Invitation to submit comments pursuant to Article 1(2) in Part I of Protocol 3 to the Surveillance and Court Agreement on State aid with regard to the tax exemption from the Norwegian CO 2 tax on gas and LPG for the use of gas for purposes other than heating of buildings
Date: 2008-06-12
Institutions: EFTA Surveillance Authority
Subjects: Norway, State aid, control of State aid, environmental tax, gas, motor fuel, tax exemption

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NOTICES CONCERNING THE EUROPEAN ECONOMIC AREA

EFTA SURVEILLANCE AUTHORITY

Invitation to submit comments pursuant to Article 1(2) in Part I of Protocol 3 to the Surveillance
and Court Agreement on State aid with regard to the tax exemption from the Norwegian CO2 tax
on gas and LPG for the use of gas for purposes other than heating of buildings

(2008/C 146/02)

By means of Decision No 597/07/COL of 23 November 2007, reproduced in the authentic language on the
pages following this summary, the EFTA Surveillance Authority initiated proceedings pursuant to Article 1(2)
in Part I of Protocol 3 of the Agreement between the EFTA States on the Establishment of a Surveillance
Authority and a Court of Justice (Surveillance and Court Agreement). The Norwegian authorities have been
informed by means of a copy of the decision.

The EFTA Surveillance Authority hereby gives the EFTA States, EU Member States and interested parties
notice to submit their comments on the measure in question within one month from the publication of this
notice to:

EFTA Surveillance Authority
Registry
Rue Belliard 35
B-1040 Brussels

The comments will be communicated to the Norwegian authorities. Confidential treatment of the identity of
the interested party submitting the comments may be requested in writing, stating the reasons for the
request.

SUMMARY

PROCEDURE

By letter dated 9 March 2007, the Norwegian authorities notified the Authority of a planned amendment to
the CO2 tax on mineral products, pursuant to Article 1(3) of Part I of Protocol 3 to the Surveillance and
Court Agreement. The Norwegian authorities intended to amend the CO2 tax in such a manner as to
include taxation on natural gas and liquefied petroleum gas (hereafter LPG), on which no CO2 tax is
currently levied.

After correspondence with the Norwegian authorities, the Authority has decided to open a formal investiga-
tion procedure with regard to the exemption from the tax for the use of gas for purposes other than the
heating of buildings.

ASSESSMENT OF THE MEASURE

In Norway a CO2 tax is currently only levied on mineral oil and petrol. In the budget proposal for 2007, the
Norwegian Government proposed to introduce a CO2 tax on gas and LPG, and this proposal was accepted
by the Parliament, and further amended by St. prp. nr. 69 (2006-2007).

The new provision introduces an exemption for gas used for all purposes other than heating of houses and
commercial buildings, as well as for the greenhouse industry. The objective of the measure is to prevent gas
for heating from being preferred to more environmentally favourable alternatives, namely bio-energy.

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The Norwegian authorities state that 94 % of the consumption of natural gas concerns purposes other than
the heating of buildings. The main consumption of gas in Norway is for industrial uses, of which the manu-
facturing sector forms a dominant part. The Norwegian authorities claim that in practice only a very limited
tax on the heating of buildings is introduced. For technical reasons relating to national law, the CO2 tax on
gas and LPG was formally adopted as a general tax.

In the preliminary view of the Authority based on the information submitted by the Norwegian authorities,
the Authority cannot exclude the possibility that the exemption from the CO2 tax on gas constitutes aid
within the meaning of Article 61(1) of the EEA Agreement.

The Norwegian authorities argue that the limitation of the tax to the purpose of the heating of buildings is
a general measure which is open to all undertakings and sectors. However, in the Authority's preliminary
view the measure may de facto favour certain undertakings. This is due to the fact that the CO2 tax will be
paid on their total gas consumption by those industries which do not engage in production processes, but
mainly carry out their work in buildings, i.e. typically the service sector. Undertakings using gas in the
production process will not be liable to taxation on the gas used for purposes other than heating buildings.
The Authority is of the preliminary opinion that as a starting point all uses of gas are taxed under the
Norwegian legislation. The Authority also does not consider that the reference to a particular use rather
than referring to certain sectors automatically turns the exemption into a general measure and finds support
for its view in cases by the European Court of Justice, where measures which essentially favoured a group of
undertakings although formally being open to all operators were considered to be selective. The Authority
will, however, also take into account during the formal investigation procedure that the Authority's Guide-
lines on the application of the State aid rules to direct business taxation stipulate that the fact that a
measure benefits certain undertakings more than others does not necessarily speak in favour of a selective
advantage. In this regard the Authority takes note of the European Commission's Decision regarding a
Danish tax scheme (N 416/99) by which the taxation of household like consumption for undertakings was
considered not to be State aid, even if the tax was mainly paid by the services sector.

In the Authority's view the logic of the tax exemption for purposes other than heating is not in line with
the objectives of CO2 taxation in Norway. The Authority does not consider the purpose of reducing CO2
emissions, the encouragement of switchover to bio-energy, or taxation of household-related consumption to
be adequate reasons for differentiating between sectors.

The Authority has doubts that these measures can be regarded as complying with Article 61(3)(c) of the
EEA Agreement, in combination with the requirements laid down in the Chapter on aid for environmental
protection of the Authority's State Aid Guidelines. In the present case no tax is paid on gas used for
purposes other than the heating of buildings. Such a total tax exemption would only be possible if the aid
recipients had concluded environmental agreements with Norway, which is not the case. A partial reduction
of the tax would require that a significant part of the tax is paid. The tax exemption therefore cannot be
justified under the Environmental Guidelines.

In light of the foregoing considerations, the Authority decided to open the formal investigation procedure in
accordance with Article 1(2) of the EEA Agreement. Interested parties are invited to submit their comments
within one month from publication of this decision in the Official Journal of the European Union.

