste which is not suited for treatment together with other consumer waste because it can lead to serious contamination or danger of damage to human beings or animals, see Regulation 1 June 2004 No. 930  concerning recycling and treatment of waste section 11-2.

The Ministry understands that the Authority has no objections concerning the exemptions for waste without fossil material, CCS and hazardous waste, cf. the Authority´s letter 19 July 2021. On this background, these exemptions were put into effect together with the tax from 1 January 2022., and this notification does not cover these measures.

4. ENVIRONMENTAL POLICY INSTRUMENTS

4.1 Introduction

Below, the Ministry will describe and comment on the environmental policy instruments in Norway and the commitments under EEA law concerning emissions. The description is needed to establish the objective pursued by the measure in question which is necessary for the application of the three-step analysis, cf. item 5.

4.2 Climate action cooperation between EU and Norway

The European Union and Norway are both committed to reduce overall greenhouse gas emissions, in view of holding the increase in the global average temperature well below 2°C above pre-industrial levels, and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels.

The EU Emission Trading System (EU ETS) was adopted in 2003, cf. Directive 2003/87, and put into effect in 2005. Norway has been a part of the system since 2008. The latest amendments to the ETS Directive (Directive 2023/959) were formally incorporated into the EEA agreement in December 2023.

In 2019 the European Union, Norway and Iceland agreed to extend their climate cooperation beyond the EU ETS, i.e. to cover for the period 2021-2030 the Effort Sharing Regulation (ESR) (Regulation 2018/842) and EU Regulation on Land, Land-Use Change and Forestry (LULUCF Regulation) (Regulation 2018/841). These regulations were incorporated into
Protocol 31 to the EEA Agreement in 2019. These regulations are complementary and cover emissions and removals from sectors of the economy that fall outside the scope of the EU ETS. At the time of the incorporation of these regulations in the EEA Agreement, both Norway and the EU had climate targets under the Paris Agreement to reduce  greenhouse gases by at least 40 % by 2030 compared to 1990 levels. Both the EU and Norway have updated their 2030-targets under the Paris agreement in recent years. In 2023, the EU adopted amendments to the Effort Sharing Regulation (ESR) (Regulation 2023/857) and Regulation
on Land, Land-Use Change and Forestry (LULUCF) (Regulation 2023/839). The latest amendments to the ESR and LULUCF regulations are not incorporated into Protocol 31 to the EEA Agreement. The government aims at continuing the climate cooperation with the EU, and that the enhanced target under the Paris agreement will be met in cooperation with the
EU. Norway and the EU are engaged in dialogue whether, and possibly on what terms, the amendments to the ESR and LULUCF regulations should be incorporated into Protocol 31 of the EEA Agreement and thus be made applicable to Norway. Incorporation into Protocol 31 requires the consent of Parliament.

The common European key regulations for climate policy that are incorporated into the EEA agreement, divide all European emissions of greenhouse gases into three sectors with specific rules:

• Industry, energy production, the petroleum sector, aviation and maritime transport are covered by the EU ETS. EU ETS establishes a common European policy target (a cap on total emissions from the EU ETS sectors) and a common European policy instrument (the
  EU ETS) to reach the target. Emissions from maritime transport are also included in the ESR.
• Emissions from transport (excl. air transport), agriculture, waste, buildings and non-ETS industry are covered by the ESR. ESR establishes national binding annual greenhouse gas emissions budget for the period 2021-2030 for the emissions covered by the ESR. Unlike for the ETS, under the ESR national authorities are responsible for complying with a national annual budget. A new emission trading system, called ETS 2, will become operational in 2027, regulating emissions from road transport, buildings and non-ETS industry. Emissions covered by the ETS 2 will still be a part of the national emissions budgets under the ESR.
• The forestry and land use sectors are covered by the LULUCF Regulation. These sectors will not be described further.

