Report No. 15 to the Storting (2001-2002)

Amendment to Report No. 54 to the Storting (2000-2001) Norwegian climate policy

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Introduction and summary

The previous Norwegian government submitted a white paper on climate policy (Report No. 54 (2000-2001) to the Storting) in June 2001. The present Government endorses the main elements of the white paper, but considers that there is a need to pursue a more proactive climate policy. On a global scale, the world community must deal with major and very complex challenges in order to avoid serious anthropogenic disturbance of the climate system. According to the UN Intergovernmental Panel on Climate Change (IPCC), the global mean surface temperature has already risen by 0.6 oC since 1860. In its Third Assessment Report, published in 2001, the IPCC projects a further rise in temperature of between 1.4 oC and 5.8 oC in the course of the next 100 years. This would be the most rapid rise in mean temperature for 10 000 years and would result in the highest global mean temperature for 150 000 years.

Norway must take a share of the responsibility at both national and global level for efforts to counteract global climate change. This is why the Sem Declaration describing the political platform of the present coalition Government announces a more proactive climate policy and proposes the implementation of new national measures to achieve “demonstrable progress” by 2005, in accordance with the Kyoto Protocol. The Sem Declaration states that the establishment of a domestic emissions trading system for greenhouse gases will be brought forward rather than awaiting the first commitment period under the Kyoto Protocol, that green taxes will continue to be used as an element of environmental policy, and that the CO2 tax will continue to be an important climate policy instrument.

The Government considers it important to ensure that policy instruments with a long-term perspective are put in place at an early date and can reduce Norway’s emissions before the first commitment period under the Kyoto Protocol. This is the reason for submitting this white paper as a supplement to Report No. 54 (2000-2001) on Norwegian climate policy. The Government proposes that a quota-based domestic emissions trading system for greenhouse gases should be established and made mandatory from 2005, and also proposes the implementation of a number of other climate-related measures at national level. By introducing a domestic emissions trading system for emissions from sources that are not subject to the CO2 tax wherever this is possible in practice, and at the same time continuing to levy the current CO2 taxes, Norway will regulate almost all emission sources by means of climate policy instruments. As a result, the country will have one of the world’s most comprehensive regimes for the regulation of greenhouse gas emissions.

The Kyoto Protocol – an important step forward

The agreement on the 1997 Kyoto Protocol was a significant step forward in international efforts to counteract climate change. For the first time, agreement was reached on quantitative and binding targets for the reduction of greenhouse gas emissions in industrialized countries. However, further elaboration of the operational details of the protocol was needed before industrialized countries could start ratification. Climate negotiations have been held in both Bonn and Marrakech since last year’s white paper on climate change was published. The conference in Bonn resulted in a political agreement that clarified many of the main political issues concerning the rules for implementation of the Kyoto Protocol. This agreement was followed up in Marrakech, where decisions were made on details of the rules for implementing the protocol. The adoption of an international set of rules means that the Kyoto Protocol can now be ratified by the industrialized countries, and enter into force as soon as possible. The Government is submitting a proposition to the Storting (national assembly) requesting consent to Norwegian ratification of the protocol (Proposition No. 49 (2001-2002) to the Storting) together with this white paper. Norway may thus be one of the first industrialized countries to make a binding legal commitment to the Kyoto Protocol. By proposing ratification of the protocol at an early date, the Government intends Norway to do what it can to ensure that it enters into force by the World Summit on Sustainable Development in Johannesburg in August 2002.

Tougher emission commitments will be necessary

The Climate Change Convention and the Kyoto Protocol are important milestones in international efforts to reduce global emissions of greenhouse gases. However, the Kyoto Protocol, which contains emission commitments for the industrialized countries for the period 2008-2012, is only one of the first steps in this process. Much deeper emission cuts will be needed if we are to prevent undesirable climate change. The UN Intergovernmental Panel on Climate Change (IPCC) has published scientific documentation that the world’s climate is changing. The global mean surface temperature is rising, and according to the IPCC has risen by about 0.6 oC during the twentieth century. Sea level has risen by between 10 and 20 cm in the past 100 years. According to the IPCC, these changes are related to a steep rise in the concentrations of greenhouse gases in the atmosphere. The IPCC’s Third Assessment Report concludes that there is now “new and stronger evidence that most of the warming observed over the last 50 years is attributable to human activities.” It is therefore essential to follow up the emission commitments under the Kyoto Protocol with agreements containing commitments to much greater reductions in emissions globally.

