Øyvind Axe Knut Magnussen June 29 2022 Green transition in Norway: support required during operational phase Wikborg Rein | Shipping & Transport - Norway Øyvind Axe, Knut Magnussen Shipping & Transport IntroductionNew technology emergingNeed for public economic supportCommentIntroductionFor many years, the maritime sector has been actively developing new technology which aims to ensure that the green transition and the climate goals can be achieved. The sector is now almost ready to take the next steps. However, unless some form of public support is introduced for the operational phase, the transition will likely take more time than is desirable.In the past few years, both the International Maritime Organization (IMO) and the European Union have, as part of their strategy to tackle climate change and reduce greenhouse gases, adopted and proposed several new rules and regulations designed to reduce emissions from the maritime sector.New technology emergingWith the IMO and the European Union's emphasis on climate change and reduction of greenhouse gases, there has been increased focus from the industry on developing new technology in Norway. The purpose of the new technology is primarily to ensure that the green transition and the climate goals can be achieved. Currently, there are numerous projects ongoing on all levels of the maritime value chain. For example, improved batteries and fuels cells are being developed, aimed at increasing the use of low and zero emission fuels and energy carriers such as hydrogen and ammonia. Further, new ships that will make use of new technologies are being designed and built, and some ships are being retrofitted with new technology.Most of the projects regarding development of new technology have received some form of public economic support. Several different support schemes are available in Norway, including Enova, Innovation Norway and the Norwegian Research Council. The criteria for receiving support, as well as the amount of economic support (grants) received, depends on the specific project and the conditions which are specified by the public entities. However, and although there are some exceptions (eg, the EU Important Project on Common European Interest), the support schemes generally only provide economic support and grants for capital expenditures, not for operational expenditures.Need for public economic supportThe lack of support schemes for operational expenditures means that the current support schemes in Norway are not suitable for addressing market failures and risks in the operational phase. This is now viewed by many as the primary reason why the maritime sector's green transition is not going as fast as some may want. The use of hydrogen as a zero-emission energy carrier for ships is perhaps the most illustrative example in this respect. The use of hydrogen will not only lead to increased operating costs for shipowners compared to conventional fuel (due to the price difference), but there is also currently not a fully functional value chain for the use of hydrogen within the maritime sector. This means that it will be difficult to implement on a larger scale. Therefore, while the technology is largely available, few – if any – shipowners wish to or can be the first mover and take all the increased costs and risks associated with it.The market failure, both in terms of investment in corresponding production capacities, and availability and use of hydrogen, will likely be difficult to overcome without some form of public economic support. Although due consideration is necessary in light of state aid and competition law rules, many different models could be considered implemented, including contracts for difference (CFD), establishing specific funds aimed at addressing the market failures or a combination of this (use of funds to finance the CFDs). Such support schemes have already been used outside Norway with significant success. Other models based on the same principles as CFD, such as Germany's recent €900 million funding of H2Global, are being implemented in order to kickstart the transition.CommentSupport schemes in the development phase have proven to be an effective catalyst for the development of new technology. In order to speed up the green transition within the maritime sector, the industry and the public authorities now need to sit down, discuss and find models for the operational phase. Norway could look to what has already been done in other European countries, including implemented and well-known concepts such as the CFD, specific funds and new emerging public funding or support models such as Germany's H2Global model.For further information on this topic please contact Øyvind Axe or Knut Magnussen at Wikborg Rein by telephone (+47 22 82 75 00) or email ([email protected] or [email protected]). The Wikborg Rein website can be accessed at www.wr.no.