ESA opens investigation into proposed exemptions from carbon taxes in Norway

The EFTA Surveillance Authority (ESA) has decided to open a formal investigation into planned exemptions from an excise duty on waste incineration and a CO2 tax on the processing industry for emissions already covered by the European Emissions Trading System (ETS). ESA has doubts as to whether the measures are in line with State aid rules under the EEA Agreement.

The ETS is a cap-and-trade systemthat makes polluters pay for their greenhouse gas emissions, helps bring emissions down and generates revenues to finance the green transition in the EU member states, plus Iceland, Liechtenstein, and Norway.

The Norwegian authorities in January 2022 introduced an excise duty on waste incineration to internalise the costs of the sector's CO2 emissions. Norway wants to introduce a total exemption from the excise duty for activities covered by the ETS as it alleges that being subject to both a carbon price through the ETS and a levy on emissions through the excise duty constitutes a double carbon-cost burden.

The second measure concerns a proposal to introduce a CO2 tax on natural gas and liquefied petroleum gas (LPG) used in chemical reduction or electrolysis, metallurgical and mineralogical processes (the processing industry).Similar to the measure above, the authorities plan to include an exemption from the tax for activities already covered by the ETS.

In a nutshell, both measures, which were notified to ESA on 29 February, set out to avoid that emissions and activities already covered by the Climate Quota Act - legislation introduced to promote the implementation of Norway's climate targets and obligations pursuant to the ETS Directive - are subject to a double regulation. The Norwegian authorities argues that the alleged double regulation will increase costs for the undertakings concerned, without leading to further reductions of emissions.

In its preliminarily findings, ESA concludes that both measures appear to constitute State aid. Moreover, ESA has yet to receive arguments relating to the compatibility of the measures with the functioning of the EEA Agreement.

The decision to open a formal investigation procedure is without prejudice to the final decision of ESA.

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