CONCLUSION

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EFTA SURVEILLANCE AUTHORITY DECISION

No 597/07/COL

of 23 November 2007

to initiate the procedure provided for in Article 1(2) of Part I of Protocol 3 to the Surveillance and
Court Agreement with regard to the tax exemption from the Norwegian CO2 tax on gas and LPG
for the use of gas for purposes other than heating of buildings

(Norway)

THE EFTA SURVEILLANCE AUTHORITY (1),

Having regard to the Agreement on the European Economic
Area (2),
in particular to Articles 61 to 63 and Protocol 26
thereof,

Having regard to the Agreement between the EFTA States on
the Establishment of a Surveillance Authority and a Court of
Justice (3), in particular to Article 24 thereof,

Having regard to Article 1(2) of Part I and Articles 4(4) and 6
of Part II of Protocol 3 to the Surveillance and Court Agree-
ment,

Having regard to the Authority's Guidelines (4) on the applica-
tion and interpretation of Articles 61 and 62 of the EEA Agree-
ment, and in particular the Chapter on Aid for Environmental
Protection as well as the Chapter on the Application of the State
Aid Rules to Measures relating to Direct Business Taxation,

replied to that request by letter from the Ministry of Govern-
ment Administration and Reform dated 25 September 2007,
forwarding a letter
from the Ministry of Finance dated
24 September 2007. The letters were received and registered by
the Authority on 25 September (Event No 443658).

2. Description of the proposed measures

In their notification the Norwegian authorities inform the
Authority of a proposed amendment of the CO2 tax on mineral
products to include taxation of natural gas and LPG. In the
following, the tax will be called ‘the CO2 tax on gas’, which is
however to be understood as covering taxation of both natural
gas and LPG.

Whereas:

2.1. CO2 taxation in Norway

I. FACTS

1. Procedure

By letter of 9 March 2007 from the Norwegian Ministry of
Government Administration and Reform forwarding a letter
from the Ministry of Finance dated 8 March 2007, both received
and registered by the Authority on 9 March 2007 (Event
No 412984),
the Norwegian authorities notified a planned
amendment to the CO2 tax on mineral products, pursuant to
Article 1(3) of Part I of Protocol 3 to the Surveillance and Court
Agreement. The Norwegian authorities intended to amend the
CO2 tax in such a manner as to include taxation on natural gas
and liquefied petroleum gas (hereafter LPG), on which no CO2
tax is currently levied.

By letter dated 26 April 2007 (Event No 418662),
Authority requested additional information.

the

By e-mail dated 30 May 2007, the Norwegian Mission to the
European Union forwarded a letter dated 25 May 2007 from
the Norwegian Ministry of Government Administration and
Reform, enclosing a letter from the Ministry of Finance replying
to the information request. The letters were received and regis-
tered by the Authority on 30 May 2007 (Event No 426435).

A further request for information was sent by the Authority on
11 July 2007 (Event No 425632). The Norwegian authorities

(1) Hereinafter referred to as ‘the Authority’.
(2) Hereinafter referred to as ‘the EEA Agreement’.
(3) Hereinafter referred to as ‘the Surveillance and Court Agreement’.
(4) Guidelines on the application and interpretation of Articles 61 and 62
of the EEA Agreement and Article 1 of Protocol 3 to the Surveillance
and Court Agreement, adopted and issued by the EFTA Surveillance
Authority on 19 January 1994, published in OJ L 231, 3.9.1994, EEA
Supplement No 32, 3 September 1994. The Guidelines were last
amended on 31 May 2007. Hereinafter referred to as ‘the State Aid
Guidelines’.

Currently, CO2 taxes in Norway are only levied on mineral oil
and petrol. The Norwegian tax on CO2 is understood by the
Norwegian authorities to be a tax on the consumption and
emission of CO2 (5), which is levied on the use of the products
mentioned in the tax chapter. Both imported and domestic
products are subject to the tax.

The CO2 tax is contained in a budgetary chapter concerning the
environmental taxes levied on mineral products, with the title
‘Om miljøavgifter på mineralske produkter mv’. Heading A of this
chapter deals with the CO2 tax on mineral products CO2 (avgift
på mineralske produkter). Section A1 stipulates the levy of the tax
on mineral oil and petrol. It reads as follows:

‘Fra 1.
januar 2007 skal det i henhold til
nr. 11 om særavgifter betales CO2-avgift
følgende mineralske produkter etter følgende satser: …

lov 19 mai 1933
statskassen på
til

a) Mineralolje: kr. 0,47 per liter (…).

b) Bensin: kr 0,80 per liter’,

that is:

‘From 1 January 2007, according to Act of 19 May 1933
No 11 regarding special duties, CO2 tax shall be paid to the
Exchequer on the following mineral products at
the
following rates …

(a) Mineral oil: NOK 0,47 per litre.

(b) Petrol: NOK 0,80 per litre’ (6).

(5) Letter of 31 January 2002 from the Norwegian authorities in

Case SAM070.001 — Environmental taxes.

(6) This and other translations of Norwegian legislation found in the text

have been done by the Authority.

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Section A2 contains several exemptions from the tax, depending
on the use of the product. Section A2.1 contains general exemp-
tions for various activities, in particular the use of the mineral
in the production process
oil product as a raw material
(Section A2 lit.1.c). Section A2.2 and Section A2.3 contain
further exemptions relating to the use of mineral oil and petro-
leum respectively.

2.2. Introduction of CO2 taxation on gas and LPG

No CO2 tax has so far been levied on gas.
In the budget
proposal for 2007, the Norwegian Government proposed an
amendment to the relevant chapter of the budget, which was
accepted by Parliament. The proposal contained in St. prp. nr. 1
(2006-2007), II A and B reads:

‘A.

Fra 1 juli 2007 gjøres følgende endringer:

§ 1 første ledd nye bokstaver c og d skal lyde:

c) Naturgass: kr. 0,47 pr. standardkubikkmeter.

d) LPG: kr. 0,60 pr. kg.

B.

§2 første ledd ny nr. 4 skal lyde:

4. Gass til annen bruk en oppvarming mv. i boliger og nærings-

bygg’.

that is:

‘A.

As of 1 July 2007 the following amendments shall apply:

In Section 1, first paragraph, new letters c and d shall read:

(c) Gas: NOK 0,47 per standard cubic metre.

(d) LPG: NOK 0,60 per kilogram.

B.

Section 2, first paragraph, new number 4 shall read:

Gas used for purposes other than heating of houses and
commercial buildings’.

