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The Nox Effect – Using A Fund To Reduce Emissions

In 2008, Norway created an internationally unique method of bringing down nitrogen oxide emissions: have companies pay into a NOx fund rather than pay NOx tax while implementing environmental measures that reduce emissions. The result has been a 23,000 tonnes...

Geir Høiybe, manager of the Business Sector’s NOx Fund, was working at the Confederation of Norwegian Enterprise (NHO) at the time on a possible solution involving tradable credits, similar to the ones used for CO2 emissions. However, the government did not take to the idea. Instead, the Norwegian finance ministry levied a NOx tax on the industry in 2007.

Fifteen business organizations signed the new environmental
agreement on NOx with the government in December 2010.
Pictured is John G. Bernander, NHO director general,
Trond Giske, Norway’s Ministry of Trade and Industry,
and Erik Solheim, Minister of Environment. 

© Confederation of Norwegian Enterprise (NHO)

Alternative to Tax 

Høibye responded by establishing an alternative to the tax called the NOx Fund. It is basically an environmental agreement between the government and 14 different organizations (now 15), including the NHO, Norwegian Shipowners’ Association and Norwegian Fishermen’s Association, that allows companies with activities in Norway to pay a participant fee to the NOx Fund instead of paying NOx taxes.

On average, companies contribute into the fund about one third of what they would normally have paid in NOx taxes. Offshore oil and gas producers pay NOK 11 per kilo of NOx, while other industries, such as fishing, shipping, and aviation, pay NOK 4 per kilo. That is far less than the NOx tax, which requires companies to pay a hefty NOK 16.43 per kilo, irrespective of their sector. Not surprisingly, 95% of NOx emissions in Norway are covered through the fund.

The deal means a loss of about NOK 1.8 billion in annual NOx related tax revenues for the government. However, the country has benefited from a more notable reduction in NOx emission as a result of the fund’s efforts. In 2007, the year before the fund started, the country reduced emissions by 1,282 tonnes. In 2010, the country had planned reductions and applications to reduce by 10,980 tonnes, well above that year’s target of about 7,000 tonnes. The new environmental agreement on NOx signed in December 2010 commits to 16,000 tonnes of further NOx reductions during 2011-2017, adding to the 19,000 tonnes from the 2008 agreement.

“They were sceptical at the start, especially the finance ministry,” sadi Høibye. “But with the NOx Fund, reductions have grown over the years.”

Project Support 

In addition to the lessened tax burden, NOx Fund members can get financial support from the fund for projects they propose that reduce NOx emissions. So far, it has supported 530 project providing 23,000 tonnes of NOx reductions from 2008 to 2011. The projects to receive the largest support have been within selective catalytic reduction, followed by internal engine modifications, and conversion into Liquid Natural Gas (LNG) fuel driven vessels.

The level of support has varied between projects. Some companies have even opted not to propose measures because they are not cost competitive. Oil service vessels contributed to the largest reduction in NOx emissions through NOx Fund projects. The next largest sectors were fisheries and ferries and passenger ships.

One of the single largest projects to date is Tarbit Shipping’s conversion of a tanker into a partly LNG driven vessel. The Swedish company has received NOK 45.8 million in support to convert MT BIT Viking into a dual fuel vessel. The project will have reduced NOx emissions by 479 tonnes, or 85%, representing a support cost of about NOK 100 per kilo NOx reduced.

In 2008, only three ships except ferries were based on LNG. The NOx Fund has granted support to 24 ships for conversion to gas or new builds, 14 of which will be finished by this year. That is expected to raise the amount of LNG as maritime fuel from 3% in 2008 to 16% in 2016, and possibly as much as one third by 2020 if the NOx fund and its support continue, according to Det Norske Veritas and MARINTEK.

Future Model 

The fund had 648 affiliated enterprises as of December 2010, some of which are foreign. But to date, this is a model unique to Norway. Høibye says the Dutch government is looking into it, as are the Swedes because of environmental problems related to shipping in the Baltic Sea.

The fund’s international appeal was one of the reasons for it winning this year’s Green Ship Technology award. The judges seemed most impressed with the fact that the fund is a model that other countries have been looking at emulating and has also demonstrated an ability to have an impact on CO2 reduction with some of the technologies it has supported.

“Nothing is better than this cooperation between industry and authorities which can be copied by other shipping nations,” said Hanna Lee Behrens, Norwegian Shipowners’ Association director for safety, environment and innovation and NOx Fund board member. “We believe that this prize can contribute to this.”

The fund’s voluntary approach could also be used as the future model for a possible CO2 Fund in Norway within 2014, according to Høibye. The principle would be the same as for the NOx Fund, except it would be an alternative for paying Norway’s current CO2 tax.