The encyclopedia · Strategy & Leadership · Strategic decision · 2007–2011
Norway turned its NOx tax into a fund that buys the cheapest emission cuts
Companies pay a lower levy into the NOx Fund instead of tax; the fund refunds the best abatement projects — 18,000 tonnes cut by 2010.
Business Sector's NOx Fund · Norwegian Ministry of the Environment · Norwegian business organizations
The solution
In January 2007 Norway taxed NOx emissions at NOK 15 per kg on ships, fishing vessels, aviation, diesel rail and large industrial units — covering about 55% of national NOx emissions. The tax priced pollution but returned no revenue to abatement.
In May 2008, fourteen business organizations signed an environmental agreement with the Ministry of the Environment: members were exempted from the tax and instead paid a charge into the Business Sector's NOx Fund (NOK 4/kg, NOK 11 offshore), committing to cut 30,000 tonnes of NOx over four years.
The fund acted as a buyer of reductions, using DNV assistance to select the most cost-effective projects and grant up to 75% of investment costs — over 95% of taxed emissions (about 100,000 tonnes) moved into the agreement, and the scheme cut about 12,000 tonnes by end-2009 on the way to fulfilling the 2011 commitment.
Why it worked
- The fund turns tax revenue into targeted abatement instead of general budget
- Members pay less than the tax, so joining is individually rational
- Competitive project selection gets the most tonnes per krone
- The binding reduction commitment keeps the deal honest
What can be applied
A pollution tax raises money but picks no projects; a tax-exemption fund keeps the price signal, adds a buyer for the cheapest cuts, and only works if its reduction obligation binds like the tax.
Aftermath
The 2008–2010 agreement was fulfilled with an 18,000-tonne reduction, and the model was renewed for 2011–2017 and 2018–2027 with an emission ceiling and ESA state-aid approval. The NOx Fund remains Norway's flagship example of a negotiated environmental agreement with a fund mechanism.
Sources
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