Brussels

Denmark agrees carbon tax on agriculture

By Jenny Brunton, Senior European Policy Advisor

The Danish government will introduce Europe’s first carbon tax on agriculture, after agreement was reached between the Government of Denmark, the Danish Agriculture and Food Council, the Danish Society for Nature Conservation, the Confederation of Danish Industry, the Trade Union NNF that organizes workers within the Danish slaughterhouse and meat industry, and the Danish Local Government Association, after five months of negotiations on 24 June 2024.

From 2030 farmers will have to pay 120 Danish krone (€16) per ton of emitted CO2 equivalent, rising to 300 krone (€40) from 2035 onwards.

Climate Tax on Agriculture

The climate tax on agriculture will be 300 DKK (EUR 40) per ton of CO2e in 2030, increasing to 750 DKK (EUR 100) by 2035. A basic deduction (tax break) of 60% will be applied to the average emissions from different types of livestock, providing an economic advantage to climate-efficient farmers.

After the deduction (tax break), the effective cost will be 120 DKK (EUR 16) per ton of CO2 e in 2030, and 300 DKK (EUR 40) in 2035.

Revenues from the tax will be channelled back to the sector and reinvested into green initiatives, climate technology, and production transformation, targeting the agricultural sectors facing the most difficulty transitioning.

There is a consensus that the Danish government should work at the EU level to ensure collective regulation of agricultural emissions through an emissions trading system for agriculture (ETS). The national tax in Denmark will eventually align with such a system.

In addition to the CO2 tax introduction, the agreement includes funding for the establishment of more forests in Denmark, and increased peatland restoration to ensure clean drinking water, with a clear ambition to comply with the EU Water Framework Directive.

Additional elements of the agreement

Approximately 40 billion DKK (EUR 5.4 billion) will be allocated to a new fund called The Green Landscape Fund (“Den Grønne Arealfond”). This money will support the creation of 250,000 hectares of new forests, the restoration of 140,000 hectares of peatlands, further land conversion, and strategic land purchases focused on nitrogen reduction.

The partners expect that converting more agricultural land to forests will enable two-thirds of Danish waters to meet the EU Water Framework Directive (WFD) goals by 2027, with efforts for the remaining waters initiated “with a clearly defined path” towards fulfilling the WFD and achieving good ecological status by 2030.

The government will work to allocate 9.4 billion DKK (EUR 1.2 billion) for restoring 70,000 hectares of carbon-rich peatlands. To encourage farmers to give up their peatlands, a CO2e tax on emissions from carbon-rich peatlands of 40 DKK (5.36 EUR) per ton will be introduced starting in 2028. This tax will only apply to farmers who do not wish to participate in the peatland restoration.

Next steps

Copenhagen is a significant exporter of pork and dairy, and agriculture is currently expected to account for 46 percent of emissions by 2030. Experts believe the carbon tax will slash 1.8 million tonnes of that in 2030, its first year of operation, enabling Denmark to meet its target of cutting 70 percent of its total emissions by that year.

The five associations are now urging lawmakers to approve the deal, which should be reviewed and adopted after the summer holidays.

Background

On Wednesday 21 February 2024, an expert group commissioned by the Danish government and parties at the Danish Parliament presented proposals for how Danish agriculture can reduce its emissions including the introduction of a farming emissions tax of 750 Danish crowns (€101) per tonne emitted. 1 GBP = 8.717036 DKK.

In 2020 there was broad political agreement to introduce a carbon tax in response to Denmark’s agricultural sector failing to reduce its greenhouse emissions over the past decade. Agriculture emissions in Denmark make up 22.4% of the country’s total carbon emissions, compared with 15.6% ten years ago – a share which has increased as other sectors have reduced their emissions.