Aquaculture in Norway Regulatory status and developments February 2024
Dear reader, Aquaculture in Norway is a license-based industry and subject to an extensive and highly complex regulatory framework. This presentation aims to provide an overview of the legislation governing aquaculture activities in Norway, including recent regulatory developments and changes. Additionally, it offers a brief overview of the taxation of aquaculture in Norway. Licenses are a prerequisite to performing aquaculture activities in Norway. The focus of this presentation is therefore the licensing regime applicable to aquaculture activities on land, in the sea and further offshore. A government-appointed committee (Nw. Havbruksutvalget) recently put forward a proposal for revisions to the aquaculture licensing regime in an Official Norwegian Report (NOU 2023: 23). While the report itself does not lead to immediate legislative action, it outlines recommendations for the future regulation and public management of Norwegian aquaculture focusing on value creation, sustainability and biosecurity in the industry. Based on NOU 2023: 23, the Norwegian government will start working on a white paper (Nw. Stortingsmelding) on aquaculture that will review the entire aquaculture licensing regime. In parallel, there are ongoing processes relating to the regulation of land-based and offshore aquaculture. As there are several ongoing legislative processes concerning the Norwegian aquaculture industry, this presentation is only current as of the date hereof. Please contact us to ensure that you have the latest version. Thank you for your attention! 2
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Silje Remøy
Lisa Marie Opdahl
Ingvild Hasnes
P: +47 995 81 821 E: sirem@bahr.no
P: +47 926 13 323 E: lisop@bahr.no
P: +47 452 05 404 E: inhas@bahr.no
Table of contents
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1
Introduction to aquaculture in Norway
2
Coastal aquaculture
3
Offshore aquaculture
4
Land-based aquaculture
5
Tax regime
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Introduction to aquaculture in Norway
Norwegian seafood export value (2023)**
Volume and potential for growth
10 % 2%
• Aquaculture is the fastest growing food producing sector in the world, and Norway is Europe’s largest fisheries- and aquaculture nation.*
3% 3%
• In 2023, Norway exported 2.8 million tonnes of seafood to a total of 153 countries, for an export value of NOK 172 billion: 4%
– Aquaculture accounted for 46% of the total volume and 75% of the total value, for an export value of NOK 128.7 billion; – Atlantic salmon is by far the most dominant in terms of value (see figure to the right), accounting for NOK 122.5 billion in export value.
• The majority of Norway's aquaculture operations take place in coastal areas, and significant volume growth is restricted i.a. by environmental factors. However, developments in production technology present opportunities for more diversified production facilities than the traditional open net pens. Please refer to slides 10-13 for details.
8%
70 %
• The prospects for offshore aquaculture is worth noting, with legislative efforts underway to support the development of fish farming beyond the coastal production areas. Please refer to slides 14-17 for details. • Additionally, land-based aquaculture is evolving, with facilities capable of full-cycle production progressing from pilot to commercial stages. Please refer to slides 18-20 for details.
Salmon
Cod
Mackerel
Trout
Herring
Pollock
Other
** Including both farmed and wild caught seafood Source for all numbers: www.seafood.no * Source: Towards blue transformation (fao.org)
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THE BASELINE
Norwegian aquaculture activity in the maritime zones
12 nm 24 nm 200 nm
Internal waters
Territorial sea
Contiguous zone
High seas
Continental shelf
Land-based aquaculture
Coastal aquaculture*
Offshore aquaculture**
* Aquaculture in defined production areas, governed by the “traffic light system”. ** Aquaculture outside the production areas. There is no offshore aquaculture activity today. First licensing round is currently projected to take place in 2025. SOURCE: NORSK POLARINSTITUTT (ADJUSTED BY BAHR)
THE CONTINENTAL MARGIN
Exclusive Economic Zone
Regulatory framework • The Norwegian Aquaculture Act 2005 (the Aquaculture Act) is the main act governing aquaculture activities in Norway, supplemented by detailed regulations for i.a. allocation of licenses, technical requirements, pollution, water usage, animal welfare and food safety. • The Aquaculture Act applies to farming of all aquatic species and to all forms of aquaculture, including traditional coastal aquaculture, land-based fish farming and offshore aquaculture. • An aquaculture license is required for aquaculture activities in Norway. A license gives the right to production of certain species within defined geographical areas. Due to their limited availability, aquaculture licenses hold significant value. • The main ways of obtaining an aquaculture license are: 1. Being granted new license(s) by the government (by way of bi-annual auction rounds for ordinary, commercial licenses for salmon, trout and rainbow trout); 2. Acquisition of license(s) in the second-hand market; or 3. Acquisition of shares or ownership interests in persons owning licenses.