4.3 Emissions under the EU ETS

The EU ETS was introduced as the cornerstone of EU´s strategy for reducing emissions of carbon dioxide (CO2) and other greenhouse gases in a cost-efficient manner. The ETS is limited to certain sectors of the economy. Furthermore, it does not apply to installations with an effect of 20 MW or less.  Since the purpose of the ETS is to reduce emissions of greenhouse gasses, these limitations of the scope of the system make the ETS selective and distort competition between ETS and non-ETS entities. This distortion incurs both in theproduct markets and in the capital market.

The EU ETS works on the “cap and trade” principle. A cap is set on the total amount of certain greenhouse gases that can be emitted by installations covered by the system. The cap is reduced over time so that total emissions fall. Within the cap, companies receive or buy emission allowances, which they can trade with one another as needed. The limit on the total number of allowances available ensures that the allowances have economic value. After each year, the company must surrender enough allowances to cover all its emissions, otherwise fines are imposed. If a company reduces its emissions, it can keep the spare allowances to
cover future needs or sell them to another company. Trading gives flexibility and ensures that emissions are cut where the costs to do so are the lowest. A carbon price also promotes investment in low-carbon technologies.

The ETS gives companies an incentive to reduce their emissions through the market price of emission allowances. Thus, the economic functioning of the ETS is in general identical to the economic functioning of a carbon tax, as both instruments entail a price on emissions. For a given  undertaking, it is irrelevant whether the price is imposed as a tax or through an obligation to buy emission allowances. It still constitutes an expense for each ton CO2 emitted.

A key feature of the ETS is that total emissions are given by the cap. Due to the cap, additional policy instruments concerning emissions covered by the ETS (for instance a tax) will not necessarily provide substantial reductions of the total emissions from installations covered by the ETS. The effect of additional policy instruments will be to move emissions between installations covered by the ETS. Furthermore, the purpose of an international ETS is to enable cost efficient reductions of emissions across borders and avoid carbon leakage, by introducing a uniform price on all emissions within the system. Taxes or additional measures to reduce emissions covered by said ETS will force or incentivize certain entities to
implement measures with a higher cost than the price of emissions given by the ETS.

See also item 5.3.

4.4 Emissions under the ESR

The Effort Sharing Regulation (Regulation 2018/842) applies to the greenhouse gas emissions from IPCC source categories of energy, industrial processes and product use, agriculture and waste as determined pursuant to Regulation (EU) 2018/1999 of the European Parliament and
the Council article (2),, excluding greenhouse gas emissions from the activities listed in Annex I to Directive 2003/87/EC, other than the activity ”maritime transport” and activities only listed therein for the purposes of articles 14 and 15 of that Directive. cf. ESR article 2 (1).

According to the ESR (Regulation 2018/842) and the 2019 agreement on climate action between The European Union, Norway and Iceland (see EEA JCD No. 269/2019), Norway has a target to reduce ESR emissions by 40 % within 2030 compared to 2005. This target has been transformed into binding annual targets of greenhouse gas emissions for the period
2021-2030. Norway will probably be given a target to reduce ESR emissions by 50 % if the agreement on climate action is updated by incorporating the latest amendments to the ESR into Protocol 31 of the EEA Agreement.

For emissions covered by the ESR national authorities are responsible for complying with their national annual budget. In Norway, the main policy instruments for such emissions are taxes on emissions of greenhouse gases.

Increasing the scope and level of pricing of emissions covered by the ESR will contribute to fulfilling the obligations under the ESR in a cost-efficient way. During the last decades, Norwegian authorities have made a considerable effort in increasing the level and scope of carbon taxes on ESR-emissions. In 2023, 84 % of Norwegian emissions are subject to either
ETS or taxes on greenhouse gases. This is among the highest levels of coverage in the world. The Norwegian government has also announced an intention to increase the taxes on ESR emissions to NOK 2 000 (EUR 200) by 2030.

60 % of emissions without a price are emissions of CH4 and N2O from fertilizers and livestock in agriculture. The only remaining exemption in the CO2-tax on mineral products, and the only emissions of greenhouse gases from energy use that is not subject to a carbon price in 2024, is the use of natural gas and LPG in chemical reduction etc., cf. today´s letter concerning the notification of an exemption for undertakings covered by the ETS in the CO2 tax.