The Government will continue to take an active part in international efforts to combat climate change. The greatest challenge for the world community will be to persuade all countries to join forces and take far-reaching action to deal with this problem. The Government will play an active role in laying the basis for an early start to negotiations on more ambitious emission commitments. Emission commitments for the period after 2012 must also include countries that do not currently have quantitative commitments under the protocol. Among the industrialized countries, the USA, which alone accounts for about one quarter of global greenhouse gas emissions, has chosen to withdraw from the protocol. It will also be important for developing countries where emissions are high or rising rapidly to accept emission commitments. As part of the preparations for negotiations, a closer look should be taken at the long-term level of ambition for global climate cooperation, and how countries can help to achieve the ultimate objective of the Climate Change Convention through new emission commitments. In the government’s view, the establishment of a target for future concentrations of greenhouse gases in the atmosphere can provide a good basis for further international negotiations on more ambitious commitments.

The government considers it important to maintain a global perspective in climate policy. If we are to succeed in stabilizing concentrations of greenhouse gases at a level that will prevent disruption of the climate system, it is important to make reductions in emissions where this can be done at the lowest cost. This supplementary white paper focuses particularly on cost-effective measures that Norway can implement before 2008. It is true that any action Norway takes in this period will in itself have little effect on the global environment. Nevertheless, viewed in an international perspective Norway is an important energy-producer, and our response is therefore significant. It is important to show that Norway is taking a leading role in making use of effective policy instruments for two reasons: this can provide good examples of how policy instruments can be used internationally and will give Norway more influence in international negotiations.

Climate policy – a long-term perspective and ethical implications

Although this supplementary white paper focuses on the period before 2008, action and policy instruments must be considered in a long-term perspective. The consequences of our current emissions of greenhouse gases will be most apparent to future generations. It is therefore important to make an early start on the introduction of policy instruments that will in the long term help us to meet stricter commitments than those we are undertaking for the period 2008-2012. The Government considers it important to provide a framework that will enable Norway to implement its climate-related commitments both in the period 2008-2012 and in later commitment periods. By means of the policy instruments proposed here, the authorities will encourage the investments needed to make production and consumption less greenhouse gas-intensive.

The climate change problem is closely related to North-South issues: up to now, the rich countries have been responsible for by far the largest proportion of greenhouse gas emissions, whereas it is the poor countries that will be most seriously affected by climate change. This introduces an important ethical element into the climate change issue. It is a major challenge for the world community to contribute to greater economic growth in poor countries, but at the same time avoid the huge increases in greenhouse gas emissions this could entail. Another important task is to put in place new, climate-friendly technology and to develop new renewable energy sources at acceptable cost. The rich countries must take on a particular responsibility here. Policy instruments are needed that will give clear long-term signals, and make it profitable for industrial enterprises to develop and make use of environmentally-sound technology.

A proactive climate policy

The present Government endorses the main elements of the white paper on climate policy (Report No. 54 (2000-2001) to the Storting submitted by the Stoltenberg government, including the proposal to introduce a broad-based emissions trading system linked to the system under the Kyoto Protocol from 2008. However, the level of ambition for climate policy in the period before 2008 is fairly low in the Stoltenberg government’s white paper. It presents various examples of measures to reduce domestic greenhouse gas emissions, but proposes few specific policy instruments to encourage action. The most concrete proposal is to continue the use of the CO2 tax and initiate negotiations with enterprises that are not currently subject to the CO2 tax in order to encourage them to take action to cut emissions. The Bondevik Government agrees that it is important to continue the use of the CO2 tax up to 2008. The CO2 tax is levied on almost two-thirds of Norway’s total CO2 emissions and provides generally strong incentives to reduce these emissions. However, the Government does not consider it to be appropriate to start a negotiation process towards agreements with entities that will be included in an emissions trading system from 2008, as the Stoltenberg government proposed in last year’s white paper. Instead, the present Government proposes that a domestic emissions trading system should be established from 2005. Such a system would be more certain to result in emission reductions and provide a predictable framework, and its early introduction would give valuable experience of emissions trading.

The Government considers an emissions trading system to be a much more effective policy instrument vis-à-vis the industrial sector than agreements. This is why the Government is proposing the introduction of an emissions trading system that as far as is practicable includes all emissions not currently subject to the CO2 tax. Including sectors that are currently subject to the CO2 tax in the emissions trading system from the start, i.e. in the period 2005-2007, might – if quota prices are low – result in somewhat higher emissions than maintaining the current CO2 tax rates. It seems most likely that quota prices will be low or moderate in this period, so that sectors that are currently subject to the CO2 tax might pay a lower price for their emissions within the emissions trading system. The proposed combination of policy instruments is thus a more effective way of bringing about cuts in Norwegian emissions, given that quota prices are low. This combination will also ensure that almost all Norwegian greenhouse gas emissions are regulated by climate policy instruments, and give enterprises that are currently exempt from the CO2 tax an incentive to reduce their emissions. Norway would thus be applying an integrated set of policy instruments giving all sectors an incentive to reduce their greenhouse gas emissions. However, the Government considers that there is a need for other policy instruments to bring about reductions in emissions, in addition to the CO2 tax and the emissions trading system. This white paper therefore also presents other instruments and measures to encourage emission reductions, in accordance with the Sem Declaration.

