The proposal for a Directive is an important step towards making emissions trading a key policy instrument to combat climate change internationally. Given Norway’s special energy and emissions profile, we believe that it is important that the trading system gives the participating states the necessary flexibility, so that they can implement a policy which is adapted to the needs in each country, and which gives freedom to go further than the present proposal.

The Norwegian Government specifically wants to point out the following issues:

1. It is important that the national trading system could cover as many sectors as possible and that all six greenhouse gases are included. In this way all polluters would face the same burden. This is particularly vital from 2008 under the Kyoto Protocol.
   Norway’s emission profile is different from most other countries in Europe. We have practically no greenhouse gas emissions from electricity generation, but large emissions from the offshore sector (production and transport of petroleum offshore) and from the process industry. The proposal for a Directive does accordingly only cover less than 30 per cent of the Norwegian emissions.
   Norway intends to implement emissions trading as our main policy instrument to meet our Kyoto commitment. To do this, we need freedom to include all the main sectors with greenhouse gas emissions and all the six greenhouse gases in our trading scheme. If the present proposal of the Directive from the Commission should become binding for Norway, this approach would not be possible, and it would make it more difficult for Norway, and for other countries in a similar situation, to ensure that the Kyoto-commitments are met. We would therefore strongly recommend that the Directive gives the participating states opportunity to include emissions from other sectors and other gases in the trading system.
2. According to the proposal from the Commission, all the allowances shall be allocated free of charge in the period beginning 1 January 2005. Some countries, including Norway, have already adopted a tax on CO ₂-emissions. To replace the tax with a trading scheme including allocation of allowances free of charge would hence imply a lower burden for the sectors that pay this tax today. It would be unfortunate if the Directive should have such implications. The Directive should therefore give the participating states opportunity to implement a stricter climate change policy by selling the allowances through an auctioning system, as well as accepting auctioning of quotas in some sectors and allocation free of charge for others.
3. The present proposal generally covers only installations above certain thresholds, most of which are covered by the IPPC-Directive (96/61/EC). The limitation of 20 MW for energy production may lead to unfair competition in sectors where there are a number of plants of about this size, i.a. the petroleum sector offshore, thus creating unacceptable differences in treatment of similar installations. We will therefore propose that the final Directive makes it possible for the Member States to include smaller installations in the trading system for the sectors included.
4. Norway is among the countries which have imposed a tax on CO ₂-emissions, which today covers about 64% of our total CO ₂-emissions. This means that the marginal cost of reducing CO ₂-emissions is likely to be higher than in most other industrialised countries. It is therefore important that there are no limits on the use of the flexible mechanisms as part of the fulfilment of the Kyoto Protocol. This flexibility also ensures the most cost- effective way of reducing emissions globally. The Commission will later present a proposal for inclusion of the Kyoto-mechanisms in the trading scheme. We will emphasise that a full use of the flexible mechanisms should be made possible.
5. The proposal for a Directive seems to place the responsibility for surrendering allowances on the end-users (a down-stream approach). From a Norwegian point of view, it is important that the Directive also allows us to place the responsibility on the importer or distributor where this could be practical (an up-stream approach). This is administratively easier especially in the transport sector and other sectors with many small users, and makes it practicable to reduce emissions from these sectors through emission trading. The Directive should accordingly give flexibility for the countries to put the obligation of surrendering greenhouse gas allowances on the distributor or importer of fossil fuels as an alternative.