Hydro Annual Report 2011b

expected remediation costs relating to sites where contamination
has been identified that, based on presently known facts, it
believes will be sufficient to cover the cost of remediation under
existing laws. Because of uncertainties inherent in making such
estimates or possible changes to existing legislation, it is possible
that such estimates may prove to be insufficient and will need to
be revised and increased in the future. In addition, contamination
may be determined to exist at additional sites that could
require future expenditures. Therefore, actual costs could be
greater than the amounts reserved.
Hydro believes that it is currently in material compliance with
the various environmental regulatory and permitting systems
that affect its facilities. However, the effect of new or changed
laws or regulations or permit requirements, or changes in the
ways that such laws, regulations or permit requirements are
administered, interpreted or enforced, cannot always be accurately
predicted.
Integrated pollution prevention and control
Under the EU Directive on Integrated Pollution Prevention
and Control 1996/61/EC (the “IPPC Directive”), industrial
installations require national operating permits based on best
available techniques (BAT) for pollution prevention and control.
The European Commission has issued a guidance document
relevant for the aluminium industry: Best Practice
Reference (BREf) for the Non-ferrous Metals Industries
(2001). In 2000, the Norwegian authorities established stricter
emission limits for the aluminium industry in Norway from
January 1, 2007, in line with the IPPC Directive. Hydro’s aluminium
production facilities comply with the new requirements.
The IPPC Directive has been amended by Directive
2010/75/EU on Industrial Emissions (IED), while the related
BREf note is in the process of being revised at the European
level. The new IED requirements will be applicable from
2013. We expect Hydro to be in a position to comply with the
new rules.
Climate gases
The EU Emissions Trading Directive 2003/87/EC (the ETS
Directive) establishes a scheme for trading greenhouse gas
emission allowances. The directive establishes an internal emission
trading system (ETS) in CO 2 emission allowances for the
period 2005-2012. During this period, the aluminium industry
has not been included in the emission-trading directive,
but has been exposed to the EU emission-trading system
through the effects of the law on the power generation industry
and the resulting increase in power prices (“indirect
effects”). The implementation of the ETS Directive in Germany,
which resulted in a major pass-through of CO 2 allowance
prices by producers to customers, has led to significant
increases in the cost of electricity, which again have necessitated
restructuring throughout Germany’s aluminium industry.
This EU Directive is also relevant for the EEA, and Norway
joined the EU ETS in 2008.
BusIness DesCrIptIon
Regulation and taxation
47
In April 2009, the European Union adopted a new law amending
these rules (Directive 2009/29/EC) to include primary and
secondary aluminium production where combustion units have
a total rated thermal input exceeding 20 MW in the ETS for the
period from 2013-2020 for the direct emissions of CO 2 and
PfC gases from aluminium plants. Aluminium production is
qualified as an industrial sector exposed to a high risk of “carbon
leakage” (i.e. risk of European operations losing market share to
less carbon-efficient installations outside the EU).
This means aluminium producers would, in principle, receive
a high percentage of the emission allowances they need free of
charge (100 percent free allocation for smelters operating at
the EU-agreed benchmark value). The free allocation of emission
allowances is agreed until 2020, but the list of sectors
exposed to the risk of carbon leakage will be amended in 2014.
Hydro expects to meet the benchmark values by 2013, so the
financial impact of these regulations should be limited.
Rolling operations are also covered by the new rules and will
be allocated allowances free of charge based on a green house
gas efficiency benchmark. Hydro’s extrusion operations are not
covered by the ETS directive, except for their remelting activities,
where Hydro expects to be close to, or within, the benchmark
values by 2013.
Even more important for the aluminium industry are provisions
allowing Member States to grant financial compensation for the
increase in electricity prices due to ETS implementation, while
observing EU state aid rules. These rules are in the process of
being amended, and draft amended EU Guidelines for Environmental
State Aid were issued by the EU Commission in December
2011, and are expected to be finalized early in 2012. The
amended guidelines could be used by Member States for providing
compensation from 2013 onwards. At this point in time,
however, Hydro cannot estimate the level of such compensation
in the various jurisdictions it operates in the EEA.
EU aluminium tariffs
In 2007, the EU reduced the import duty on non-EU imports
of primary unalloyed aluminium from 6 percent to 3 percent.
Aluminium metal produced in the EEA is exempt from such
duty. The level of import duty for unworked, unalloyed aluminium
has been reviewed in 2010, and the tariff level has
been kept at 3 percent.
The World Trade Organization (WTO) round of negotiations on
tariff and non-tariff barriers on industrial products may ultimately
lead to further reduction, and perhaps elimination, of aluminium
tariffs. Nevertheless, the WTO negotiations are not expected to
have a substantial impact on Hydro in the near future.
In the absence of a WTO multilateral trade agreement, the EU
has been negotiating bilateral free-trade agreements with various
third countries of interest to Hydro, which will, in time,