A quota-based domestic emissions trading system from 2005

The main objective in introducing an emissions trading system at an early date is to stimulate further cost-effective action in Norway. However, the system must not include such strict requirements that enterprises are forced to close down by excessive climate-related costs before 2008, if they would be profitable after paying the international quota price during the first commitment period under the Kyoto Protocol. These concerns will be taken into consideration when the elements of the emissions trading system are finalized and presented to the Storting in a separate proposition on the legal framework.

From 2005 onwards, the emissions trading system is to apply to emissions of CO2 and other greenhouse gases from entities that do not pay the CO2 tax on most of their emissions. Energy-intensive and emissions-intensive industries will thus be obliged to surrender quotas equivalent to the quantity of greenhouse gases they emit that is not subject to a tax at present. The Government will also consider whether it is appropriate to make the system mandatory for other entities that are currently exempt from the CO2 tax or that are eligible for refunds. The most important sector here is the fishing industry, which accounts for three per cent of total emissions. At present, energy- and emissions-intensive industries that are exempt from the CO2 tax account for about 27 per cent of Norway’s greenhouse gas emissions. The obligation to take part in the emissions trading system will not apply to emissions that are already subject to the CO2 tax.

The overall ceiling for emissions quotas is to be based on a reduction of 20 per cent in emissions compared with the 1990 level for the same entities. The proposal includes adjustments of the overall emission ceiling if new entities are established or existing ones are expanded or closed down. In the period 2005-2007, the Government proposes to issue quotas free of charge (a process known as “grandfathering”) to entities for which participation in the system is mandatory. In practice, these entities currently have unlimited quotas for which they do not have to pay. The Government’s proposal thus entails tighter control of emissions. All entities that are required to join the emissions trading system will have an incentive to reduce their emissions. If the target is to bring about a 20 per cent reduction in emissions, most of them will have to take steps to reduce their emissions, buy quotas in addition to those that are issued free of charge, or pay a penalty in the form of a fine if they fail to surrender the required volume of quotas. Some entities will be able to do so much to reduce emissions that they can sell quotas they do not need themselves. There will be restrictions on resale of some of the quotas, so that entities cannot sell all their quotas and close down their operations.

In the case of emission sources for which no specific person or entity can be held responsible, or where it would be difficult and costly to assign responsibility, it is proposed to permit joint implementation at national level within the emissions trading system. The Government will also make it possible to give credit for quotas from abroad that are valid under the Kyoto Protocol. The Government proposes to specify fines for failure to surrender a sufficient volume of quotas. The amount of such fines will be set in order to strike a balance between achieving the target of emission reductions in Norway and preventing unreasonably high costs for entities for which the system is made mandatory before 2008.

Starting up a mandatory emissions trading system for certain sectors at an early date will be the first step on the way to more general emissions trading. The experience that will be gained by introducing emissions trading before 2008 can give both industry and the authorities advantages in a system under the Kyoto Protocol. By bringing forward the establishment of emissions trading, Norway can become one of the pioneers in this field. It is assumed that the introduction of a Norwegian system for entities that are not subject to the CO2 tax will also satisfy the new guidelines on state aid for environmental protection from the EFTA Surveillance Authority.

There are several advantages to be gained by regulating greenhouse gas emissions by means of a quota-based emissions trading system. In environmental terms, the advantage is that an upper limit can be set for aggregate greenhouse gas emissions. This means that an emissions trading system is an effective way of controlling emissions. At the same time, it is left to the market and private actors to make the reductions where it will be most cost-effective for them. Thus, the most important economic advantage of such a system is that emission reductions are made where the costs are lowest.

The Government proposes to expand the emissions trading system to other sectors from 2008 onwards, so that it becomes the main policy instrument under the Kyoto Protocol. From 2008, greenhouse gas emissions are to be regulated by a broad-based domestic emissions trading system that includes as many sources of emissions as practicable and that is linked to an international emissions trading system.

