Denmark invited to review its system

In Denmark, it is part of everyday life. Companies and individuals alike have been paying it since 1992. But the effectiveness of the carbon tax, and the way in which it is applied, have gradually been called into question, to such an extent that today it is at the centre of lively controversies. Every year, it reaps 700 million euros for the Danish government, in other words, 5 % of the GDP. The income it generates is used to diminish employment taxes and expenses, and to finance energy-saving measures: around 20 % of revenue from this tax is reinvested to improve energy production. But results are still hardly visible in the environment itself. “In 2007, national emissions of CO2represented just about the same level as in 1990. This observation sums up the total ineffectiveness of the current functioning of the carbon tax,” underlines Martin Lindegaard, President of Concito, a Danish ecological think tank.
Introduced 18 years ago, the levy today comes to 21 euros per tonne of CO2 emitted. Individuals and service companies are subject to the full rate, as well industries, if energy is being used for heating. For other energy uses, the industrial sector has the privilege of benefitting from a reduced rate. All fossil energies used to produce electricity are exempt from these levies, but electricity consumption is subject to it, at a rate of 0.80 euros per MWh when used for heating, 8.60 euros per MWh for industry, and 89.50 euros per MWh for other uses.
This is a country at the cutting edge of sustainable development. Paradoxically, it is also amongst the European States where CO2 emissions per inhabitant are the highest. Most electricity production plants use coal, and harmful emissions traced to coal have increased significantly in the last 20 years. Many specialists advocate a modification in the criteria for the application of this tax tool and a substantial increase in the rates for companies. In a report published in 2009 on the economy and the environment, the Danish Economic Council concluded that much higher tax rates on CO2 are absolutely indispensable in order to keep national commitments to cut polluting emissions. The country’s Swedish neighbours have witnessed their tax rate leap from 27 euros per tonne of CO2 emitted when the tax was created in 1991, to 109 euros in January 2010. But a majority of households still support it. “Many Danish companies are not opposed to an increase in the tax either,” explains Martin Lindegaard. “And if they seem happy to reach for their pockets, it’s above all because industrialists benefit from tax relief tools and grants for substantial investments, compensating the cost of the tax.” Like other experts, Martin Lindegaard is convinced that “it is when the price of carbon becomes expensive that there will be an acceleration in the transition towards a more massive usage of alternative energies such as wind or sun power.”
For the moment, the price of the carbon tax weighs much more heavily on
individuals than on companies. Households consumed more renewable energy in 2007 than in 1990, “but this encouraging ecological gain is wiped away by the highly polluting behaviour of companies. In our current situation, the population’s efforts are in vain,” says Martin Lindegaard. The indiscriminate way in which the tax is imposed and rising discontent are also creating problems. Some specialists have suggested the use of a green cheque to provide compensation for the country’s poorest, so that the tax does not bear overly disastrous consequences on the economic and social scales. In the face of increasing criticisms, the government has committed to lowering income tax to compensate for the weight of this tax, by the end of 2010.
A made-to-measure tax system has also been implemented by the government, allowing companies to sign agreements with the national energy agency, with the aim of putting in place taxes adapted to their situations. But the effects of this measure on the total amount of CO2 emissions are judged negligible, due to the low number of companies concerned by extremely high energy needs. “The application of a carbon tax representing a significant sum, without any sectorial favours, would be much more effective, on the ecological as well as economic levels,” asserts Martin Lindegaard.