Carbon pricing in Denmark: how does it work?

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Denmark’s carbon pricing framework combines taxes, emissions trading, and targeted reliefs to achieve its climate goals. Recent reforms extend coverage, including to agriculture, offering lessons on balancing ambition, competitiveness, and public acceptance.

by Caroline Klein, OECD Economic Department

Today, Denmark is celebrating Klimahandledagen, a national day for climate action when people across Denmark organise activities and commit to climate-friendly actions. Denmark is often seen as a global leader in climate policy. Strong ambition, broad policy tools, and early action have delivered large emission cuts since 1990 as stressed in the latest Economic Survey of Denmark.

Over the past three decades, Denmark has sharply reduced greenhouse gas emissions, while also cutting its dependence on imported fossil fuels – an important strength when energy crises strike. This progress reflects a broad policy mix combining regulation, carbon pricing, and public financial support. Recent reforms are expected to keep the country on track to cut emissions by 70 percent by 2030 compared with their 1990 level. Denmark’s goals of climate neutrality by 2045 and net negative emissions by 2050 go beyond EU targets. Achieving them will require additional policy effort (Figure 1).

Carbon pricing has increasingly become the backbone of Denmark’s mitigation strategy. Price signals – through a carbon tax and the participation to the EU ETS – have been used to reduce emissions where it is cheapest to do so. The 2022 Green Tax Agreement marked a major step forward. It expanded the scope and level of carbon pricing across industry and energy use (Figure 2). Carbon taxes will rise steadily, reaching around EUR 100 per ton of CO₂ by 2030 for firms outside the EU emissions trading system. Firms inside the system will also face a minimum effective carbon price.

At the same time, public subsidies and exemptions have been in place to address competitiveness concerns. A Green Fund of EUR 7.2 billion (around 2% of GDP) supports investment from 2024 to 2040, including on offshore wind development and CO₂ capture and storage. The cement industry and other mineralogical processes benefit from a reduced rate. International transports are fully exempted, and the fishery industry benefits from an exemption until 2029. In some sectors, the increase of the carbon tax is offset by cuts in the energy tax. This combination has helped maintain public acceptance.

Agriculture production remains one of Denmark’s most emission-intensive sectors, driven by livestock and dairy production. The 2024 Green Tripartite Agreement further broadened carbon pricing by introducing a carbon tax for non-energy emissions in agriculture, including livestock. This will make Denmark the first country to tax agricultural emissions. The reform required careful design given political sensitivity and measurement challenges: initial tax rates in agriculture will be low and large deductions allow farms to avoid paying the tax when using existing abatement technologies. This helped secure agreement with the sector and reduce concerns about carbon leakage. It also reflects uncertainty about available mitigation options. As a result, the socio-economic impact of the reform is expected to be limited. Low initial prices, however, come with risks. Weak price signals may delay deeper structural change needed for the decarbonisation, including future technology developments and adoption. This calls for periodically reviewing tax rates to reflect advances in emissions-reducing technologies and evolving risks of carbon leakage.

Denmark’s climate policy demonstrates how ambitious goals can be supported by a wide and flexible mix of measures. Carbon pricing is the main tool and is broadly applied, but exemptions and subsidies are still substantial. Denmark could go further in making emission pricing more uniform across sectors by setting a clear roadmap for the phaseout of rebates in carbon pricing in the longer term, notably in the emission-intensive cement industry and in agriculture. As targets become stricter, stronger incentives and careful evaluation will be essential to make ambition durable and cost-effective.

References

OECD (2026), OECD Economic Surveys: Denmark 2026, OECD Publishing, Paris, https://doi.org/10.1787/3d6cb4b8-en.