Emissions trading systems in the EU and other countries

The EU is in the process of drawing up a directive establishing a scheme for greenhouse gas emissions trading (cf. COM(2001) 581 final). The obligation to hold emission allowances (and surrender them in accordance with emissions) is to take effect from 2005. It is a positive step that the EU Commission has taken the initiative to use emissions trading as a means of regulating greenhouse gas emissions from as early a date as 2005. This can provide useful experience for the task of preparing an effective international regime to be introduced from 2008. However, the emissions trading scheme proposed by the Commission does not meet Norway’s needs, particularly in relation to the Kyoto Protocol. As a hydropower nation and a major producer and exporter of energy, Norway faces different challenges from most EU members. The UK and Denmark have already established their own emissions trading schemes independently of the EU, and have had them approved by the EU Commission for the time being. Sweden has appointed a parliamentary committee to put forward proposals for a domestic emissions trading scheme, in which the obligation to hold quotas is to take effect from 2005 at the latest. The various EU member states have somewhat differing interests as regards emissions trading, and it is therefore difficult to predict exactly what the system will be like when it is finalized.

On this basis, the Government has chosen not to wait until the EU has finalized an emissions trading scheme. Instead, the Government has chosen to propose a separate Norwegian scheme for the period 2005-2007. This proposal takes into account the fact that Norway already levies a CO2 tax on emissions from the offshore petroleum industry and the transport sector, and limits the quotas-based system to sectors where emissions have so far been unregulated.

If Norway needs to adapt its emissions trading system to the EU scheme, it will be possible to base this process on negotiations on the various elements of the scheme. The Government is making active efforts to influence the process that is now taking place in the EU. It is particularly important that countries that wish to do so can include other sources than those proposed by the Commission in the system, and that they are allowed to implement comprehensive, broad-based emissions trading systems that allow unrestricted use of the Kyoto mechanisms from 2008.

Other instruments and measures

The Government considers it important to use other climate policy instruments as well as the emissions trading scheme. This white paper therefore includes proposals for additional measures to be introduced before 2008 by means of national policy instruments other than emissions trading. The Government emphasizes that cost-efficiency must be taken into account in evaluating such measures and instruments.

One of the Government’s targets is to reduce the use of mineral oils for heating by 25 per cent in the first commitment period under the Kyoto Protocol (2008-2012) compared with the average for the period 1996-2000. One step in this direction will be to draw up a strategy for conversion from oil-fired heating to new renewable energy sources. This will include measures to encourage greater exploitation of biomass and methane from the agricultural sector for energy purposes. It is also proposed to make much greater use of waste as a source of energy to replace fossil fuels than is the case today, thus reducing the quantity of biodegradable waste that is landfilled. A prohibition on all landfilling of biodegradable waste will be considered. The tax on final waste treatment will be reorganized and adapted to Norway’s climate policy. The Government will also strengthen research into the development of environmentally-friendly energy technology. Another of the Government’s targets is to establish a framework that will make it possible to establish gas-fired power plants with CO2 reduction technology. The Government will ensure that Statoil and its partners in the Snøhvit gas and condensate field in the Barents Sea draw up a plan with a clear time-frame for testing CO2 reduction technology. The Government will at a later date provide the Storting with information on progress, cost estimates and proposals for financing a pilot facility.

The Government has considered it necessary to introduce policy instruments at an early date to regulate non-industrial emissions of potent greenhouse gases such as HFCs, PFCs and SF6. Emissions of these gases are expected to rise steeply unless steps are taken to regulate them. The Government therefore proposes the introduction of a tax on imports of HFCs and PFCs at a similar rate to the CO2 tax on fuel oil. The Government will consider a refund scheme for HFCs and PFCs that are delivered to reception centres when they are taken out of use. A refund system would promote the re-use and destruction of these gases, and thus provide the same incentive as a tax on emissions. The Government has also reached agreement with relevant branches of industry (electrical and electronic equipment) on reductions in emissions of SF6. Emissions of this substance have not previously been regulated. The agreement includes expansion of the scheme for collecting and treating discarded electrical and electronic products.

The petroleum industry on the Norwegian continental shelf is a major source of greenhouse gas emissions, and emissions are expected to rise in the future unless further steps are taken to counteract this. The Government will therefore take steps to facilitate power supplies from land to offshore installations, and will evaluate various ways of doing this. The Government will also evaluate further measures to reduce emissions from flaring on the continental shelf.

The Government will pursue a transport policy that effectively helps to reduce greenhouse gas emissions from the transport sector. For example, the Government wishes environmental impacts to be given considerable weight in decisions on purchases of transport services and vehicles for the central government administration. Steps will also be taken to facilitate the use of biofuels.

It is important for state-sector bodies to act as a driving force and lead the way in efforts to achieve the Government’s targets related to climate. All state-sector bodies and enterprises are therefore to introduce a simple environmental management system by 2005, and the ministries are to take the lead in this process.

The Government will use measures related to research, information and the development of expertise to play an active role in raising awareness of the issue of climate change, and strengthening emergency preparedness and paving the way for necessary adaptation measures to limit damage and losses caused by climate change. This will be done in close cooperation with the relevant sectoral authorities and regional and local authorities, who will follow up these matters further within their respective spheres of responsibility.

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