By adding the letters (c) and (d) to Section 1, as referred to
under A, a CO2 tax on gas is introduced. The new provision
referred to under B introduces an exemption for gas used for all
purposes other than heating of houses and commercial build-
ings.

The above exemption was later further amended by St. prp.
the Norwegian
nr. 69 (2006-2007). By these amendments,
authorities intended to exempt the greenhouse industry. They
consider this exemption to fall outside the scope of the EEA
Agreement. In addition the newly formulated (c) should make
the tax duty more precise by not limiting it to gas used for
dwellings and commercial buildings, but extending it to cover
all buildings.

The amended Section 2.4 now reads as follows:

‘§2 nr. 4 skal lyde:

4. Gass til

c) Annen bruk enn oppvarming av bygg.

d) Vektsthusnæringen.’

that is:

‘Section 2 nr. 4 shall read:

The following products are exempted from the tax, entitled
to a refund or a grant for the tax in relation to the following
fields of application:

4. Gas for

(c) any use other than heating of buildings;

(d) greenhouse industry.’

In their notification,
the Norwegian authorities describe the
planned amendment as an ‘amendment of the CO2 tax to include
gas used as heating from 1 July 2007’. In the opinion of the
Norwegian authorities this amendment does not concern an
exemption from a general CO2 tax on gas, but merely the
introduction of a very limited tax on the heating of buildings
which does not constitute State aid within the meaning of
Article 61(1) of the EEA Agreement. The notification is there-
fore to be understood as a notification for legal certainty only.

The Norwegian authorities state it is only for a technical reason
that the CO2 tax on gas is adopted as a general tax; the control
possibilities of the Customs and Excise Directorate are increased
when working with a general tax. Only if a measure is adopted
as a general tax, are all producers of taxable goods obliged to
register with the authorities as being liable for the tax and keep
accounts of their sales. Had the tax been adopted as a more
limited tax on heating, no registration and no keeping of
accounts would have been necessary for traders which sell the
gas for purposes other than heating.

2.3. The objective of the measure

The objective of the new tax on gas is described in the budget
proposal for 2007, which refers to the so-called Soria Moria
Statement (1):

‘Domestic use of gas is not subject to CO2 tax. From 2005 gas
used in some industries is subject to the climate quota system
concerning CO2. Other gas usages are not subject to means which
incentivise the reduction of CO2, i.e. gas used in dwellings, indus-
trial houses and mobile sources. In the Soria Moria statement it is
announced that the Government will examine the CO2 tax to
prevent that gas as heating is preferred to more environmental
favourable alternatives’.

2.4. National legal basis for the measure

The CO2 tax on gas was passed by Stortinget (the Parliament).
The Government's proposal was put forward in St. prp. nr. 1
(2006-2007) Skatte-, avgifts- og tollvedtak and was adopted by
the Parliament 28 November 2006.

Det gis fritak, refusjon eller ytes tilskudd for avgift på produkter til
følgende anvendelseområder:

(1) The Soria Moria Statement is a policy statement drawn up by the three

political parties forming the Norwegian Government.

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As explained above, Parliament's decision was then altered in
connection with the Revised National Budget 2007 (1). This
amendment concerned an exemption from the tax in favour of
the greenhouse growing industry. In addition, the Government
proposed to lay down in the Parliament's decision that gas for
heating of all buildings are liable to tax, not only gas for resi-
dential houses and commercial buildings. The Government's
proposal
in St. prp. nr. 69 (2006-2007) was adopted by the
Parliament on 15 June 2007.

In addition to the general decision by Parliament, there will be
an amendment of the Regulation on Excise Duties (Forskrift om
endring av Forskrift om særavgifter).

The new Section 3-6-4 of the Regulation, which deals with an
exemption from the tax for mineral oil which is exported, will
now also explicitly exempt LPG. The exemption now reads that
for petrol and LPG the threshold beyond which no tax will be
levied is 400 litres or 150 kg. As natural gas is always exported
in bulk, natural gas is not mentioned and no minimum
threshold is applied here, i.e. it is always tax exempted.

Section 3-6-5 of the Regulation deals with the exemption from
the CO2 tax for gas used for purposes other than heating.
Section 3-6-5(1) states that gas which is used for other purposes
than the heating of buildings, commercial buildings and other
dwellings is tax exempted. The exemption does not cover any
direct or indirect heating (2).

Norwegian consumption of natural gas and liquefied gas in
2006

Natural gas Mill.
Sm3

Liquefied gas
100 t

Net domestic consumption

Manufacturing, mining and quar-
rying

Energy intensive industry

Manufacture of paper and paper
products

Mining, quarrying and other indus-
tries

Transport

Other sectors

293

245

187

10

48

13

35 (1)

188

151

70

3

77

2

35

(1) As can be concluded from the table below, this figure must include also the

fishing and agricultural sector and the private households.

Net domestic consumption of natural gas, 2006 Mill. Sm3

Gas which is used in units lower than 20 kg is exempted from
the tax, see Section 3-6-5(2) of the Regulation.

Total

stipulates

Section 3-6-5(3)
registered companies may
that
deliver gas without duty if the gas is to be used for a purpose
which is exempted from duty. It is a condition for the exemp-
tion of duties that the buyer gives a statement about the use of
the gas. If the gas is to be used for both tax liable and tax free
purposes, a proportional distribution must be made according
to the estimated use. The statement is valid for a period up to
one year and must be retained as a record for 10 years. The
person issuing the statement is responsible for the information
being correct and complete. The tax is to be paid to the Customs
and Excise Service (‘Toll- og Avgiftsetaten’). If gas bought tax free
is used for a tax liable purpose, the tax has to be paid.

2.5. Beneficiaries of the tax exemption

The Norwegian authorities state that 94 % of the consumption
of natural gas concerns purposes other than heating of build-
ings. The Norwegian authorities explicitly state that only a small
percentage of domestic consumption is related to the heating of
buildings because the main consumption of natural gas is for
industrial purposes, of which the manufacturing sector forms a
dominant part.

