Danish industrial CO2 tax rated successful

Government attributes forecast cuts in sector's emissions mainly to 1995 package

Danish taxes on industrial emissions of carbon dioxide (CO2) introduced during the 1990s are on track to yield exactly the environmental benefits they were designed to achieve, according to an official review published on Friday.

Denmark has one of Europe's more advanced systems of national CO2 taxes, designed to reduce emissions in line with the country's climate change commitments and also to shift part of the burden of industrial taxes away from labour and onto energy. Danish industry strenuously opposed the introduction of industrial CO2 taxes, but has been largely protected through lower rates for energy intensive companies and corresponding rebates such as investment grants.

According to the new review, the tax-rebate package is forecast to lead Danish business to reduce carbon dioxide emissions by some 2.3m tonnes over the period 1995 to 2005. This is equivalent to 3.8% of Denmark's total emissions in 1995, just a shade below the 4% target set for the sector when the tax-rebate package was introduced that year. The government stresses that Denmark is still forecast to miss its target of cutting total emissions by 20% between 1995 and 2005, but puts the main blame for this on the transport sector, which is still failing to achieve emissions cuts.

Under the 1995 tax package, which built on an earlier one introduced in 1993, taxes on different industry sectors have risen in four annual steps and are due to be increased again for some sectors on 1 January 2000. Following publication of the review, the last step will now be up for debate, though according to a spokesperson for the finance ministry, the review has shown that changes to current plans are unlikely to be necessary.

Danish industry groups continue to disagree with the government. A spokesperson for the Danish Confederation of Industry told ENDS Daily that most of the reductions in industrial CO2 emissions would have been achieved through voluntary agreements with the government alone and without taxes. The group also complains that, although the tax-rebates package is proving to be revenue neutral for business overall, manufacturing industry has paid DKr1bn (euros 135m) more in CO2 taxes than it has got back in rebates and cuts in employers' taxes on labour.

According to the finance ministry, however, an econometric analysis of the package suggests that the taxes will yield a 2 percentage points reduction in business CO2 emissions between 1995 and 2005. In contrast, investment grants are forecast to achieve a 1.2 percentage point cut, while the various voluntary agreements in force between the government and industry sectors will only yield a 0.6 percentage point cut.

Follow Up:
Danish finance ministry, tel: +45 33 92 33 33; Confederation of Danish Industries, tel: +45 33 77 33 77.

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