Norwegian national budget proposal disappoints Hydro for weakened CO2 compensation and inadequate wind power taxation

The Norwegian government's national budget proposal, unveiled on October 6, contains various components that have implications for Hydro's activities within Norway. Of these, the most notable and concerning one pertains to the CO₂ compensation scheme. Hydro is surprised and expressed disappointment at the additional dilution of this scheme. Furthermore, the suggested taxation framework for wind power does not stimulate the necessary level of investments to guarantee a reliable power supply for both the industrial sector and the transition towards a more sustainable, environmentally friendly future.

The total impact of changes in the CO2 compensation scheme for Hydro in 2023 is estimated at a reduction of approximately NOK 1 billion. According to Hydro, the Norwegian government's constant stream of changes negatively affects the Norwegian industry's predictability.

President & CEO Hilde Merete Aasheim said, "We are surprised and disappointed the government has once again chosen to weaken the industry's competitiveness by cutting the established CO₂ compensation scheme. This is unfortunate and undermines Norwegian industrial policy's predictability."

The CO₂ compensation scheme aims to establish an equitable competitive environment with other nations while mitigating the risk of carbon leakage, where energy-intensive industries relocate their production to regions with greater carbon emissions. The CO₂ compensation scheme is a component of the European Union's emissions trading system. This initiative provides partial reimbursement to industries for the extra expenses they bear in energy costs due to the influence of European CO₂ prices on Norwegian energy prices. Hydro employs 100 per cent carbon-neutral renewable energy sources in Norway for its aluminium production process.

The 2024 state budget proposal entails a notable reduction in the CO₂ compensation scheme for the industrial sector. This involves a substantial increase in the CO₂ quota price floor, nearly doubling it from the initially established NOK 200 per tonne in 2022 to NOK 375 per tonne for the upcoming year, 2023. As a result, Hydro anticipates a significant financial impact of approximately NOK 1 billion for the year 2023. Consequently, Hydro is compelled to revise its previously calculated compensation for the first and second quarters of 2023, reducing it by roughly half of this amount. Correspondingly, Hydro will also adjust its financial records for the third and fourth quarters accordingly. It's worth noting that the state budget is scheduled for discussion in the Norwegian Parliament throughout the autumn, with the final budget decision expected to be reached in December.

The quota price floor within the CO₂ compensation scheme was initially implemented in the 2023 state budget. In the budget proposal unveiled during the fall of 2022, the government emphasized that the CO₂ compensation scheme was now considered 'viable amidst more stringent economic conditions.' Furthermore, the government had planned to extend an invitation to the industry for discussions on the scheme's future enhancements. These developments have formed the foundation for Hydro's financial provisions for the year 2023 and have influenced the company's upcoming investment strategies.

The CEO added, "The government presented a compensation level towards 2030 last year where they were clear the CO2 compensation scheme should remain unchanged. Therefore, it is unfortunate for the trust in political decisions that this is no longer the case, and it is being changed once again at the first opportunity. It is also highly regrettable the government has not followed up on the process and the dialogue regarding the scheme as they promised the industry would be involved in."

"We are planning significant investments in new technology to cut CO2 emissions and create greener products the world needs. A robust and predictable CO2 compensation scheme is one of the most critical prerequisites for the industry to continue investing in Norway, enabling us to create value and employment based on renewable energy. The Norwegian Parliament should now come together and provide stability to the CO2 compensation scheme towards 2030, so the industry can regain the predictability essential for further industrial development."

The government has announced additional modifications to the taxation of power generation. Effective October 1, 2023, the high-price contribution for hydropower will be eliminated. Moreover, a new basic rent tax of 35 per cent is being implemented for wind power, which is a slight reduction from the government's initial proposal of 40 per cent. However, it's important to note that this tax still needs to be considered investment-neutral. It remains imperative for both new renewable energy developers and the industry that the basic rent taxation is calculated based on the actual contract price.

"The overall tax increases in the 2023 government budget created significant unpredictability and, at the same time, weakened the opportunity to develop wind and hydropower projects that Norway needs to achieve its climate goals. It is good the government is removing the high-price contribution from October 1. However, it is disappointing the government has not listened to the industry and the renewable energy sector and addressed wind power taxation. The proposal for wind power taxation also does not contribute to triggering sufficient investments to ensure an adequate supply of power for industry and the green transition," Hilde Merete Aasheim said.