CO2 tax on gas - exemption for gas used for purposes other than heating of buildings

Reference is made to the Authority´s decision (Dec. No 597/07/COL) dated 23 November 2007 to open the formal investigation procedure provided for in Article 1(2) of Part I of Protocol 3 to the Surveillance and Court Agreement against Norway regarding the tax exemption from the Norwegian CO2 tax for gas and LPG used for purposes other than heating of buildings.

The Ministry of Finance hereby submits its comments on the Authority´s decision to open the formal investigation procedure.

Part II Section 2.2.1
94 per cent of the use of gas in Norway is used for other purposes other than heating, i.e. only 6 per cent of the gas will be levied CO2 tax. Consequently, the Ministry considers the CO2 tax to be a burden for those who are to be levied tax and not an advantage for those exempted from the tax. 

The Authority had doubts as to whether it can agree to this argumentation. The Authority notes that the Norwegian Authorities have not provided for a separate section in the budget which introduced a new tax for the heating of buildings, but simply integrated gas as a new product in the general CO2 tax on mineral products. The Norwegian authorities themselves have stated that the CO2 tax on gas is adopted as a general tax on gas.

The Ministry´s comments
The CO2 tax on mineral products is levied on several mineral products, i.e. mineral oil and petrol, cf. the Parliaments decision concerning CO2 tax on mineral products § 1 (1) litra a and b. Natural gas and LPG are mineral products. Consequently, the CO2 tax on natural gas and LPG was proposed as integrated part of the Parliaments decision concerning CO2 tax on mineral products, cf. the Governments proposal to include natural gas and LPG in the Parliaments decision § 1 (1) litra c and d.

The CO2 tax on gas is adopted as a general tax on all natural gas and LPG, cf. the Parliaments decision § 1 (1) litra c and d. This means that all natural gas and LPG is levied tax unless there is an explicit exemption in the Parliaments decision concerning CO2 tax on mineral products § 2.

The Ministry does not dispute the fact that the CO2 tax on gas formally is a general tax on gas. However, the Ministry argues that in reality the main rule is that gas is not levied CO2 tax, i.e. the exemption for gas used for other purposes than heating of buildings is so broad that most usages of gas is not levied tax. Consequently, the tax must be considered as a burden for those who are levied tax and rather than an advantage for those who are exempted from the tax.

The Authority argues that Norwegian authorities have not provided for a separate section in the budget which introduced a new tax for the heating of buildings. The Ministry understands this argument as if the formal framing of the tax is significant. An alternative framing of the tax could be that the tax is levied on “natural gas and LPG used for the heating of buildings”. Consequently, there would be no need for an exemption for “gas used for other purposes than heating”. I.e. the framing of the tax would be different, but the effect of the tax would be the same. Due to control reasons, the Ministry did not chose this framing of the tax, but if the Authority considers that such framing will make the tax compatible with the EEA Agreement, the Ministry will consider putting forward to the Parliament a proposal to alter the framing of the tax since the effect will be the same.

Part II Section 2.2.2
The Norwegian authorities consider the tax exemption to be a general measure because all undertakings using gas for heating purposes will pay the tax, but all undertakings using gas in the production process or for any other purpose will not be liable to tax on the gas used for those other purposes.

The Authority has doubts whether the exemption is a legitimate way to set the limits of a general measure. The Authority will investigate this question further and invites the Norwegian authorities to demonstrate that also the service sector can profit from the tax relief for that part of its commercial activity which does not consist in the heating of buildings. Likewise it would have to be ensured that the manufacturing sector would also include for the payment of the tax those buildings in which the production process takes place.

The Ministry´s comments
The Ministry can confirm that the manufacturing sector will be levied tax for gas which is used for heating of those buildings in which the production process takes place. This follows from the fact that the tax is levied on all gas unless there is an explicit exemption in the Parliaments decision. The exemption in the Parliaments decision § 2 subsection 1 no. 4 applies only to gas used for other purposes than heating of buildings. The exemption is only applicable if it is documented that the conditions for the exemption is fulfilled, cf. the Ministry´s Regulation concerning excise duties § 2-8. 

Part II Section 2.2.3
The Authority will investigate whether the tax exemption for purposes other than heating of buildings is within the nature and scheme of the Norwegian CO2 tax system.

The Ministry´s comments
The Norwegian Government considers environmental issues very important. According to the Soria Moria Statement  Norway shall be a leading country in environmental issues. The politics shall be based on the principle that any doubt goes in favour of the environment, the polluter pays principle and the use of best available technology. In the Soria Moria Statement it is also announced that the Government will examine the CO2 tax to prevent that gas for heating purposes is preferred to more environmentally favourable alternatives. The purpose of the CO2 tax is thus to set a price on the damages on the environment caused by use of the taxed products and to encourage the use of other less environmental harmful products. The tax is applied to ensure a more efficient use of resourses and thus lead to positive environmental effects.

 

Yours sincerely,

Elisabeth Berge
Deputy Director General

Grethe H. Dahl
Senior Adviser