The Norwegian government’s national budget proposal, released on October 6, has raised concerns for Norsk Hydro, the aluminum producing giant, primarily due to alterations in the CO2 compensation scheme. Hydro expressed surprise and disappointment as the proposal may impact the company’s operations adversely, leading to increased costs and uncertainties.
The changes in the CO2 compensation scheme are anticipated to cause a cut of around NOK 1 billion (US$113 million) for Hydro in 2023. President & CEO Hilde Merete Aasheim elaborated on the subject in a press release.
“We are surprised and disappointed the government has once again chosen to weaken the competitiveness of the industry by cutting the established CO2 compensation scheme. This undermines the predictability of Norwegian industrial policy.”
The CO2 compensation scheme, an initiative to ensure competitive equity with other countries and to avert carbon leakage, falls under the purview of the EU emissions trading system. It aims to partially counterbalance the added costs industries face due to European CO2 prices impacting Norwegian energy costs. Notably, Hydro uses a 100 percent renewable energy in its aluminum production, which is CO2 emission-free.
However, the 2024 state budget proposal suggests an almost twofold increase in the CO2 quota price floor, from NOK 200 (US$22.60) per tonne introduced in 2022 to NOK 375 (US$42.38) per tonne for 2023. This will force Hydro to adjust previous compensation calculations for 2023. The budget will undergo discussions in the Norwegian Parliament this fall, with a definitive decision anticipated in December.
Last autumn, the government labeled the CO2 compensation scheme as ‘sustainable in a time of tighter economic constraints.’ Hydro based its 2023 provisions and future investments on this assertion. Aasheim noted the deviation from previous promises, saying, “It is unfortunate for the trust in political decisions that this is no longer the case.”
The budget also proposes changes in power taxation, including the introduction of a basic rent tax for wind power at 35 percent, slightly below the original 40 percent. Aasheim points out, “The proposal for wind power taxation does not contribute to triggering sufficient investments to ensure an adequate supply of power for industry and the green transition.”