The European Commission has approved a €724m (DKK 5.4bn) Danish scheme to lower the rate of a new greenhouse gas (GHG) emissions tax for companies across a range of sectors including industrial gases.
The State Aid measure aims to prevent the risk of carbon leakage, where companies relocate production outside the EU to countries with less ambitious climate policies, resulting in increased greenhouse gas emissions globally.
As part of a broader Green Tax Reform agreed in 2022, Denmark decided to introduce a tax on GHG emissions from activities covered by the EU Emissions Trading System Directive (CO2 emissions tax) in line with the goal of reducing Denmark’s emissions by 70% in 2030 compared to 1990 levels.
The CO2 emissions tax is calculated based on the number of emission allowances that operators must surrender each year under the EU emission trading system (ETS1).
The tax aims to further encourage the reduction of CO2 emissions in Denmark – which is targeting Net Zero by 2045 and aiming to end all fossil fuel production five years later – boosting the impact of ETS1 by providing operators with a stronger financial incentive to cut their CO2 emissions.
A nearer target, reducing GHG emissions by 70% by 2030, requires achieving in only seven years what was achieved over the past 30.
Margrethe Vestager, Executive Vice-President in charge of competition policy, said the scheme enables Denmark to support those companies most at risk of carbon leakage in the context of its Green Tax Reform.
She said, “The scheme maintains incentives for an effective decarbonisation of the Danish economy, in line with the European Green Deal objectives. At the same time, it keeps distortions of competition to the minimum.”
Industrial gases and manufacture of nitrogen compounds are included in the wide range of manufacturing sectors the directive covers.
Eligible companies will benefit from a reduced tax which will be set at 33% of the standard rate. The scheme will run until December 31st 2033.
Nordic industries most at risk of carbon leakage are aluminium and copper, basic iron and steel, and paper, according to Copenhagen Economics.