• The Norwegian “traffic light system” is the regulatory tool governing production growth in coastal aquaculture by adjusting production capacity in response to the impact of sea lice on wild salmon. Depending on the environmental status, new licenses may be offered. • The detailed licensing regimes are different for coastal aquaculture, offshore aquaculture and land-based fish farming respectively. The status and developments for each of these are summarized in this presentation. – There are also differences in the licensing regime for other species than salmon, trout and rainbow trout, but the focus of this presentation is the regulations pertaining to salmon, trout and rainbow trout. 7
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New report on Norwegian aquaculture • A government-appointed committee was in October 2021 tasked with reviewing the license regime for aquaculture in Norway with the aim of ensuring a consistent and future-oriented framework. • On 28 September 2023, the committee presented the results of their work in an Official Norwegian Report (NOU 2023: 23 Comprehensive management of aquaculture for sustainable value creation), proposing measures to promote profitability, sustainability and biosecurity in coastal aquaculture. • The NOU itself does not lead to immediate legislative changes, but sets out several recommendations and proposals for the public administration of Norwegian aquaculture and the regulatory framework going forward. • The NOU does not address land-based aquaculture, nor does it cover offshore aquaculture. However, separate regulatory processes are ongoing for these forms of production (see slides 14-20). • Based on the NOU, the Norwegian government will start working on a white paper (Nw. “Stortingsmelding”) on aquaculture that will review the entire aquaculture license system. The white paper is expected to be presented to the Norwegian Parliament by 2025. • Depending on whether and to what extent the government chooses to act upon the recommendations in the NOU, the NOU and the white paper may play an important role in the future of coastal aquaculture in Norway.
8 Source: regjeringen.no
Key proposals in NOU 2023: 23 • To increase the efficiency of overall area planning, the committee recommends that the central government takes on a more active role in preparing and implementing regional plans for coastal aquaculture, as well as being the responsible body for granting all aquaculture licenses. • Continuation of the “traffic light system” is proposed, but with some adjustments. The most significant change is the suggestion to focus more on individual incentives to improve environmental conditions, and in this context, remove the more collectively oriented reduction of capacity in areas that are “red” due to the environmental status. • The proposed individual adaptations include the introduction of: – A fee based on the number of salmon lice in the facility; and – An "environmental flexibility scheme" enabling increased production with technology that reduces the impact on the environment.
• All new coastal licenses should be awarded through auction and continue to be limited by maximum allowed biomass (MAB). • The proposal recommends introducing time limitations on licenses for other species than salmon, trout and rainbow trout, such as licenses to farm cod. It is not currently proposed to introduce time restrictions on for licenses for salmon, trout, and rainbow trout, which are issued without time limitations. • Several measures are proposed to improve biosafety.
9 Source: regjeringen.no
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10
Coastal aquaculture
There is a development towards the use of more diversified production facilities than the traditional open net pens in coastal fish farming. The types of solutions suitable for coastal farming can roughly be divided into the categories listed below*.
Traditional open net pens
Closed and semi-closed cages Photo: Ovum AS. Credit: Thomas Morel
Submersible farming solutions Illustration: AKVA group ASA
* Today, almost all production is carried out in traditional open net pens. Other production methods are being explored and increasingly used.
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Semi-exposed cages Illustration: Viewpoint Seafood AS
The traffic light system • The “traffic light system” is the governmental management tool used to ensure predictable and environmentally sustainable growth in coastal production of Atlantic salmon, trout and rainbow trout – The coast is divided in 13 production areas (PA’s)
• Every second year, based on the impact of salmon lice on wild salmon, each PA is given a green, yellow or red light: Offer to increase production capacity by up to 6% + new licenses on auction. Production capacity remains unadjusted + no new licenses. Up to 6% reduction in production capacity (with certain exceptions) + no new licenses.
• As explained on slide 9, NOU 2023: 23 proposes certain changes to this system, including replacing the reduction in production capacity (in “red” areas) with fees and quotas for salmon lice, as well as individual incentives for use of production technology with reduced or no emissions of salmon lice. • An evaluation of the traffic light system will likely be an important part of the white paper (Nw. “Stortingsmelding”) on aquaculture, and it will take time before any potential changes to the system are published for public consultation.
