Denmark’s Ambitious Green Vision

IMF Blog, January 11, 2021

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Denmark aims to reduce greenhouse gas emissions by 70 percent below 1990 levels by 2030.
Net zero emissions are targeted for 2050.
This goal is more ambitious than the EU’s target to cut emissions by 55 percent over the same time period.

The IMF staff paper examines Denmark’s green strategy and proposes adjustments to help realize its goals.
It recommends a comprehensive strategy with enhanced carbon pricing, reinforced by fiscal incentives across different sectors.
The paper urges using revenues from carbon pricing to cut labor taxes.

The proposed package aims to provide powerful incentives for climate mitigation while shielding households and firms from higher energy prices.
Measures would be spread across different sectors to avoid carbon prices that are too high, capping them at half the level currently suggested by the Danish Council for Climate Change.
The economic cost from this lower carbon price is estimated at about 0.2 percent of GDP.

The paper recommends “feebates”—fees on products with high emissions combined with rebates on products with low emissions—for sectors with high emissions.
Feebates could be especially useful to curb Denmark’s large agricultural emissions from the country’s huge number of farmed animals.
Because feebates raise the costs of producers who farm unsustainably but reward them as they shift to sustainable farming, this program can deliver a fair low-carbon transition that preserves profitability and jobs.

By crafting an effective climate policy that protects the majority of people, Denmark’s strategy to make large cuts in its emissions could be more attainable.

Denmark’s Ambitious Green Vision — Nicoletta Batini, Miguel Segoviano; January 11, 2021