Pricing Agriculture Emissions: Denmark

Support the development, commercialization and deployment of technologies that lower enteric methane released by ruminants, End harmful production subsidies and price supports resulting in over-application of fertilizers, land clearing and residue burning

Overview

Agriculture accounts for more than 10% of the EU’s emissions, with those from livestock accounting for half of this figure. Yet, proactive policy measures to address these emissions have lagged. Agriculture is not included in the EU’s Emission Trading System (ETS), meaning a carbon price does not apply to the sector.

In the face of EU inaction when it comes to decarbonizing the agriculture sector, Denmark has gone ahead and proposed a mix of subsidies and levies to address emissions from food production and land-use change. Denmark’s initiative combats the country’s challenges in reducing agriculture and forestry emissions, which fell only 17% over 1990-2022 compared with a 49% decrease in the rest of the economy.

Agreed upon by a coalition of key political stakeholders in November 2024, Denmark’s measures to reduce emissions from fertilizers – as well as the world’s first carbon tax on livestock – are set to commence in 2030. The proceeds of the tax will be used to fund technology development, green initiatives and transitional assistance for affected farmers.

Impact

The pork and dairy industries are Denmark’s largest source of agriculture emissions. Pigs and cattle produce methane, a greenhouse gas which is 28 times more potent than carbon dioxide, via decomposing manure and rumination (cattle only). Under the new policy, a tax of 300 kroner ($42) per metric ton of CO2 equivalent will apply to livestock emissions from 2030.

The tax rate will rise in equal increments each year until it reaches 750 krone per ton in 2035. To help farmers adjust to the new levy, a 60% tax-free allowance will apply at first, meaning an effective tax rate of 120 krone per ton of CO2e in 2030 and 300 kroner per ton in 2035. The livestock tax is predicted to reduce emissions by 0.4 million tons of CO2 equivalent by 2030, and 1.3 million tons by 2035.

As well as the tax on livestock emissions, the new package includes measures to reduce emissions from fertilizer and liming of crops, 85% of which are used to feed livestock, according to the Danish Agriculture and Food Council. Fertilizer overuse will be addressed primarily via subsidies to incentivize the use of precision application and low-carbon nitrogen sources. Successful implementation of the technologies will result in farmers receiving subsidies of 750 kroner ($112) per ton of CO2e avoided. As a result, emissions form fertilizer and liming are expected to decrease by 0.3 million tons.

Alongside investment in new technologies and agricultural taxes, the policy will restore agricultural land to nature. Farmers on carbon-rich soils who do not set aside their land for conversion back to natural peatland will be taxed at 40 kroner ($6) per ton of emissions. The subsidized conversion of farmland to forestry aims to lock up carbon across 250,000 hectares, an area more than twice the size of Luxembourg. The package also includes funding to promote the adoption of biochar, which can be used as a soil additive to sequester carbon, as well as other low-carbon technologies.

Opportunity

Denmark’s planned levy is especially notable because it applies directly to farmers. One of the most contentious issues around carbon pricing and agriculture is where to place the obligation in the agri-food value chain.

The main options are farmers themselves, as in Denmark; upstream, for example on fertilizer manufacturers; and/or downstream, such as on food and drink processors. Putting the price directly on farmers may be the most effective option for driving emissions abatement, since farm-level emissions account for the biggest share of greenhouse gases released by the agri-food system.

Small and medium-sized farms could find it difficult to comply with additional regulatory requirements due to tight operating margins – as is the case in many markets around the world. This is likely to increase industry opposition, with many geographies such as France and the Netherlands experiencing widespread farmer protests against sustainable agriculture policies in recent years.

Additionally, the tax model could pose the risk of emissions offshoring. For example, Denmark is Europe’s largest exporter of weaner pigs, responsible for 47% of live pig exports. These pigs are typically shipped out of the country at around 10 weeks to neighboring European nations to be fattened up for slaughter. This tax could encourage the greater export of these pigs (and associated emissions), instead of growing them out to slaughter-weight domestically where they are subject to taxes as they mature.

Danish companies have expressed mixed views on the carbon tax. Some companies have voiced concerns that the levy penalizes sustainable agricultural practices because it is solely based on emissions and does not take account of activities to promote climate adaptation or nature restoration.

Despite pushback on the policy package, Denmark’s initiative to apply a carbon price to agriculture emissions displays necessary leadership for effectively mitigating emissions in the sector. The EU has considered adding agriculture to the EU ETS, or creating a separate system for agriculture; however, plans have not materialized. Now, the EU and individual European countries can look to Denmark as a case study on where to begin.

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