Norsk Hydro: Industry, Norwegian government agree on CO2 compensation scheme

The Norwegian government, industry associations and trade unions have reached an agreement on the future of the Norwegian CO2 compensation scheme, valid from 2024 until 2030. The agreement between the Norwegian government, Norsk Industri, Industri Energi & Forbundet for ledelse og teknikk, Fellesforbundet, LO, and NHO is valid from 2024 until 2030. It includes an annual maximum CO2 compensation for eligible industries of NOK 7 billion. The CO2 quota price floor that was introduced in 2022, and further increased for 2023, will be fully removed. The compensation cap will be subject to inflation adjustment. The revised CO2 compensation scheme includes a commitment for the industries to implement emission reduction and energy efficiency measures corresponding to 40 percent of the CO2 compensation paid. The revised CO2 compensation scheme will be subject to approval by EFTA Surveillance Authority, as well as the Norwegian parliament annual approval as part of the ordinary state budget process. The CO2 compensation scheme is linked to the EU emissions trading system. The scheme partially compensates for the unintended CO2 price effect to Norwegian power price from the European ETS system. In Norway, Hydro utilizes 100 percent renewable energy that does not emit CO2 in its aluminium production. However, due to interconnection with the European power market, CO2 costs are also affecting Norwegian power prices. Based on current production, it is estimated that Hydro will be eligible for a CO2 compensation of approximately NOK 3.2 billion for 2024, payable in 2025. The purpose of the CO2 compensation scheme is to create a level playing field for European energy intensive industries and prevent carbon leakage, which means energy intensive industries move production to countries without costs for CO2 emissions, but with similar or higher CO2 emissions.