ESA Updates CO2 Compensation Rules to Address Domestic CBAM Overlap

The EFTA Surveillance Authority (ESA) has adopted revised guidelines for the CO2 compensation scheme for the 2021–2030 period, bringing EFTA countries like Norway into alignment with the European Commission's updated framework. The revised rules, taking effect starting the 2026 support year, are designed to protect energy-intensive industries from the risk of carbon leakage—where local manufacturing faces pressure to relocate to countries with less stringent climate policies.

A major feature of the updated guidelines is a massive expansion of eligible sectors, raising the number of industries qualified for CO2 compensation from 14 to 34. Crucially for international trade, this expansion now covers the production of other organic basic chemicals (NACE 20.14) and the production of fertilizers and nitrogen compounds (NACE 20.15).

The guidance explicitly addresses how these domestic subsidies will interact with upcoming border carbon taxes to ensure fair market play:

"For fertilizer products (NACE 20.15) and iron ore (NACE 07.10), a methodology will later be announced to adjust the calculation of maximum aid, in order to handle the overlap between CO2 compensation and the EU's regulations for carbon pricing of imported goods (CBAM)."

In addition to expanding the list of covered sectors, the maximum support intensity is increasing from 75% to 80% for industries that have been eligible since 2021, meaning businesses will have a larger portion of their climate-related electricity cost increases covered. Newly added sectors will enter with a maximum support intensity of 75%.

The Norwegian Environment Agency noted that Norway's national regulations must now be updated to reflect these revisions and a new Norwegian CO2 emission factor for 2026–2030. A public consultation on the regulatory changes and specific timelines will be announced as soon as they are finalized.