Carbon Border Adjustment Mechanism – Preliminary Norwegian Positions

Fighting climate change and promoting climate neutral growth is a defining task. Norway shares the European Commission’s vision for a European Green Deal. We want to be a partner and contribute to the implementation.

The Agreement on the European Economic Area (EEA) is the cornerstone of the cooperation between the European Union and Norway. It integrates Norway, Iceland, and Liechtenstein as equal partners within the Single Market, with a level playing field that includes common rules on competition and state aid. In 2019, EU, Norway and Iceland agreed to deepen the long cooperation on climate change further, by applying the EU legislation on the Effort Sharing Mechanism outside the EU ETS, as well as the regulation on emissions from land use, land use change and forestry (LULUCF) in Norway and Iceland. Given Norway’s special partnership with the EU within the Single Market, we are eager to engage in a continued dialogue on a possible proposal on a carbon border adjustment mechanism (CBAM).

The European Union and Norway share the view that a price on carbon emissions is in general the most cost-efficient way to reduce such emissions. Our common carbon pricing tool is the EU ETS which operates in all EU member states plus Iceland, Liechtenstein and Norway. If international partners do not share the same climate ambition as EU and Norway, there is a risk of carbon leakage and our efforts to reduce emissions in Europe will not result in a similar reduction in global emissions.

The Norwegian government shares the concerns and objectives of the European Commission in reducing the risk of carbon leakage to countries outside the Single Market. Key features of the EU ETS directives, with a certain level of free allowances, as well as the framework for compensation of indirect CO₂-costs, to exposed industries, are designed to reduce the risk of carbon leakage. 

Norwegian businesses participate in the EU Emission Trading System on an equal footing with EU businesses, and they are included in a scheme for compensation of indirect CO₂-costs in line with EU/EEA regulations. It is important that the implications of a possible transition to CBAM are properly analysed for key industries, such as primary aluminium and fertilizers. We believe that the framework regarding compensation for indirect CO₂-cost and other measures should be continued until a well working mechanism, building on a broad analysis including EEA countries, is in place. We would in this context like to echo the views expressed by the German government in its position paper on the Fit for 55 package:

"Existing instruments to protect against carbon leakage (free allocation and electricity cost compensation) have to be prolonged to an appropriate extent, taking into account international competitiveness. Talks with third countries on joint climate action efforts should begin soon."

Furthermore, Norwegian businesses should not be targeted by a CBAM, as there is no risk of carbon leakage between EU and Norway. As long-term partners, with Norwegian companies already covered by all relevant European legislation, we ask the Commission to carefully consider three policy pillars when finalising the proposals on CBAM:

• Any new regulation should be fully in line with the principles and current regulation of the Single Market, so as not to create new distortions on trade, investments and industrial competitiveness between Member States, Iceland, Liechtenstein and Norway
• It is essential that any new regulation is designed to comply with WTO-rules and other international rules.
• The system should be effective and transparent, and have verifiable methods for calculating the carbon content in products including direct and indirect emissions.

Norwegian industry is a key provider of materials central to the green transition, e.g., aluminium, fertilizers, nickel and ammonia. The production of such materials is almost entirely based on hydropower, but companies are subject to significant indirect CO₂ costs passed on through electricity prices. Such costs are not carried by global competitors, hence the need for an effective system guarding against carbon leakage.

We believe that the introduction and implementation of CBAM should proceed cautiously, allowing for experience gained and necessary learning. This is particularly important for refined products dependent on complex value chains.

The European Green Deal is both a climate and growth strategy. It is about creating a re-structured and green economy, whereby industry, transport, agriculture etc. move society towards a state of prosperity and sustainability combined.

Norway is committed to the same objectives and will align closely with the EU. We need to transform industry, use of energy and all other sectors to reach our common goals. The challenge is to lay down the practical and feasible regulatory foundation to achieve this. We look forward to the Commission's Fit for 55 package on 14 July. We will engage in discussions on these important matters as appropriate and revert with more detailed positions once the package is published.

Yours sincerely,

Jan Tore Sanner Minister of Finance

Sveinung Rotevatn Minister of Climate and Environment

Iselin Nybø Minister of Trade and Industry