According to Statistics Norway, approximately 80 % of the net
domestic consumption of gas is related to manufacturing,
mining and quarrying. The Norwegian authorities present the
following consumption tables for 2006:

(1) See above, Section I-2.2 of this Decision.
(2) As explained by the Norwegian authorities, that last sentence should be

understood in the meaning of ‘heating of buildings’.

Total

293

18

Fishing and agriculture

Manufacturing, mining and quarrying

244 (1)

Mining and quarrying

Manufacture of food products

Textile

Manufacture of pulp, paper and paper products

Manufacture of wood and products of wood

Manufacture of chemicals

Non metallic mineral products

Manufacture of basic metals

Other manufacturing industries

Construction

Services

Hotels and restaurants

Commodity trade

Land transport

Sea transport

7

29

1

10

0

135

2

52

9

0

26

0

1

3

9

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Supporting and auxiliary transport, travel agencies

Business like services and property management

Public administration

Education

Health and social works

Cultural and personal services

Households

Total

1

1

1

1

8

1

4

(1) Figure given by the Norwegian authorities, should however, read 245.

further

The Norwegian authorities
the
consumption of gas in the manufacturing sector concerns
Statoil's methanol production plant Tjeldbergodden. Another
large consumer is Hydro Aluminium for the manufacture of
aluminium.

state that half of

2.6. Budget and duration

The Norwegian authorities have not indicated a duration or a
budget for the tax exemption.

II. ASSESSMENT

1. Scope of the Decision

The Decision applies to the exemption from the CO2 tax on gas
for uses of gas for purposes other than heating of buildings. In
contrast,
it does not apply to the similar exemption for the
greenhouse growing industry given that this industry concerns
goods falling outside the scope of products to which the provi-
sions of the EEA Agreement apply, including those related to
State aid (cf. Article 8(3) of the EEA Agreement). With regard to
mining, the EEA Agreement applies to trade in coal and steel
products, except where the bilateral Free Trade Agreement (1)
contains specific provisions which have not been set aside by
Protocol 14 to the EEA Agreement. Consequently, this Decision
applies
to the mining industry, without prejudice to the
products which are still governed by the bilateral Free Trade
Agreement and to which this decision does not apply (2).

(1) Agreement between the Member States of the European Coal and Steel
Community, of the one part, and the Kingdom of Norway, of the other
part (OJ L 348, 27.12.1974, p. 17). This bilateral Free Trade Agreement
remains in force after the expiry of the ECSC Treaty. The rights and obli-
gations of this Agreement were transferred from the ECSC to the
European Community as a result of the decision of the Conference of
the Representatives of the Governments of the EC Member States from
19 July 2002. With the expiry of the ECSC Treaty in July 2002, the
treatment in the Community of State aid to the ECSC steel sector was
integrated into the general legal framework of the EC Treaty.

(2) With regard to the steel sector, see Protocol 26 to the EEA Agreement
in conjunction with Article 5 of Protocol 14 to the EEA Agreement.
With regard to the other products, see Articles 1 and 2(1) of Protocol 14
to the EEA Agreement, as well as Article 1 and its Annex, which lists
the products referred to in Article 1, of the bilateral Free Trade Agree-
ment.

2. The presence of State aid

State aid within the meaning of Article 61(1) of
EEA Agreement

the

Article 61(1) of the EEA Agreement reads as follows:

‘Save as otherwise provided in this Agreement, any aid granted by
EC Member States, EFTA States or through State resources in any
form whatsoever which distorts or threatens to distort competition
by favouring certain undertakings or the production of certain
goods shall,
in so far as it affects trade between Contracting
Parties, be incompatible with the functioning of this Agreement’.

2.1. Presence of State resources

The aid measure must be granted by the State or through State
resources. The Norwegian authorities plan to introduce a new
tax for gas and an exemption from that tax for all purposes
other than the heating of buildings. The granting of a tax
exemption or reduction involves a loss of tax revenues which is
equivalent to consumption of State resources in the form of
fiscal (tax) expenditure, see point 3(3) of the Authority's State
Aid Guidelines in relation to Business Taxation. In the case at
hand, the exemption from the CO2 tax on gas for uses other
than heating of buildings leads to a loss of revenue for the State.

2.2. Favouring certain undertakings or the production of certain goods

The aid measure must be selective in that it favours, i.e. confers
an advantage on, certain undertakings or the production of certain
goods. The Norwegian authorities argue that the limitation of
the tax to the heating of buildings is a general measure which is
open to all undertakings and sectors. All sectors and undertak-
ings using the gas to heat buildings are liable to the tax for this
use, whereas sectors and undertakings which (also) use gas in
the production process or for any other purpose than heating of
buildings are not liable to taxation on the gas used for those
other purposes. A manufacturer who also uses gas for the
heating of e.g. administrative buildings would pay — as laid
down in the Regulation on Excise Duties — the tax for that use
in the same way as any other undertaking, whereas he would
not be subject to any taxation for the gas used in the production
process.

As underlined by the Norwegian authorities, the Norwegian tax
law does not create any explicit distinction between sectors.
However, the existence of State aid is to be analysed according
to the effects of a measure. The Authority is therefore of the
the exemption in the
opinion that it must also verify that
Norwegian legislation will not have the effect of
indirectly
favouring certain sectors to the detriment of others. The above
statistics (3) demonstrate that the consumption of gas in Norway
is mainly for industrial purposes, notably manufacturing and
mining, while the transport and the services sector play by
comparison a lesser role in the consumption of gas. Hence, the
existence of de facto sectoral aid must be investigated. Should
this examination lead to the conclusion that the measure indeed
concerns only certain undertakings or the production of certain
goods, the exemption from the CO2 tax relieves the undertak-
ings benefiting from it of charges which they would normally
have to bear from their ordinary budget. The consequence could
these undertaking receive an advantage within the
be that
meaning of Article 61(1) of the EEA Agreement.

(3) See Section I-2.5 of this Decision.

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The CO2 tax will not be paid on gas used in production
processes. Therefore those who do not engage in production
processes, but mainly carry out their work in buildings, i.e. typi-
cally the service sector, and private households, will pay the tax
on the whole of their consumption of gas whereas undertakings
using gas in the production process will not be liable to taxation
for a substantial part of their gas consumption. In the Authori-
ty's preliminary view this may constitute a measure which
de facto favours certain undertakings, namely undertakings in
the manufacturing sector as well as in the transport sector, to
the detriment of the service sector.

