Denmark’s strategy for a world-first carbon tax in agriculture

On Wednesday last week, a long-awaited report commissioned by the Danish government was released. It proposes three strategies for implementing a world-first carbon tax in agriculture.

“If we can’t do it in Denmark, I don’t see how it can be done elsewhere,” said Bjarke Møller, Director of The Council for Green Transition.

The reason for this ambitious move is that Denmark’s agricultural emissions currently make up about one-third of its total carbon footprint. Projections suggest this could rise to nearly half by 2030. With ambitious targets in Denmark for reducing greenhouse gasses by 70% in 2030, urgent action is needed.

Let’s talk about the three proposed tax models. Each one aims to cut emissions while minimizing economic fallout. The models suggest a taxation rate of €17, €50 or €101 per tonne of CO2e (carbon dioxide equivalents). A more detailed breakdown is given at the end of this blog post.

The taxation models take into account emissions from livestock, fertilizer use, forestry, and the disruption of carbon-rich agricultural soils.

The report also considers which emission-mitigating technologies are expected to gain traction in Denmark with this tax. Among these, feed additives for cows emerge as a highly impactful and cost-effective option. According to the report, these additives have the potential to reduce emissions by 2.6 million tons of CO2e by 2030. These additives are fed to cows in small daily doses and reduce methane emissions from cows’ digestion process. Typically, the additives come already included into the cows’ feed rations, so their implementation presents almost no extra work for the farmer. Some of these additives, like Lome, have already been implemented on Nordic farms. In trials in Sweden, Volta Greentech’s additive Lome has shown consistently high methane reductions, with cows burping out an average of 80% less methane every day of feeding. Not only are feed additives beneficial for the environment, but many, including Lome, are also economically viable, coming in at a lower cost than the expected carbon tax.

Administratively, this tax should not present too much additional administrative burden for farmers. One factor contributing to the perceived administrative complexity of such a tax in Europe is the inability to directly measure emissions from individual farm units. However, Danish farmers are required to, for example, report the quantity and types of animals they raise as part of national food safety regulations. These figures can be utilized to estimate emissions on a farm level. This will enable relatively simple calculation of appropriate taxes.

In contrast to countries still figuring out their next move, Denmark has taken a strong stance on this controversial issue. The report paints a promising picture of significant emissions reduction in Denmark by 2030, showing that agriculture doesn’t have to be a lost cause in the fight against climate change.

But it’s not all smooth sailing. The tax does come at a cost, as opponents are keen to point out. The Danish agriculture sector will suffer job losses and a loss of competitiveness. Consequently, Denmark’s political landscape is divided on the issue, with some parties and groups throwing their support behind the proposed models while others remain skeptical. Venstre dismissed the models, even though party leader Troels Lund Poulsen had voiced his endorsement for a green agriculture tax in October of the previous year. Similarly, Danmarks Demokraterne outright rejected the carbon tax. SF, however, expressed their support for model one, as did the head of analysis at the independent political think-tank CEPOS.

As Denmark debates the finer points of policy, the world watches with interest. Will this bold move pave the way for global change? Time will tell. We expect the political negotiations will yield answers within months. But for now, we recognise Denmark as having made unprecedented progress in climate legislation and we await seeing how their greener economy may emerge.

Read the full report from the expert group here.

For further inquiries, please contact:
Cora Taylor
Volta Greentech
+46 7935 77245
cora@voltagreentech.com

About Volta Greentech
Volta Greentech is a Swedish biotechnology company with 11 employees founded in 2019. The vision of the company is to enable the agriculture sector to reach climate targets before 2040. Volta is developing methane-reducing feed additives for cows that reduce their methane emissions by 70 to 90% per day of feeding. Successful demonstrations have been done on several commercial farms in Sweden.

Find out more and read our climate reports at: www.voltagreentech.com

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Summary of the three taxation models:

Model one

Tax structure

• The livestock tax rate is set uniformly at €100 per ton of CO2e, which is the same tax rate applied to other businesses and industries not covered by the European Training Scheme.

• With this model, both emissions from livestock and those from fertilizer use are taxed at a rate of €100 per ton of CO2e.

Outcome

• The tax, with the lowest shadow price of €20 per ton CO2e, also anticipates the greatest emission reductions of 3.2 million tons

• It forecasts a 15% decline in agricultural production, driven primarily by reductions in cattle and pig farming.

• Consumer prices for Danish dairy and butchery products are expected to rise by almost 4%.

• Proceeds from the agricultural tax, totaling €160 million, are intended to support farmer’s capacity building.

Model two

Tax structure

• The livestock tax rate stays the same at €100 per ton of CO2e but there’s a discount (deduction) of 50%, meaning the farmer only pays half of the tax per animal. Effectively, the tax rate becomes €50 per ton of CO2e.

• If a farmer increases their emissions, they have to pay more tax at the rate of €100 per ton.

• If farmers take steps to reduce emissions, like using feed additives, they get a tax break of €100 per ton of CO2e saved.

Outcome

• The tax anticipates a reduction of 2.8 million tons of CO2e and a shadow price of €34 kr per ton CO2e.

• Agricultural production is expected to decline by 8.9%.

• Consumer prices for goods from Danish slaughterhouses and dairies is expected to increase by an average of 2%.

• There is a limited state revenue loss of just over €67 million annually

Model 3

Tax structure

• The tax rate for livestock is reduced to €34 per ton of CO2e. Even with this lower rate, there’s still a 50% deduction. So, the effective tax rate becomes €17 per ton of CO2e.

• In order to meet Danish targets, Model 3 will mandate the use of specific technologies such as feed additives.

Outcome

• It anticipates a reduction of 2.6 million tons of CO2e, with the highest shadow price of €64 kr per ton CO2e

• Model 3a forecasts a 5.6% decline in agricultural production, significantly less than in previous models.

• Danish-produced goods’ prices from slaughterhouses and dairies are estimated to increase by 0.6%.

• There will be a deficit in public finances of around €270 million. This is due to, for example, subsidies for feed additives.