Taxation of agricultural emissions in combating climate change: The case of Denmark

Abstract

The agricultural sector is responsible for approximately one-third of global warming pollution, with nearly half originating from the livestock industry. However, until now, governments worldwide have focused their emission reduction efforts more on fossil fuels than the agricultural sector. Although the idea of imposing a tax on agricultural emissions was first proposed by New Zealand in 2022, it was later canceled due to criticism from farmers and a change in government. Nevertheless, Denmark has announced that it will impose a tax on carbon dioxide emissions from livestock starting in 2030, making it the first country in the world to implement a carbon tax on agriculture. Denmark, a significant exporter of cattle, pigs, and dairy products, aims to reduce greenhouse gas emissions by 70% compared to 1990 levels through this tax. The project creates a fresh "Eco Partnership" pact that involves the state, farming industry groups, ecological organizations, and labor unions. This pact includes various actions designed to tackle the environmental and climate effects of the nation’s farming industry, such as proposals to implement a greenhouse gas levy on animal emissions. According to the government, Denmark's new initiative will be the first in the world to impose a carbon tax on livestock starting in 2030. Under the new program, livestock producers will initially be taxed at 120 kroner ($17) per ton of CO2e, increasing to 300 kroner ($43) by 2035. The government has stated that the revenue from the livestock tax will be returned to the sector as a transition support fund to facilitate its green transformation between 2030 and 2031, with a review of the revenue allocation planned for 2032. Denmark's historic compromise tax agreement is subject to parliamentary approval. However, political experts anticipate that it will pass with broad consensus. This study will discuss climate taxation in the agricultural sector and provide insights into Denmark's agricultural and climate policies. In this context, the scope of the Green Tripartite Agreement will be examined, and this policy will be evaluated.