5. STATE AID ASSESSMENT

5.1 Introduction
Article 61(1) of the EEA Agreement reads as follows:

Save as otherwise provided in this Agreement, any aid granted by EC Member States, EFTA States or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Contracting Parties, be incompatible with the functioning of this Agreement.

To constitute state aid within the meaning of article 61(1) the measure must fulfil all of the following conditions:

– the measure must confer on the recipient an economic advantage
– the advantage must be granted by the State or through State resources
– the measure must be selective by favouring certain undertakings or the production of certain goods
– the measure must distort competition and affect trade between EEA States

Below, the Ministry will assess the exemption for undertakings covered by the ETS. The Ministry considers that in this case it is the selectivity condition that is the crucial condition and will concentrate on this question.

The selectivity of tax measures is normally assessed by means of a three-step analysis. Firstly, the system of reference must be identified. Secondly, it must be determined whether the measure constitutes a derogation from that system. The measure is a derogation from the system if it differentiates between undertakings in a comparable legal or factual situation considering the objectives pursued by the system (prima facie selective). Thirdly, it must be assessed if a prima facie selectivity is justified by the nature or general scheme of the system.

The Ministry would like to underline that Norway is obliged to reduce ESR emissions by 40 % in 2030 compared to 2005, cf. item 4.2 and 4.4. The Ministry considers the measure to be necessary to reduce our emissions in line with Norway´s target. The tax rate for waste incineration covered by the ETS is currently NOK 176 per ton CO2, which corresponds to 15 % of the general tax rate on ESR emissions of NOK 1 176 per ton CO2. The Norwegian government has signalled that the general tax rate is to increase to approximately NOK 2 000 by 2030. Furthermore, the price of ETS allowances has increased drastically the last couple of years and is fluctuating around NOK 700 per ton CO2. To obtain cost efficient  reductions of ESR emissions all emissions should be priced at the level of the general tax rate. If the general tax rate is increased in line with the signal of NOK 2 400 in 2030, undertakings covered by both the ETS and the tax, would be subject to a tax of NOK 480 on top of the price of allowances, nearly doubling their cost of carbon. The undertakings covered by the ETS are operating in a competitive global market, and an increase in their carbon prices beyond what their European counterparts’ faces would reduce their competitiveness.

Taxing Norwegian emissions covered by the ETS does not yield any substantial reductions of global emissions. The number of allowances in the ETS is initially set by the cap, and if a Norwegian tax on emissions in the ETS leads to emission reductions an equivalent number of allowances will be made available to the market. These allowances will allow other undertakings in the ETS to increase their emissions. Similarly, an  exemption from a tax on ETS emissions in Norway may lead to higher emissions from the exempted undertakings. For this to happen they will have to cover these emissions with allowances, meaning other undertakings in the ETS will need to reduce their emissions equivalently. Being part of the ETS and having our own separate Nationally Determined Contribution (NDC) under the Paris agreement also means that taxing emissions covered by the ETS has no effect on our ability to reach our NDC target.

Exempting undertakings covered by the ETS could facilitate increasing the reduced rate to the general rate. In 2024, emissions from waste  incineration covered by the ETS constitutes 12 % of all emissions from waste incineration. Since exempting these undertakings would have no
effect on global emissions and facilitate the increase of the tax on undertakings not covered by the ETS, the Ministry would argue that the exemption would lead to a reduction in global emissions.

5.2 Assessment

The first step in the selectivity analysis is to identify the reference system. The reference
system is composed of a consistent set of rules, typically rules defining the scope of the system, as well as conditions, rights and obligations and technicalities. On this background, the reference system is normally the tax itself, in this case the excise duty on waste incineration.

However, the Ministry will argue that the system of reference in this case is not the excise duty on waste incineration itself, but the excise duty on the waste incineration causing emissions covered by the ESR. Consequently, a tax exemption for undertakings covered by ETS is not a derogation from the reference system (not prima facie selective) and does not constitute state aid. The Ministry would like to note that the competitiveness of ETS
undertakings compared to their non-ETS counterparts is hampered by their obligation to pay for their emissions. The selective nature of the ETS implies a distortion of the competition in the waste incineration industry. A tax solely on non-ETS undertakings would decrease the distortion caused by the ETS, not introduce further distortion to the competition. The  Ministry would argue that the tax exemption therefore is in line with the overarching objective of fair competition laid down by the EEA Agreement.

