Interim report Q4 2024People Green Innovation Technology

"If we can make it now, we can make it anytime" - an adapted application of Frank Sinatra's stanza from “Theme From New York, New York”. The building materials market continues to experience historically low activity, which is reflected in our financial results. Despite this, Byggma has managed to achieve a surplus during a period of the lowest construction activity since World War II. This is a clear demonstration of resilience and attests to the fact that all employees at Byggma are aware of their responsibilities. They roll up their sleeves and exert extra effort when needed. We should take pride in this accomplishment!

CO₂ compensation is effective. The CO₂ compensation scheme reimburses electricity-intensive and competitive companies for the increase in electricity prices resulting from the EU's climate quota system. The purpose of this scheme is to mitigate the risk of carbon leakage.

Coal and gas power plants emit fossil CO₂ and must purchase CO₂ quotas, increasing their production costs and raising electricity prices in Europe (the 'CO₂ surcharge'). Although Norway primarily produces hydropower, the CO₂ surcharge affects Norwegian electricity prices, particularly in NO2, through power cables. This results in higher electricity costs for Norwegian companies, despite their non-fossil electricity. The CO₂ compensation aims to offset this penalty, preventing companies from relocating to areas with less stringent climate policies, which would lead to increased emissions (carbon leakage). Thus, the scheme is a compensation, not a subsidy, addressing a significant issue.

In 2022, Oslo Economics conducted an analysis of the socio-economic effects of the quota system and the compensation scheme. The analysis revealed that the compensation scheme will result in payments of approximately NOK 100 billion during the period 2021-2030. In return, the state will see increased revenue from quota sales (approximately NOK 39 billion) and higher dividends and taxes from power producers due to increased electricity prices resulting from the CO₂ surcharge (approximately NOK 593 billion). Consequently, the costs of CO₂ compensation constitute approximately 16% of the increased revenue to the state. The compensation scheme effectively mitigates the most adverse consequences of the quota system and benefits power-processing and the most competitive companies.

Huntonit requires steam for its production of wood fiber boards, which can be generated using either a gas boiler or an electric boiler. In the fourth quarter of 2023, due to an error by the Environment Agency, Huntonit was not formally included in the CO₂ compensation scheme in Norway. Consequently, production planning could not be based on CO₂ compensation, resulting in a higher effective electricity price compared to gas. This led to increased gas usage and emissions of 1,971 tons of CO2.

In the fourth quarter of 2024, Huntonit was included in the scheme and could base its production planning on CO₂ compensation. This resulted in emissions of 601 tons during the period, representing a reduction of 1,370 tons or 70% compared to the same period the previous year. Counterfactual calculations for the entire year of 2024 show a similar effect, with and without CO₂ compensation, assuming all other factors remain constant.

The CO₂ compensation scheme is effective. Weakening or removing the scheme will directly and indirectly lead to increased emissions and significantly weaken the competitiveness of Norwegian industry, which predominantly uses renewable energy. This would contradict the rationale and purpose of the quota system

The way forward. While we cannot control the market, we can manage our priorities and actions to outperform the market and increase our market share. Although significantly fewer homes are currently being built in the Nordic region than are needed, a theoretical order backlog is forming, necessitating the construction of even more homes in the coming period to catch up. In recent months, the number of housing units sold has exceeded the number of housing units started, which is often a leading indicator that construction activity will increase in the future. There are growing signs that the market has bottomed out, but predicting the speed of normalization remains challenging. As the market gradually recovers, we are committed to improving ourselves and preparing our businesses for the anticipated increase in demand.

At Byggma, we have excellent machinery and equipment, but our most valuable resource is our people. Without your dedication, Byggma would not hold the position it does today. Thank you for your efforts in 2024. I look forward to continuing our work together in the future!