The arguments for whether the measure under examination is
or is not selective are dealt with below.

2.2.1. Introduction of a limited tax on the heating of
buildings instead of a tax exemption from the
CO 2 tax

Norway considers the notified measure not an exemption
from a CO2 tax on gas for certain sectors, but rather the intro-
duction of a limited tax on the use of gas for the heating of
buildings, i.e. the tax (on heating of buildings) is a burden for
those on whom the tax is levied rather than an exemption and
advantage for the many who consume gas in a way which is
not subject to the tax. The Norwegian authorities underline that
94 % of the gas used in Norway is used for purposes other than
heating, in other words only 6 % of the gas consumed will be
taxed. According to the Norwegian authorities, the reality there-
fore is that natural gas is not subject to a CO2 tax.

The Authority has doubts as to whether it can agree to that
the Norwegian authorities have not
argumentation. Firstly,
provided for a separate Section in the budget which introduced
a new tax for the heating of buildings. On the contrary, gas is
simply integrated as a new product
the
budgetary chapter which contains a general CO2 tax on mineral
products. The Norwegian authorities themselves stated in the
original notification that
the CO2 tax on gas is technically
adopted as a general tax on gas.

in Section 1 of

til

følgende anvendelsesområder …’,

Secondly, the relief from taxation for uses other than heating is
put into the Section of the budgetary chapter which deals with
exemptions from the taxation stipulated in Section A1, namely
Section A2 of the budgetary chapter. Section A2 starts with the
following wording ‘Det gis fritak, refusjon eller ytes tilskudd for
avgift på produkter
‘the
following products should be exempted from the tax, receive a
refund or a grant for the following fields of application …’. All
the products and fields of application contained therein are to
be understood as exemptions from the general tax contained in
Section 1 of the budgetary chapter. The Authority has until now
not been presented with compelling reasons for why the same
classification as a tax exemption should not apply to the newly
introduced Section A2.4, which deals with exempting certain
uses of gas from taxation. The wording used in the newly intro-
duced Section A2.4 is clear in that all uses other than heating of
buildings are tax exempted or entitled to a refund or grant.

i.e.

Regulation on Excise Duties, producers of taxable goods are
obliged to register with the Norwegian Customs and Excise
Authorities as being liable for the tax and the registered compa-
nies are obliged to keep accounts. The Norwegian authorities
argue that if the tax had been constructed as a limited tax on
the heating of buildings, no registration and no keeping of
accounts would be necessary for the traders selling gas for
purposes other than heating of buildings and the control possi-
bilities of the Customs and Excise Directorate would be reduced.
This argumentation demonstrates that the adoption of a general
tax on CO2 rather than a limited tax on the heating of buildings
was deliberate.

That being said, the existence of State aid must be analysed
according to its effects not the form a measure takes. It therefore
seems appropriate to investigate further
the
Norwegian authorities.

the claim of

2.2.2. Exemption for pur poses other than heating is a

general measure open to all

The Norwegian authorities consider the tax exemption to be a
general measure as 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 notes as a starting point that all uses of gas are
liable to the CO2 tax, which is a general tax on gas. However, as
stated above,
the existence of State aid must be analysed
according to its effects, not the form a measure takes. Thus,
given the explanation of the Norwegian authorities as to the
increased control by the Customs and Excise Directorate in
cases of general taxation, the Authority finds it appropriate, as
noted above, to verify whether the apparent tax exemption is, in
fact, a measure which applies generally to all undertakings using
gas for the purposes of heating a building.

Nevertheless, even if this were the case, the Authority questions
whether a measure which targets the ‘use’ of a product as being
tax exempted may automatically be removed from the ambit of
the State aid rules, as certain uses of energy will often be linked
— as here the use of gas for production purposes — to certain
sectors of industry. The Authority has doubts as to whether the
fact that the commercial activity of one sector (the manufac-
turing sector) employs the product in a manner other than the
described ‘use’ and is therefore exempted from the tax, whereas
the commercial activity of another sector needs the product in
question only for uses which are tax liable (due to the fact that
the production process of this sector just consists in the use of
heated office space) is a legitimate way to set the limits of a
general measure.

judgment

in Adria-Wien (1),

The case law in this regard is not settled. Contrary to the
situation leading to the
the
Norwegian legislation does not make an explicit distinction
between types of undertaking or goods.
In an older case
concerning Italy, the Court of Justice considered that a bigger
insurance
reduction
contributions for female than for male employees constituted an
aid to sectors which employed more female workers (2).
Similarly, in Gemo SA, a premium for the disposal of animal

compulsory

sickness

certain

of

Lastly, the choice of the Norwegian legislator was a deliberate
one. As the Norwegian authorities have argued, the tax was
adopted as a general tax on gas in order to give the tax authori-
ties greater control possibilities. According to Section 5-1 of the

(1) Case C-143/99, Adria-Wien Pipeline GmbH, Wietersdorfer & Peggauer
Zementwerke GmbH and Finanzlandesdirektion für Kärnten [2001]
ECR I-8365.

(2) Case C-203/82, Italy v Commission [1983] ECR 2525.

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Official Journal of the European Union

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carcasses, which was
formally applicable to all economic
operators but which essentially benefited only a certain group
of undertakings, was analysed as State aid (1). Regarding a
preferential rate for exports, the Court found the measure to
constitute State aid, despite the fact that it was open to all
operators wishing to export (2). On the other hand,
the
Authority notes that in the Commission Decision relating to the
British Climate Change Levy, only the exemptions to the general
tax on non-domestic use of energy products for fuel purposes
were notified. Indeed,
‘the introduction of environmental taxes on
the consumption of electricity, coal and other solid fuel, gas and
liquefied petroleum gas are not as such caught by Article 87 of the
EC Treaty […] in so far as they are general measures which do not
favour particular firms or sectors of industry’ (3).