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3100349/1 Source: Veterinærinstituttet, 2022
Key facts
Licenses for coastal production of Atlantic salmon, trout and rainbow trout New licenses and increase in production capacity on existing licenses is regulated by the traffic light system There is flexibility in terms of where and how the licenses (and biomass) are utilized Delimited in maximum allowable biomass (MAB) High prices for new licenses and increase in production capacity Freely transferable and licenses may be pledged Not time limited Subject to resource rent tax on top of corporate income tax
13
3
14
Offshore aquaculture
Status and developments • Offshore aquaculture involves farming of fish in deep ocean waters outside the coastal production areas (PA’s), using aquaculture installations constructed to withstand tougher marine conditions. • The growing demand for fish and the commitment to address challenges such as finding suitable areas for production, as well as salmon lice, diseases and environmental impact on fjords, has contributed to the development of innovative technologies for fish farming. • To spark innovation in the aquaculture industry, the Norwegian government introduced a temporary scheme for so-called development licenses (Nw. utviklingstillatelser) in 2015 (lasting until 2017). – Such licenses were awarded to projects that met certain criteria, with the aim of facilitating innovation that could help solve some of the challenges faced by the aquaculture industry. – Some of the projects that were awarded development licenses were concepts for fish farms that could be utilised at more exposed locations compared to traditional aquaculture (semi-offshore and offshore aquaculture).
• As of the date of this presentation, there is no offshore aquaculture activity. However, facilitating this form of aquaculture could enable fish farming at a larger scale and contribute to increased production. – Such activity will also mandate the supply of more post-smolt, larger well-boats, etc.
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Illustration: Viewpoint Seafood AS
Status and developments cont. • There is a regulatory distinction between coastal aquaculture and offshore aquaculture. New regulations for the allocation of licenses for offshore aquaculture in Norway entered into force on 7 November 2022. • While several essential regulations are already established, additional regulations are required for a comprehensive regulatory framework adapted for offshore aquaculture. • Unlike coastal aquaculture, offshore licenses are exempt from the capacity adjustments mandated by the “traffic light system” and are based on principles of larger sites/areas and the carrying capacity of the area. • The authorities are now considering three suitable areas for offshore aquaculture, and an overarching public impact assessment of the three areas is planned to be carried out by 15 October 2024. – The three areas to be assessed for offshore aquaculture are located along the Norwegian coast in the south (“Norskerenna sør”), central (“Frøyabanken nord”) and north (“Trænabanken”) (see blue areas marked on map to the right). – The government is looking into the possibility of also exploring a fourth area for offshore aquaculture further north.
• The next step in the process will be a public consultation of regulations for the specific allocation of offshore aquaculture licenses, followed by the adoption of such regulations. Following this, licenses may be awarded. – The government decides for each allocation round how licenses are to be granted, e.g. based on auction or qualitative criteria (with or without a fee), and whether pre-qualification criteria should apply.
• First licensing round is expected to take place in 2025. 16
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Illustration: Doffin.no
Key facts
Licenses for offshore aquaculture of Atlantic salmon, trout and rainbow trout The Ministry decides when to award licenses and the geographical allocation thereof License connected to a specific location and aquaculture installation
Delimited in maximum allowable biomass (MAB) Licenses may be subject to a license fee – to be determined in the individual licensing rounds Transfer (and change of control) requires approval, licenses may be pledged Licenses are time limited up to 25 years, with a possibility to apply for extension Subject to corporate income tax, not resource rent tax
17
4
18 Source: Hima Seafood AS
Land-based aquaculture
Status and developments • Since the 1960s, land-based facilities have been used in Norway for the production of hatchery fish (Nw. settefisk) and smolt (typically up to 100-200 grams). • Recent developments in land-based production now enable the entire life cycle of the fish to be completed on land. • Unlike coastal aquaculture, licenses for land-based aquaculture are not subject to the capacity controls mandated by the “traffic light system”, nor are they subject to a license fee. Licenses have traditionally been allocated pursuant to application on an ongoing basis. • The Ministry of Trade, Industry and Fisheries is currently working on updating the regulatory framework for the allocation of licenses for land-based aquaculture. Pending the establishment of new regulations, the authorities are not accepting new applications for land-based fish farming licenses. – There is an exception for production of hatchery fish and broodstock in recirculating aquaculture systems (RAS) where at least 95% of the water in the facility is reused.
