CO2 tax on LNG works against the purpose of the NOx Fund

CO2 tax on LNG used in shipping, introduced in Norway from 1 January 2018, makes LNG more expensive. There is no longer an operational economic benefit to use LNG instead of marine diesel on ships. The tax leads to an increase in the national emissions of NOx, greenhouse gases, soot and particles. National targets for NOx emissions by 2030 will be harder to achieve. The NOx Fund recommends that exemption from CO2 tax on LNG should be reintroduced as soon as possible.

NOx-fondet, LNG, gass, skip,

Tommy Johnsen, general manager of the Business Sector's NOx Fund

Publisert 25.05.18

NOx

Removal of the exemption from national CO2 tax on liquefied natural gas (LNG) as fuel on ships was introduced from 1 January 2018. The fee was also increased to NOK 500 per tonne of CO2. This has made LNG 25% more expensive. Shipping companies now report that LNG in Norway is equally or more expensive than marine diesel oil (MGO).

LNG ships cost significantly more than conventional diesel-powered vessels. Lower prices for LNG than MGO and financial support from the NOx Fund have previously enabled shipowner to go for LNG-powered vessels. With the CO2 tax, economic benefits are eliminated, and shipping companies have no longer the necessary incentive to choose LNG as a solution. As a consequence, the NOx Fund loses one of its most important emission reduction measures (LNG operation reduces NOx emissions by 90% relative to diesel). Thus, the NOx Agreement between Norwegian authorities and fifteen business organisations become more difficult to fulfil for the business sectors. Norway's emission obligations according to The Gothenburg Protocol and the EU Emission Ceiling Directive will therefore also be harder to achieve. Norway shall reduce the annual emissions of NOx by 23% by 2020, compared to the level in 2005. Significantly stricter requirements are expected to be applicable for 2030.

The NOx Agreement obligates the business organisations and the industry to do their part of the job to achieve these goals. The business organisations have established the NOx Fund, which provides a strong incentive for enterprises operating in Norway to implement NOx-reducing measures. Such measures (e.g. conversion from diesel to LNG) often also reduce greenhouse gas emissions and particulate emissions.

The Norwegian authorities and 15 business organisations signed the NOx Agreement 2018-2025 on May 23, 2017. In the Agreement, the Norwegian authorities point out that the NOx Fund will prioritize support for measures with a long-term and lasting effect on emissions. The NOx Fund's investments in LNG in shipping has so far been the most important response to this paragraph.

The NOx Fund has granted support to LNG ships of approx. NOK 1.2 billion. Several projects are under way. Although much has been done, the number of LNG ships in relation to diesel-powered ships on the Norwegian coast amounts to approximately 2-4%. The market is therefore still immature. New projects are at risk of not being realized due to the fee. Many of the implemented LNG measures are so-called dual-fuel engines that can handle both LNG and diesel. These are at risk of returning to diesel operations, with a significant acute emission increase as a consequence. It would be unfortunate if the accomplished and upcoming efforts partly should be wasted.

It is not only Norwegian national and business targets for cuts in NOx emissions that are detrimental to the CO2 tax on LNG. A new study by DNV GL shows that annual greenhouse gas emissions will increase by up to 500,000 tonnes. LNG is also important to phase in biogas as fuel in shipping, which could further reduce greenhouse gas emissions from the industry. Timing is important, and for the time being, sufficient biogas volumes are not available.             

Taking the negative environmental and business consequences into account, the NOx Fund believe that exemption from CO2 tax on LNG in shipping should be reintroduced as soon as possible. Preferably in the Norwegian state budget for 2019, with effect from 01.01.2019. The exemption should last for the NOx Agreement period until the end of 2025.