Moreover, the Authority's Guidelines on the application of the
State aid rules to measures relating to direct business taxation
stipulate (at point 3.1.) that tax measures which are open to all
economic operators are in principle general measures, unless
they are de facto reduced in scope. The Guidelines stipulate that
measures pursuing general economic policy objectives through a
reduction of the tax burden related to certain production costs
will constitute general measures,
i.e. measures designed to
reduce the taxation of
labour for all firms have a relatively
greater effect on labour intensive industries than on capital
intensive industries, without necessarily constituting State aid.
The Authority finds it necessary to further investigate whether
the Norwegian tax exemption is comparable to these situations.

the Authority notes

Finally,
the Commission's Decision
regarding the Danish electricity reform (4), which was based on
the principle that the full tax is paid on household consumption
and on comparable consumption by companies. This meant
that e.g.
liberal professions, which typically have a electricity
consumption comparable to that of households, would pay the
tax. The levying of the tax was implemented using VAT criteria
(companies with a VAT number would get a tax refund, typically
the manufacturing sector). Certain companies, while having a
VAT number, would still pay the tax, because their consumption
was found to be more like that of private households. An annex
these companies. The
to the Electricity Tax Act would list
Commission found this procedure to be in line with the Danish
electricity tax logic (5).

The Norwegian authorities have not based themselves on that
Danish decision nor reasoned the tax or the tax exemption in
that manner.
Instead of arguing the parallel with household
consumption, the tax exemption is justified, according to the
Norwegian authorities, by a desire to stimulate a switch to
bio-energy. The Norwegian system does not attempt to create a
system which ensures that the consumption of gas other than
for industrial purposes is compared with ordinary household
consumption and taxed in the same manner.

In this regard it should also be noted that the Danish system
was subsequently considered to constitute State aid, as certain

(1) Case C-126/01, Ministre de l'économie, des finances et de l'industrie and

Gemo SA [2003] ECR I-13769.

(2) Joined Cases 6 and 11-69, Commission v France [1969] ECR p. 523.
(3) Commission Decision of 3 April 2002 on the dual-use exemption
which the United Kingdom is planning to implement under the Climate
Change Levy and the extended exemption for certain competing
processes (OJ L 229, 27.8.2002, p. 15).

(4) State aid N 416/99.
(5) The case was not assessed as a ‘general v selective’ measure, but was
justified by reference to point 16 of the Commission's Notice on Busi-
ness taxation with a special reference to the logic of the Danish tax
system.

VAT registered companies which would receive a tax refund
were favoured over certain other companies which likewise had
a business-like consumption and therefore should have profited
the ‘household
in the same way,
from the tax relief
consumption’ logic was not followed in all cases (6).

i.e.

The Authority does not exclude that the Norwegian system by
stating that all purposes other than heating should not be tax
liable, might be simpler and more coherent than the Danish
system. However, the Authority will have to investigate further
and the Norwegian authorities need 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 manu-
facturing sector would also include for the payment of the tax
those buildings in which the production process takes place
(administrative buildings are, according to the Norwegian autho-
rities, in any event covered by the tax).

Based on the information available at this stage, the Authority
cannot exclude that the tax exemption is a selective measure
which would constitute State aid within the meaning of
Article 61(1) of the EEA Agreement.

2.2.3. Nature
system

and scheme of

the Nor wegian tax

As the Norwegian authorities are of the opinion that the tax is
not materially selective, they do not put forward an explicit
argumentation that the tax exemption for purposes other than
the heating of buildings is within the nature and scheme of the
Norwegian tax system. Nevertheless, according to Section 3.4 of
the Authority's Guidelines on business taxation, certain differen-
tial measures whose economic rationale makes them necessary
to the smooth functioning and effectiveness of the tax system
might not constitute State aid. In such cases, the measure would
no longer be considered selective (7).

this background,

Against
the Authority will examine below
whether the logic underlying the tax exemption could justify a
differentiation between sectors. As the exemption concerns a
derogation from the CO2 tax, the Authority will try to establish
the objective of
this taxation which it considers to be the
general system against which the logic of a derogation must be
measured. In other words, the Authority will examine whether
the logic of the tax exemption for purposes other than heating
is in line with the objectives of the CO2 tax itself.

Purpose of reducing CO2 emissions

The CO2 tax on mineral products is to be found in a budgetary
chapter bearing the heading ‘Environmental taxes’. This seems to
suggest that the CO2 tax follows an environmental objective.
Such an objective would be to create incentives, via taxation, to
reduce CO2 emissions (8).

(6) State aid NN 75/04.
(7) As can be seen from the EFTA Court's judgment in Joined Cases E-5/04,
E-6/04 and E-7/04, Fesil and Finnfjord, the Kingdom of Norway, PIL and
others v the EFTA Surveillance Authority [2005] EFTA Court Reports
p. 117, the argument relating to the nature and scheme of the tax
system is normally dealt with under the aspect of selectivity. See in this
regard also Case C-143/99 Adria Wien, cited above at footnote 15, para-
graph 42, which explicitly clarifies this point.

(8) In the above mentioned letter of

the Norwegian authorities of
31 January 2002 the CO2 tax is described as designed to produce envir-
onmental effects.

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Official Journal of the European Union

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The Norwegian authorities indeed confirm that intention of the
current CO2 tax on mineral oil is to put a price on the environ-
mental damages caused by the use of taxed products and to
encourage the use of other more environmental products. Given
the fact that, as shown above, the CO2 tax on gas is integrated
into the general
taxation chapter on mineral products, one
would assume that this new taxation follows the same logic,
namely to serve an environmental purpose by creating incen-
tives to reduce CO2 emissions. And yet, it is not obvious to the
Authority how one can reconcile that environmental logic with
a system that excludes certain sectors from taxation despite the
fact that also these sectors should be able to reduce CO2 emis-
sions by either curtailing the use of gas or switching to more
environmentally friendly products.

