CO2-compensation scheme for manufacturing industry

The Norwegian Government will establish a CO2-compensation scheme for the manufacturing industry. The purpose is to prevent Norwegian manufacturing industry from moving their enterprises to countries with less strict climate regulations. – We want to provide a good framework for further development of this industry in Norway. Accordingly, we will use the possibility to compensate, says Prime Minister Jens Stoltenberg.

Carbon leakage occurs when emission of CO2 is transferred to other countries instead of being reduced. This is neither good climate policy nor good industrial policy. The CO2-compensation scheme will prevent such leakages. The scheme will be administrated by the Climate and Pollution Agency (Klif).

- The scheme will ease the burden for the power intensive industry and will ensure that a good climate policy is combined with a good industrial policy, says Minister of the Environment Bård Vegar Solhjell.

The introduction of the EU Emission Trading Scheme (EU ETS) in 2005 has led to an increase in electricity prices in Norway. This is the result of power companies’ transfer of EU ETS costs into the power prices. Thus, Norwegian hydro power also includes a CO2 element even though it has zero emission. This has led to a weakening of the competitiveness of Norwegian enterprises as compared to enterprises in countries without equally strict climate regulations. 

- The Norwegian manufacturing industry is at the front of their business sector when it comes to low emissions and energy efficiency. We must ensure that the industry is able to develop further in an environmental friendly direction without strict climate regulations resulting in relocation of emissions and carbon leakage. A well-designed CO2-compensastion scheme in a transitional period will contribute to this goal, says Minister of Trade and Industry Trond Giske.

The EU has passed state aid guidelines that allows for CO2-compensation. The aim is to achieve greater global reductions in emissions by preventing carbon leakage from European industry to countries with less strict climate regulations. Norway is among the first to announce a framework for a national CO2-compensation scheme.

 

Facts about the scheme

 

• The Norwegian CO2-compensation scheme will be closely based on the calculation method presented in the guidelines. The extent of the scheme may vary considerably from year to year depending on the future carbon price.

 

• The scheme will apply for the period 1.7.2013-31.12.2020. It includes all 15 sectors listed in the EU’s state aid guidelines. These include among others producers of aluminum, ferroalloys, chemical products and paper.

 

• According to the state aid guidelines compensation can only be given to power contracts that include CO2-costs. Thus, the scheme is limited and will only include power contracts concluded in 2005, the year which the EU ETSs was established. The scheme includes power contracts concluded before 2005 that have been resold on market conditions after 2005. Furthermore, electricity bought in the spot market is included.

 

• The industry’s own power generation will be deducted when calculating the amount of individual compensation. For these enterprises the generation capacity constitutes a long-term assurance against the CO2-cost in the power prices. In line with the state aid guidelines, the year with lowest activity level will be excluded from the basis of calculation.

 

• The scheme will be notified to EFTA Surveillance Authority ESA before it will be operative. Some of the elements in the guidelines are still undecided. The European Commission has stated that it in autumn 2012 will present energy efficiency benchmarks for calculating the level of compensation.