Mon, May 20 2024 20 May, 2024

Danish CO2 tax aims to hasten energy transition

Denmark has introduced a CO2 tax in a bid to support the goal of 70% CO2 reductions by 2030 and to help speed up the energy transition such as the expansion of offshore wind power.

Solar photovoltaic panels and wind turbines (Photo credit: Adobe Stock/zhengzaishanchu)

The CO2 tax, which will be phased in from 2025 to 2030, has been set at DKK 750/tonne of CO2 (US$ 102.3/tonne, €100.8/tonne) by 2030 for sectors not included in the EU’s Emissions Trading System (EU ETS) such as road transport. For sectors included in the EU ETS, such as power plants, heavy industry and aviation, the tax has been set at DKK 375/tonne. Mineralogical processes, such as cement producers, will see a CO2 tax of DKK 125/tonne by 2030.

The green tax reform will help Denmark reduce CO2 emissions by 4.3 million tonnes by 2030, according to the Danish government. It says the tax reform is thus the largest single contribution to Denmark’s 2030 climate goals which include a 70% reduction target for CO2 emissions compared with 1990 levels. By 2019, before the Covid-19 pandemic, Denmark had already reduced CO2 emissions by about 36% compared with 1990 levels.

The government has pledged financial aid for helping to decarbonise companies that are hit the hardest by the CO2 tax, hoping this minimizes the risk of emissions and jobs moving abroad or so-called carbon leakage. A green fund covering investments of 7.2 billion euros will support the green transition of Denmark and the phasing out of fossil fuels between 2024 and 2040, it says.

Denmark has grand ambitions for a rapid expansion of offshore wind and green hydrogen and the industry says the CO2 tax will help achieve this. The government wants all gas to be ‘green’ by 2030, with the share of biogas also expected to increase.

“The agreement on a CO2-tax is an important step on the way towards phasing out fossil fuels,” Tejs Laustsen Jensen, CEO of Hydrogen Denmark, told Gas Outlook.

“The next assignment is that we make sure that we have enough green hydrogen and green fuels to replace fossil fuels in industrial processes and the transport sector, amongst others,” he added.

Elena Belletti, Head of the Carbon – Energy Transition Practice at Wood Mackenzie, told Gas Outlook that the agency forecasts EU ETS prices will be between €135 and €155/tonne in 2030. In Denmark, the additional charge of around €50/tonne could bring the total cost of emitting to around €185-205/tonne or around €155-175/tonne for cement producers, she noted.

“This level could be sufficient to improve the economics of a range of decarbonization technologies, potentially even direct air capture or carbon utilization in cement production – which are currently facing costs above €200/tonne. While Denmark alone might not have enough demand for carbon abatement technologies to significantly sway innovation, the new tax can contribute to their penetration in Europe,” Belletti said.

Renewables expansion

Following a recent agreement in the Danish parliament, Denmark now targets 4 GW of additional offshore wind power capacity by 2030, in addition to the 2 GW already planned. The country’s current installed wind power capacity is about 2.3 GW. The agreement noted that the offshore wind parks should supply electricity to power-to-x hydrogen projects, via electrolysers, which potentially could limit the need for expanding the power grid.

Jensen said he was happy to see that the Danish government had announced a significant expansion of wind and solar power, both on- and offshore, which he said will be needed to produce large quantities of green hydrogen.

“Conversion to green fuels can […] help us diminish pressure on our electricity grid, thereby minimizing a costly expansion of it, as well as it represents export possibilities, not only to Europe but to the entire world,” Jensen added.

The agreement also aims for a quadrupling of the total electricity production from solar energy and onshore wind until 2030. Denmark currently has about 1.5 GW of installed solar power capacity and 7 GW wind power capacity including onshore wind, according to BP statistics. As for total energy consumption, in 2021, oil accounted for around 33%, gas 12% and renewables about 43%, according to figures from the Danish Energy Agency.

There are also plans for ‘energy islands’ offshore Denmark, with proposals encompassing at least one artificial island in the North Sea and one project at the existing Bornholm island in the Baltic Sea. The islands would distribute electricity – and possibly also green hydrogen – produced by offshore wind parks, to grids and consumers in North West Europe.

Gazprom has cut off all gas supply to Denmark, about 2 Bcm/y, over Orsted’s refusal to pay in rubles. Denmark produced just 1.3 Bcm in 2021, but this is expected to increase when the TotalEnergies-operated Tyra field in the North Sea starts producing again next year.

“Orsted expects that it will be able to replace the volumes no longer supplied by Gazprom Export for Denmark by purchases on the European gas market. We see this as feasible, as long as Russian gas continues to flow to the key importer countries in the EU, such as Germany and Italy,” ratings agency Fitch said in a note in early June.

Denmark, in line with many other nations, recently issued an early warning mechanism under the EU Security of Supply Regulation due to reduced flows via Nord Stream 1 to Germany.

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