When Norway set up its National Allocation Plan (NAP) for 2008–2012 as required under Directive 2003/87/EC to permit it to engage in the EU Emissions Trading Scheme (EU ETS), it attempted to increase the environmental effectiveness of the EU ETS by introducing the auctioning of allowances to some sectors. In particular, Norway's NAP directed that the petroleum sector would not receive allowances free of charge and set out special allocation rules for land-based industries. While older installations are to receive allowances free of charge, those established after 31 December 2001 are to purchase their allowances on the market.
The scheme was met with criticism by the European Free Trade Agreement (EFTA) Surveillance Authority, in particular for its discriminatory treatment between older and newer installations. Norway addressed the EFTA Surveillance Authority's objections by correcting its NAP to the detriment of its environmental integrity.
This article argues that Norway missed an opportunity to make polluters face the full incremental environmental costs of their activities in accordance with the polluter pays principle. The EU ETS for 2013–2020 is set to introduce an EU-wide emissions cap, auctioning and stronger harmonization of allocation rules. Despite the ‘European Economic Area relevance’ of the proposed amendments to Directive 2003/87/EC to improve the EU ETS, it remains to be seen whether and how Norway is going to implement these changes. No other piece of EU legislation has implied so strong a shift in decision-making power from the national to the EU level. For Norway as a non-EU Member State, this raises fundamental questions of democratic legitimacy, which must be addressed.