• The purpose of the new regulations is to maintain a distinction between the licensing systems for land-based and sea-based aquaculture, and to introduce stricter biosecurity requirements for land-based facilities. • The consultation has taken longer than expected, but the Ministry has recently informed that the new regulations for land-based aquaculture are expected to be finalized by autumn 2024.
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Photo: Hima Seafood AS Credit: Ole-Kristian Samuelsen
Key facts
Licenses for land-based aquaculture of Atlantic salmon, rainbow trout and trout Allocated by the relevant county municipality based on application
Requires access to property on land
Delimited in tonnes Licenses are free of charge, but there is a small processing fee Freely transferable, licenses may be pledged Not limited in time Subject to corporate income tax, not resource rent tax
20
21
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Tax regime
Taxation of aquaculture in Norway Ordinary corporate tax • 22% corporate tax rate on net profit • Income is based on actual income (not norm prices) • All costs related to generating income is deductible – Investments are capitalized and depreciated (normally declining balance) – Production licenses are capitalized and only depreciated upon actual loss of value
• Arm’s length principle for all internal transactions
Resource rent taxation • 25% effective tax rate • Applies to coastal aquaculture in Norway • Further described on the following pages
Other taxes and duties • Property tax to the local municipalities • Marketing and research fee • Production fee
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Resource rent tax – scope and tax rate Resource rent tax on aquaculture • Effective from 1 January 2023, a cash-flow based resource rent tax applies for costal aquaculture • The tax rate is 25% and applies on top of the corporate income tax of 22%, resulting in an effective marginal tax rate of 47% • Resource rent tax is also known for other Norwegian industries, such as petroleum, hydropower and onshore wind. However, there are important differences between the tax rules for the various industries
A Neutral Cash-Flow Tax? “A neutral resource rent tax has the same characteristics as a passive state partner in the companies' operations.” - Prop 78 LS (2022-23) p. 14
• The resource rent taxation for costal aquaculture is criticized i.a. for having several non-neutral features
Applicable to the owner of ordinary commercial licenses
25 %
• The resource tax is a tax on profits from ordinary commercial aquaculture licenses for salmon, rainbow trout and trout. Thus, the tax does not apply to:
The Company “State ownership”
– Aquaculture of other species – Land-based aquaculture – Offshore aquaculture – Licenses related to i.a. R&D and viewing – Aquaculture service providers (e.g. well boat companies)
The resource rent tax remains subject to criticism and certain elements of the tax system may be challenged by industry players. 24
75 %
Resource rent tax on aquaculture – features • Cash flow taxation – Revenues and investments are taxed/deducted on an ongoing basis in the year in which they are earned/incurred – Hence, investments can be deducted immediately in the resource tax basis instead of being capitalized and subject to depreciation
Effective marginal tax rate
Refund of negative tax values
Tax free allowance
78%
• Calculation of income – Taxable income (gross income from the sale of salmon, trout and rainbow trout) shall be based on market prices as determined by a special price board (norm prices)
* 67%
• Tax-free allowance – A standard tax-free allowance is set at NOK 70 million per group – The tax-free allowance has been criticized for being politically motivated and in breach of tax neutrality principles
47%
• Tax losses – No refund of negative tax value, only loss carry forwards (indefinitely) – Loss carry forwards are adjusted yearly by a risk-free interest rate
47 %
**
*
• Tax rates – Formal resource rent tax rate is 32.1%, but due to a deduction for calculated corporate tax (22%) the effective tax rate is 25%
* Full exemption granted for small-scale power production. ** Losses for construction (but not operation) of new wind farms may be refunded, subject to review by the tax authorities and approval from ESA.
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Lisa Marie Opdahl
Joachim M. Bjerke
Silje Remøy
Ingvild Hasnes
P: +47 926 13 323 E: lisop@bahr.no
P: +47 90505777 E: jmb@bahr.no
P: +47 995 81 821 E: sirem@bahr.no
P: +47 452 05 404 E: inhas@bahr.no
Partner, Fisheries and Aquaculture
Partner, Tax
Specialist Partner, Fisheries and Aquaculture
Senior Associate, Fisheries and Aquaculture