Norway follows EU with CO2 compensation scheme

"The purpose is to prevent the Norwegian manufacturing industry from moving their enterprises to countries with less strict climate regulations," Prime Minister Jens Stoltenberg said in a statement.

Changes to the European Union Emissions Trading Scheme from next year allow member states to compensate big energy users, like aluminum producers, for costs linked to carbon emissions, a move aimed at preventing higher costs driving business out of Europe.

The European Commission plans to present energy efficiency benchmarks for calculating the level of compensation during the autumn.

Norway said some of the elements in its guidelines, which will affect some 80 companies mainly operating within aluminum, chemicals, ferroalloys and paper production, are still undecided. The scheme will run to the end of 2020.

"We have estimated it could cost about half-a-billion crowns per year, but that is an uncertain estimate... and it will vary with the emission prices," Stoltenberg told Reuters.

Much of Norway's manufacturing industry has a power-intense profile since the country has a ready supply of cheap and zero-carbon emission hydro power sources, but since the introduction of an open European power market, electricity prices have been rising.

In an odd twist, Norway now also "imports" carbon emissions from the continent for which users have to pay in spite of the country's domestic clean power production.

The sting of carbon emission costs has been felt most by aluminum makers, costing these about 10 percent of indirect costs, according to a EU working paper published in May.

Norwegian aluminum maker Norsk Hydro said the new Norwegian emission compensation scheme would allow it to take up a new power contract for its Soeral plant in western Norway. It there had been no compensation, Hydro would likely have closed the plant.

Global miner Rio Tinto owns 50 percent of the Soeral plant while Hydro owns 49.9 percent.

"This has been a pre-requisite for starting power negotiations at Soeral.... now we have to start talks (with power suppliers) quickly," said Hydro spokeswoman Inger Sethov.

($1 = 5.7610 Norwegian crowns)

(Reporting by Victoria Klesty, Terje Solsvik, Balazs Koranyi and Henrik Stolen, editing by William Hardy)