10 February 2022

Climate policy is also about behavior

CLIMATE

The terms read: Design a CO2 tax that optimises cost-effectiveness in the climate policy - and at the same time takes into account employment, the social balance and the prevention of CO2 leakage. Claus Kreiner and Peter Birch Sørensen are part of the Danish expert commission advising politicians on how to achieve the Danish ambitious goal of a 70% reduction in greenhouse gasses by 2030.

The expert commission has released their first report advising politicians on how to achieve the Danish ambitious goal of a 70% reduction in greenhouse gasses by 2030. The 122 pages document has been underway for a year.

“Designing optimal climate policy requires more than calculations on societal tax revenues. It requires knowledge about how people and firms react to green taxes”, Claus Kreiner explains.

There is an inevitable dilemma between the desire for cost-effectiveness on the one side and the desire to avoid CO2 leakage on the other, i.e. the risk that Danish production is moved to other countries with smaller or no CO2 taxes.

The expert committee proposes 3 models. All 3 models involve a CO2 reduction of 3.5 million tonnes by 2030, a shift from energy taxes to CO2 tax, an extension of the CO2 tax base and a harmonization of tax rates.

In all models, companies covered by the EU's CO2 quota system receive a reduction in the CO2 tax of half the quota price in that they are particularly exposed to leakage risk.

Which of the three models that will form the Danish Green Co2 tax reform is now a political question to be answered.