Denmark’s green tax reform advances ambitious climate goal

Denmark aims to be a frontrunner in the green transition and the climate goals of the Danish government are among the most ambitious in the world. A major step towards a carbon-neutral industry was taken on the 1 January 2025, when the new rules on emissions tax came into force. The new legislation is part of a substantial restructuring of the Danish taxation system – also known as the “green tax reform” – which aims to contribute to the goal of reducing Danish CO2 emissions by an additional 4.3 tonnes by 2030.

The reform is a long-term decision that establishes predictable framework conditions and allows companies to adapt, while ensuring that green energy is made more financially viable than fossil fuels.

The main points of the green tax reform

This reform moves the Danish taxation system towards high, cross-sectoral and uniform emissions tax levels. Indeed, the newly implemented legislation will gradually raise taxes on CO2 emissions stemming from the use of fossil fuels in business processes, while energy taxes are correspondingly reduced.

The green tax reform also introduces targeted support to companies significantly impacted by the new CO2 tax. This ensures that companies – and their emissions – do not simply relocate abroad to avoid green taxation, thus defeating the purpose of the reform.

The restructuring of the emissions taxation system will have a broad impact on all companies in Denmark – be it in terms of registration requirements, increased expenses, or changes to company tax models.

The new CO2 taxation system

Prior to the green tax reform, Danish taxation varied based on sectors and types of fuel, with areas such as transportation being subject to particularly high taxes compared to the industrial sector. This system will change under the reform, which introduces a general, collective CO2 tax that will gradually increase over the next five years.

Distinction between companies within and outside the EU Emissions Trading System

The new legislation distinguishes between companies within and outside the EU Emissions Trading System (ETS) in several areas. For example, the legal position of ETS and non-ETS companies differs is regarding the applicable taxation rates as well as possibilities for reimbursement. Furthermore, ETS companies are subject to a new emissions tax law which covers emissions of CO2 from activities in Denmark, including activities conducted in territorial waters and in the exclusive economic zone.

Taxation levels

The level of taxation on CO2 emissions in 2030 will be DKK 750 per tonne for non-ETS companies and DKK 375 per tonne for ETS companies. However, CO2-equivalent emissions stemming from mineralogical processes, such as the manufacturing of glass, ceramics, chalk, marble and cement, will be subject to a lower tax rate of DKK 125 per tonne.

The lower tax rate resulting from mineralogical processes is considered state aid and is therefore supplemented by general rules and requirements for such aid. According to the Danish government, companies in this category are particularly sensitive to distortions of competition. Therefore, this solution is deemed necessary to avoid companies moving their operations to other countries to maintain their competitiveness.

The possibility to seek reimbursement

Non-ETS companies can request reimbursement for energy taxes on process-related energy consumption in cases where CO2 tax is paid on the energy used. This is due to the political intention to shift the tax burden towards CO2 emissions rather than energy usage. ETS companies will not be eligible for reimbursement of energy taxes but may, in some instances, be able to seek partial reimbursement of the CO2 tax paid on the production of space heating and hot water.

The new taxation scheme will also ensure that companies can obtain deductions for CO2 which they retain and store. By making it a profitable endeavour to retain and store CO2, the Danish government hopes to encourage a more conscious effort by companies to pursue this practice.

Sanctions in cases of non-compliance

Submitting incorrect, misleading or otherwise inadequate information relevant to compliance control, as well as other transgressions of the law on emissions tax, will be sanctioned with a monetary fine. Actions which can be classified as tax evasion will be punishable by fine or imprisonment in accordance with applicable Danish penal law.

This article was authored by Victor Honoré Nielson and Sarah Attrup.