The budgetary proposal for the introduction of the CO2 tax on
gas as described above (1) demonstrates that certain industries
— outside the service sector — indeed have incentives and the
possibility to reduce CO2 emissions by being subject to the
climate quota system concerning CO2. The climate quota system
also covers parts of the manufacturing sector. Given that such a
motivation of reducing CO2 emissions for the manufacturing
sector is thereby acknowledged, it seems to be hardly compa-
tible with the nature and scheme of the Norwegian tax system
to relieve the production of goods from the CO2 taxation of gas.
Moreover, in the Authority's opinion, the transport sector also
has an incentive and possibility to reduce CO2 emissions.

that

accept

seem to

authorities

The Norwegian
the
manufacturing sector not only has possibilities to reduce CO2
emissions, but that incentives created to that end — e.g. via the
emission trading system — can lead to a behavioural change.
For Statoil, the largest consumer of gas in the manufacturing
sector, the Norwegian authorities have explicitly acknowledged
that the company has an incentive to reduce emissions from gas
via the emission trading system (2). In addition, and contrary to
the proposed CO2 tax on gas,
the manufacturing sector is
currently subject to the CO2 tax on mineral oil and petrol (3).
The only exemption in this regard is when the mineral oil is
used as a raw material in the production process, see Section
A2d) of the budgetary chapter. Where mineral oil is used for
other purposes (e.g. fuel) in the production process, it is subject
to the CO2 tax. It is not easy to see the logic behind a taxation
system on mineral products which exempts certain sectors from
the taxation of one mineral product, namely gas, but not
another, namely mineral oil. Both products are covered by the
same legal provision establishing a general taxation on mineral
products for environmental purposes. The same argument can
be made for the transport sector, which in general is submitted

(1) See Section I-2.3 of this Decision.
(2) The question of the relation, if any, between the emission trading
system and the CO2 taxation in general and whether the existence of
an emission trading system could justify an exemption from the CO2
tax in order to avoid double payment for environmental pollution is
the subject of another investigation (Case No 63030 — CO2 tax
exemption as a consequence of emission trading.
The above argument only examines whether incentives to reduce CO2
emissions also exist for sectors which use gas in the production process,
but which are not covered by the newly introduced CO2 tax on gas. The
fact that the manufacturing sector is subject to the climate change
quota system indicates that such incentives do exist.

(3) In one of their earlier submissions, the Norwegian authorities claimed
that despite a different drafting of the exemptions, the CO2 tax on
mineral oil and on gas are in practice the same, namely both limited to
heating of buildings. The Authority would agree that the taxes follow
the same environmental purpose, but notes that the exemptions are
indeed quite different. In particular, as shown above, the exemption
structure leads to a different taxation for the production of goods.

to the mineral oil tax with the exception of certain situations
like the use of mineral oil in domestic sea freight. Again, there
does not seem to be any environmental
reason why the
transport sector should be subject to the CO2 tax on mineral oil,
but not to a CO2 tax on gas.

Switchover to bio-energy

The Norwegian authorities however argue that the logic behind
the CO2 tax on gas is to be distinguished from the CO2 tax on
mineral oil and petrol. The latter puts a price on the environ-
mental damage caused by the use of the taxed products and
encourages the use of other, more environmentally friendly,
products. The tax is broad and general and the exemptions in
the budgetary chapter, Section A2, are drafted very narrowly.

The Norwegian authorities argue that
the CO2 tax on gas
however follows another, more narrow purpose, namely to
prevent that gas is preferred to more environmentally favourable
alternatives such as bio-energy, which is not taxed. By putting a
tax on the use of gas, the intention is to stimulate a switch to
bio-energy. Consequently, the exemption is drafted in broad
terms (4).

The Authority has doubts as to whether this argumentation
justifies a differentiation between sectors. Firstly,
it should be
noted that the CO2 tax both on mineral oil and on gas is
contained in the same budgetary chapter establishing a general
CO2 tax. On this basis, it is hard to see why the CO2 tax on gas
would follow a completely different logic.

Secondly, and more importantly,
it should be noted that a
reduction of CO2 emissions can be achieved either by reducing
the use of the environmentally damaging product or by turning
to more environmentally friendly alternatives. As cited above,
with regard to the tax on mineral oil, the use of environmentally
friendly alternatives is mentioned. Consequently to argue that
the CO2 tax on gas is special and different from the CO2 tax on
mineral oil in this respect seems difficult.

Lastly, the Authority is not convinced by the argument put
forward by the Norwegian authorities that, in relation to gas for
industrial purposes, a switchover possibility does not exist. The
Norwegian authorities argue that in the production processes
energy is used at high temperatures, whereas bio-energy is best
used at low to medium temperatures. However, the Norwegian
tax system does not draw a distinction along those lines. At
the use of bio-energy seems
least
possible as well as for parts of the manufacturing sector.

for the transport sector,

2.3. Distortion of competition and effect on trade between Contracting

Parties

The aid measure must distort competition and affect
between the Contracting Parties.

trade

The saved tax amounts strengthen the aid recipients' financial
position compared with their competitors. As the undertakings
are active on a large number of markets in which there is trade
within the EEA, the tax exemption must also be considered to
affect trade between the Contracting Parties.

(4) Letter dated 25 September 2007.

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2.4. Conclusion

As all the criteria under Article 61(1) of the EEA Agreement
seem to be fulfilled, the Authority has come to the preliminary
conclusion that
tax for all
purposes other than the heating of buildings constitutes State
aid within the meaning of Article 61(1) of the EEA Agreement.

the exemption from the CO2

3. Procedural requirements

Pursuant to Article 1(3) of Part I of Protocol 3 to the Surveil-
lance and Court Agreement, ‘the EFTA Surveillance Authority shall
be informed, in sufficient time to enable it to submit its comments, of
any plans to grant or alter aid. […]. The State concerned shall not
put its proposed measures into effect until the procedure has resulted in
a final decision’.

By submitting the notification of the tax exemption from the
CO2 taxation on gas by letter dated 9 March 2007 from the
Norwegian Ministry of Government Administration and
Reform, the Norwegian authorities have complied with the noti-
fication requirement. The Norwegian authorities confirmed that
the tax and the tax exemptions are not implemented yet. In the
interim, i.e. before the Authority's decision, a general tax exemp-
tion is in place, i.e. nobody, regardless of sector or use is paying
the tax.

the Norwegian
The Authority can therefore conclude that
authorities have
to
Article 1(3) of Part I of Protocol 3 to the Surveillance and Court
Agreement.

respected their obligations pursuant

4. Compatibility of the aid

Support measures caught by Article 61(1) of the EEA Agree-
ment are generally incompatible with the functioning of the
EEA Agreement, unless
they qualify for a derogation in
Article 61(2) or (3) of the EEA Agreement.

