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Sunday, June 16, 2024 | Back issues
Courthouse News Service Courthouse News Service

New Danish carbon tax gives a considerable discount to large emitters

The Danish government's proposed overhaul of its CO2 tax has stoked national debate because big polluters will pay disproportionately less to emit greenhouse gases than smaller entities.

COPENHAGEN, Denmark (CN) — Denmark needs to lower its CO2 emissions by 70% by 2030 compared with 1990 levels and achieve climate neutrality by 2050 if it wants to meet targets under national and EU climate laws.

According to the Danish Council on Climate Change, that goal translates to a need to reduce emissions by 22 million tons by 2030. Yet projections indicate the country will only reach half of that target under current political initiatives according to the council´s 2021 status report.

Therefore, the experts recommended the Danish Social Democratic government introduce a universal tax on greenhouse gases. And such a tax is just what a satisfied climate minister Dan Jørgensen could present on Wednesday last week.

The former CO2 tax of 180 DKK per 2,200 lbs. ($25.41 as of press time) will now increase, and all companies must pay. The government divides the new carbon tax rates into three groups.

Companies who don´t pay today because they stand outside the EU´s emissions trading system will have to pay about $106 per 2,200 lbs. of CO2 emitted. The price for companies that currently buy CO2 quotas in the EU will be about $53. Such companies typically fall in the energy- or transport-heavy sectors.

And then, the new tax reform suggests a lower price of $14.11 per 2,200 lbs. for companies that work with mineral processing. This group also encompasses some of the top emitters in Denmark working with cement and oil.

Notably, the companies must still pay quotas on the European market in addition to the national tax.

Nonetheless, the decision to exempt big polluters from the regular taxation rate has caused great debate. Economic experts, climate activists and small businesses pose critical questions, including how to motivate producers to lower emissions by giving them “special treatment” in political agreements and whether the new rate will lower emissions enough to reach the 2030 target

One Danish company has always been at the center of such debates — the cement producer Aalborg Portland. The company is the world´s largest exporter of white cement and the market leader in Denmark.

In 2021, Aalborg Portland emitted close to 2.4 million tons of CO2, 14 times more than the second-largest CO2 polluter Nordic Sugar. So there is no doubt that the discount of $35.29 per metric ton will mean substantial financial savings.

However, Aalborg Portland doesn't consider the lowered price per ton a discount.

”If you look at the way our costs are developing in the European carbon quota system, we will end up with a bigger bill in the current year. Our costs will rise from 200 million DKK ($28 million) to 600 million ($85 million) in 2030. If you include that in the overall bill, we do not end with a discount,” a company spokesperson said.   

The company refers to a twofold effort by the European Commission to make CO2 emissions more expensive soon. Firstly, the number of quotas will be lowered, which will increase the market price in natural accordance with supply and demand.

Secondly, the European economy and finance ministers support the new carbon border adjustment mechanism, which will impose extra tariffs on CO2-intensive products such as cement.  

However, the company appreciates that the new Danish carbon tax is differentiated and notes it is mandatory to lower emissions if it is to receive any of the 7 billion DKK (nearly $1 billion) earmarked for supporting green transition.

“We work toward three major transitions to make the company more sustainable. One is to leave highly fossil fuels behind and change to low fossil (nonreusable garbage) or nonfossil (biogas or biomass) fuels. Another is to convert all our cement types in new ones with a lower carbon footprint. And a third is to begin carbon capture, which is crucial since we cannot eliminate the emissions from our chalk," the company said in a statement.

SMV Denmark, the branch organization for small and medium-sized enterprises, calls the agreement disappointing. They had hoped for uniform taxation, regardless of company size and level of production pollution.

”The CO2 tax will be a major expense for small and medium-sized energy-intensive enterprises. Especially industrial companies. This, of course, will have the consequence that the competitiveness of some of these companies will decline. Ultimately leading to fewer tasks in the order books, less turnover and lower employment,” the organization said.

It suggests changing the government´s existing reform and reimbursing the increased carbon taxation by giving all Danish companies lower corporate taxes and duties. Otherwise, SMV Denmark warns, large emitters get off at the expense of everyone else.

“When special discounts are awarded to the largest CO2 emitters, it will make the green transition more expensive for society, meaning that all ordinary companies and consumers end up with the bill," the organization said. "It makes the transition more insecure because it is going to be dependent on uncertain technologies.”

Especially carbon capture and storage are considered vital technologies in Denmark now. Another focus area is the development of alternative energy sources, such as wind power and biogas and potentially power-to-X (where electricity is converted to hydrogen). The latter, however, is far from being sufficiently developed.

Meanwhile, assessments indicate the new carbon taxation proposal can provide a reduction of 4 million tons by 2030, should it be adopted.

Courthouse News correspondent Mie Olsen is based in Denmark.

Categories / Business, Economy, Energy, Environment, Government, Politics

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