The excise duty on waste incineration is introduced to fulfil Norway´s commitments under the ESR. As shown in item 3, all European emissions of greenhouse gases are divided into three complementary sectors with specific rules, namely the ETS, the ESR and the LULUCF. For emissions covered by ESR it is up to national authorities to implement policy instruments to comply with their national annual emission budget, cf. item 4.4. In Norway, the chosen policy instrument for such emissions are taxes. The excise duty on waste incineration must be assessed as a measure to fulfil Norway´s obligations under the ESR.

Taxes and tradeable allowances are widely considered to be the most effective and costefficient instruments for reducing emissions. In the Ministry´s opinion, it would not be logical if the State aid rules prevent Norway from applying the most cost-efficient measure to reduce
emissions covered by the ESR and thus hinder Norway from achieving the obligation. Furthermore, it seems illogical that State aid rules force Norway to impose measures wider than necessary under the ESR, i.e., to tax emissions covered by the ETS. Norway’s participation in the ETS does not constitute any obligation to reduce emissions in Norway, we are only obliged to participate in the trading system. Put differently, in the context of State aid, it seems reasonable to rely on the delimitation of emissions in the ESR when imposing measures to comply with the ESR. It also seems unreasonable that state aid regulation should contribute to increase the cost for society of reaching the targets under the ESR, either by forcing Norway to impose taxes on emissions outside the ESR or by forcing us to apply other and less efficient instruments to reach our emission target.

For the case that the Authority considers the reference system to be the excise duty on waste incineration itself, the Ministry will argue that the exemption for undertakings covered by the ETS is not a derogation from that system since undertakings exempted from the tax are in another factual and legal situation than undertakings not exempted. Exempted undertakings are covered by the ETS. Undertakings that are not exempted are not covered by the ETS. The ETS is imposed on the exempted undertakings as an obligation under the Greenhouse Gas Emission Trading Act. Furthermore, these undertakings are levied a price on CO2 emissions
through the ETS. Due to the ETS, exempted and non-exempted undertakings are in different situations, both legally and factually. Consequently, the exemption for undertakings covered by the ETS does not constitute a derogation from the system and the exemption is not prima
facie selective, i.e., does not constitute state aid.

For the case that the Authority considers the exemption for undertakings covered by the ETS to be prima facie selective, the Ministry will argue that the exemption for undertakings covered by ETS is justified by the logic and nature of the system. In our view the ETS and the excise duty on waste incineration are two different policy instruments aiming at the same
target, i.e. to reduce CO2 emissions. Both the tax and the ETS are imposing a carbon price on CO2 emissions which give the undertakings an economic incentive to reduce their emissions. The Ministry would like to emphasise that if all Norwegian waste incineration had been covered by the ETS, the Norwegian government would not have introduced the tax. Without
an exemption from the tax for undertakings covered by the ETS, the emissions would be exposed to two different policy instruments and levied a carbon price twice. Such double regulation is not cost-effective and constitutes an unnecessary additional financial burden for the undertakings in question. Since the purpose of the tax is to provide cost efficient reductions of ESR-emissions, preventing double pricing of emissions must be considered a logic consequence of the system and in line with the nature of the tax. Summing up, since both the excise duty on waste incineration and the ETS are measures imposing a price on CO2
aiming at a reduction of CO2 emissions from waste incineration, a tax exemption for undertakings covered by the ETS is justified by the logic and nature of the tax and consequently not state aid.

5.3 Remarks regarding the ETS Directive

The Ministry will argue that an exemption for undertakings covered by the ETS is in line with ETS Directive (Directive 2003/87/EC). As stated in article 1 of the Directive, ETS is implemented “in order to promote reductions of greenhouse gas emissions in a cost-effective and economically efficient manner.” It is further stated in the Directive´s preamble item (5)
that “This Directive aims to contribute to fulfilling the commitments of the European Community and its Member States more effectively, through an efficient European market in greenhouse gas emission allowances, with the least possible diminution of economic development and employment.”