The derogation laid down in Article 61(2) is not applicable to
the aid in question, which is not designed to achieve any of the
aims listed in this provision.

The aid can also not be justified under Article 61(3)(a) of the
EEA Agreement, which provides for regional support. As the aid
is not given to promote the execution of an important project
of common European interest or to remedy a serious distur-
bance in the economy of Norway, Article 61(3)(b) of the EEA
Agreement does not apply either.

The aid in question is not linked to any investment. It simply
reduces the costs which companies would normally have to
bear in the course of pursuing their day-to-day business activ-
ities and is consequently to be classified as operating aid. Oper-
ating aid is normally not considered suitable to facilitate the
development of certain economic activities or of certain regions
the EEA Agreement.
as provided for in Article 61(3)(c) of
However, operating aid can be allowed under the Authority's
Environmental Guidelines if certain conditions are fulfilled.

According to Section D.3.2 of the Environmental Guidelines,
EFTA States might deem it necessary to make provisions for
temporary exemptions
taxes notably
because of the absence of harmonisation at European level or
because of the temporary risks of a loss of international compe-

from environmental

titiveness. However, as can be seen from point 42 of the Envir-
onmental Guidelines, these exemptions constitute operating aid,
which have to fulfil the requirements set out in the Guidelines.

Point 46.1 of the Environmental Guidelines provides that when
an EFTA State, for environmental reasons, introduces a new tax
in a sector of activity or on products in respect of which no
corresponding European Community tax harmonisation exists
or the tax exceeds that provided for in Community legislation,
exemption decisions covering a ten year period may be justified:

(a) when these exemptions are either conditional on the conclu-
sion of agreements between the EFTA State concerned and
the recipient firms whereby the firms undertake to achieve
environmental protection objectives; or

(b) when the amount paid by the firms after the tax reduction
remains higher than the Community minimum (where a
Community tax exists — first indent) or constitutes a signif-
icant proportion of the national tax (where the tax does not
correspond to a harmonised Community tax — second
indent).

The Norwegian CO2 tax exceeds the Community minimum, as
the taxation on the Community level is 0 for LPG and EUR 0,15
per gigajoule calorific value for natural gas. Under the Norwe-
gian tax the respective levels are NOK 0,60 (around EUR 0,08)
per kilogram for LPG and NOK 0,47 per standard cubic metre
(around EUR 0,06). The theoretical energy content in natural
gas is 39,9 GJ/1 000 Sm3 (1). The tax rate of NOK 0,47 per Sm3
is equivalent to a tax rate of NOK 11,78 per gigajoule of theore-
tical energy content (around EUR 1,43).

However, in the present case no tax is paid for purposes other
than heating of buildings (i.e. no Community minimum). As
can be seen from the above, such a total tax exemption would
only be possible if the aid recipients had concluded environ-
mental agreements with Norway, which is not
the case. A
partial reduction of the tax would require that the Community
minimum is paid. The tax exemption therefore cannot be justi-
fied under the Environmental Guidelines.

5. Conclusion

Based on the information submitted by the Norwegian authori-
ties,
the
the Authority cannot exclude the possibility that
exemption from the CO2 tax on gas constitutes aid within the
meaning of Article 61(1) of the EEA Agreement. Furthermore,
the Authority has doubts that these measures can be regarded as
complying with Article 61(3)(c) of
in
combination with the requirements laid down in the Chapter on
aid for environmental protection of the Authority's State Aid
Guidelines. The Authority thus doubts that the above measures
are compatible with the functioning of the EEA Agreement.

the EEA Agreement,

Consequently, and in accordance with Article 4(4) of Part II of
Protocol 3 to the Surveillance and Court Agreement,
the
Authority is obliged to open the procedure provided for in
Article 1(2) of Part I of Protocol 3 to that Agreement. The deci-
sion to open proceedings is without prejudice to the final deci-
sion of the Authority, which may conclude that the measures in
question do not amount to State aid or are compatible with the
functioning of the EEA Agreement.

(1) Information by the Norwegian authorities, source: Statistics Norway

http://www.ssb.no/english/subjects/01/03/10/energiregn_en

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In light of the foregoing considerations, the Authority, acting
under the procedure laid down in Article 1(2) of Part I of
Protocol 3 to the Surveillance and Court Agreement, requests
the Norwegian authorities to submit their comments within one
month of the date of receipt of this Decision.

Article 4

The EC Commission shall be informed,
in accordance with
Protocol 27(d) of the EEA Agreement, by means of a copy of
this Decision.

In light of the foregoing considerations, the Authority requires
that, within one month of
the
Norwegian authorities provide all documents, information and
data needed for assessment of the compatibility of the exemp-
tion from the CO2 tax on gas,

this decision,

receipt of

HAS ADOPTED THIS DECISION:

Article 1

The EFTA Surveillance Authority has decided 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
tax exemption from the
Norwegian CO2 tax on gas for gas and LPG used for purposes
other than the heating of buildings.

regarding the

Article 2

are

authorities

The Norwegian
to
Article 6(1) of Part II of Protocol 3 to the Surveillance and
Court Agreement, to submit their comments on the opening of
the formal investigation procedure within one month from the
notification of this Decision.

requested,

pursuant

Article 5

Other EFTA States, EC Member States, and interested parties
shall be informed by the publishing of
this Decision in its
authentic language version, accompanied by a meaningful
summary in languages other
than the authentic language
version, in the EEA Section of the Official Journal of the European
Union and the EEA Supplement thereto, inviting them to submit
comments within one month from the date of publication.

Article 6

This Decision is addressed to the Kingdom of Norway.

Article 7

Only the English version is authentic.

Done at Brussels, 23 November 2007.

Article 3

The Norwegian authorities are required to provide within one
month from notification of this Decision, all documents, infor-
mation and data needed for assessment of the compatibility of
the aid measure.

For the EFTA Surveillance Authority

Per SANDERUD

Kristján Andri STEFÁNSSON

President

College Member