We would argue that levying a tax on ETS-emissions does not contribute to the European Community’s commitment to reduce emissions of GHGs, since the number of allowances (and by extension the level of emissions) for any year is given. As discussed in item 5.1 it does, however, lead to “diminution of economic development and employment”. Forcing Norway to levy the same tax on ETS and non-ETS emissions is therefore not  coherent with the preamble item (5) of the ETS Directive, since it leads to an unnecessary diminution of both economic growth and employment for undertakings covered by the ETS without contributing to any reductions of overall emissions in the ETS.

We would also draw the attention towards the preamble items (16), (24) and (26):

(16) This Directive should not prevent any Member State from maintaining or establishing national trading schemes regulating emissions of greenhouse gases from activities other than those listed in Annex I or included in the Community scheme, or from installations temporarily excluded from the Community scheme.

(24) The instrument of taxation can be a national policy to limit emissions from installations temporarily excluded.

(26) Notwithstanding the multifaceted potential of market-based mechanisms, the European Union strategy for climate change mitigation should be built on a balance between the Community scheme and other types of Community, domestic and international action.

While exemptions from GHG-taxes for undertakings covered by the ETS is not explicitly mentioned, we would argue that it is clearly the intention that the ETS is to be supplemented by other emission mitigation measures. The ETS is not supposed to stand in the way of such measures. Not being able to exempt undertakings covered by the ETS is a major obstacle for introducing efficient pricing on non-ETS emissions and is not coherent with the intentions outlined in the ETS Directive.

5.4 Remarks regarding ETS 2 (ETS for buildings, road traffic and additional sectors)

As mentioned in item 3, the excise duty on waste incineration is mainly a tax on emissions of greenhouse gases. Directive 2023/959, amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the European Union, introduces a separate emission trading system for buildings, road transport and additional sectors, commonly referred to as ETS 2. ETS 2 applies to entities that release fuels for combustion in buildings, road transport and additional sectors. However, if the activity for which the fuel is released already is covered by the existing ETS, the ETS 2 will not apply, cf. Annex III of the
Directive. “Additional sectors” is defined as Energy Industries,  Manufacturing Industries and Construction as per the classification in the 2006 IPCC guidelines for National Greenhous Gas Inventories, still excluding entities covered by the existing ETS.

During Council negotiations, the proposed Directive was amended to include an exemption from the obligation to surrender allowances under ETS 2 until 31 December 2030 provided, inter alia, that the entities are subject to a national carbon tax covering the same fuels and activities, cf. article 30e (3) and preamble 87 of the Directive. In item 5.1 the Ministry inter alia argues that entities inside and outside the scope of the ETS
are in legal and factual different situations, and that the exemptions are not prima facie selective. Directive 2023/959 does not allow for trading or auctioning of allowances between the ETS and ETS 2. These are separate trading systems, and there are mechanisms in place with the objective of keeping the price of allowances in ETS 2 below EUR 45, i.e., well below
the price in the ETS, cf. article 30 (h) of the Directive. The establishment of ETS 2 does not change the Ministry’s view that the tax exemptions do not constitute a derogation from the reference system.

For the case that the Authority considers the exemption for undertakings covered by the ETS to be prima facie selective, the Ministry argues that the exemptions for undertakings covered by ETS is justified by the logic and nature of the system, since both the ETS and the tax are policy instruments used to reduce emissions in a cost-efficient manner. Provided that the
defined criteria are met, Directive 2023/959 offers an exemption in the ETS 2 for emissions covered by national carbon taxes which is equivalent to the tax exemptions in the notifications, seemingly based on the same notion of wanting to avoid costly and inefficient double regulation. The Ministry would argue that through symmetry, the exemption in the ETS 2 should allow for an equivalent exemption in national carbon taxes.

6. CLOSING REMARKS
Please feel free to contact us if you have any questions or would like to discuss the matter.

Yours sincerely,

Kjell Saghaug
Acting Deputy Director General

Grethe H. Dahl
Legal advisor