OECD Inventory of Support Measures for Fossil Fuels: Country Notes

Denmark

Energy resources and market structure

Denmark has considerable oil and gas resources in the North Sea, which have been exploited since the early 1970s. After Italy, it is the second-largest producer of oil in the European Union. Oil and gas exploration rights are granted by the Ministry for Climate and Energy and cover all non-licenced areas. The state usually holds a 20% share of each concession. The country became a net exporter of oil and gas in 1997 and remained so until the end of 2018.

In terms of electricity production, there has been significant fuel switching from oil to coal in the 1980s-90s and then to natural gas and renewables in the 2000s. Electricity generation relies now mainly on renewables (79% of electricity supply in 2021), with wind power and biofuels accounting for 48% and 22%, respectively. The country imports all the coal it uses for electricity production, mainly from Colombia, the Russian Federation (hereafter “Russia”), and South Africa.

 

IEA (2022), "World energy statistics", IEA World Energy Statistics and Balances (database).

Despite continued investment in new production wells, ageing oil fields were accompanied by an average decrease in oil production of 10% a year since 2005. Natural gas production has also been steadily decreasing, by an average of 14% since 2010. Meanwhile, gas production significantly dropped in 2020 and is expected to keep decreasing until2023 due to the redevelopment of the Tyra Gas Platforms that currently accounts for 90% of the Danish gas production.

Previously dominated by two players in the electricity sector, and only one player in the gas sector (Danish Oil and Natural Gas Group), the Danish electricity and gas transmission assets are now merged into one entity, Energinet.dk. Third parties can access the pipelines but must negotiate the terms and tariffs for access with the company. Both markets are fully liberalised. Denmark participates in the common electricity market with other Nordic countries, Nordpool. Under this set-up, fluctuations in wholesale electricity prices depend on market conditions in all member countries. At the retail level, all customers can purchase electricity and gas in the open market and choose any suppliers.

Energy prices and taxes

Although ex-tax electricity prices reflect costs, end-user prices are among the highest in the OECD area because of high taxation rates. Retail prices consist of four different elements: production, transmission and distribution elements. Denmark has among the highest share of taxes in electricity prices for households – 38% in 2022 – while taxes levied on industrial users are considerably lower. The same holds for ex-tax gas prices, where the percentage of taxes for households amounted to 20% during the second half of 2022.

In Denmark, energy duty commonly refers to the combined tax rate of the energy tax, carbon dioxide tax, sulphur tax and nitrogen-oxide tax. Energy products – including electricity, natural gas, coal and motor fuels – are also excisable.

Figure 2. Total tax rebates and support for fossil fuels in Denmark

 

 

1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.

2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.

3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.

4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.

Source: OECD Inventory of support measures for fossil fuels (2023).

Recent developments and trends in support

Due to a lack of data, until 2014 Figure 2 represents only two support measures targeted at household consumers. One of these measures was the Reduced Energy Duty for Combined Heat and Power Generation. Customers of district heating paid a reduced duty for heat delivered from plants that combined heat and electricity generation, which use less energy than if they were produced separately. However, the Ministry of Taxation has ceased to consider such measure a tax expenditure with revenue foregone estimates absents since 2015. The second measure was the Reduced Energy Duty for Diesel Fuel which saw a significant decline, from DNK 5.7 billion in 2014 to DNK 1.5 billion in 2020, forming the bulk of the significant declines seen in Figure 2.

Since 2017, however, more support measures have become available. These include energy duty exemptions for fuels used for transportation in commercial contexts including shipping, aviation, train and commuting. Furthermore, data on tax deductions have become available, such as deduction of CO₂ and SO₂ tax for particular companies. Lastly, data on support for exploration and extraction companies has become available. This includes hydrocarbon tax allowances, state investments in rebuilding gas platforms as well as research funds for oil- and gas exploration and exploitation. In 2020, a new agreement was made to close down Danish exploration and extraction by 2050.

In 2017, Denmark joined a coalition of countries committing to phase out coal by 2030 with increasing support seen on programmes such as ”Fossil Fuel Subsidy ― Swap” encouraging the switch from ‘brown’ fossil fuels subsidies to ‘green’ funding in energy efficiency and renewable energy. Consequently, the last major power plants running on coal located in Esbjerg, Odense and Aalborg have accelerated their target phase out date to 2023, 2025 and 2028, respectively.

COVID-19 has led to large fluctuations in the fossil fuels market, with record falls in oil prices and low energy consumption due to the mobility restrictions brought on by the pandemic. Meanwhile, the government’s COVID-19 recovery measures have not been designed to directly benefit fossil fuel interests.

The rising energy prices in the wake of Russia’s war of aggression against Ukraine, however, led the Danish government to implement new measures supporting the consumption of fossil fuels. A reduction of the electricity tax has been implemented in 2022 and is meant to be pursued in 2023. Moreover, the Danish government also supported the most affected households – through both a geographical and an income condition – via the allowance of an energy cheque. Both measures are temporary.

The fiscal cost of support measures for fossil fuels in Denmark was estimated at DKK 11.15 billion in 2022 (Table 1). Eighty-two per cent (82%) was directed at end user beneficiaries, as opposed to 17% directed to firms. Support was mainly given out in the form of tax expenditures (DKK 10.18 billion) accounting for 91% of the total fiscal cost of support measures. Direct transfers amounted to DKK 0.96 billion.

The fiscal cost of support measures for fossil fuels has increased by 46% since 2017. Since last year, tax expenditures have increased by 8%, from DKK 9.43 billion to DKK 10.18 billion and direct transfers increased by %, from DKK 0.00 billion to DKK 0.96 billion. All growth rate percentages above are expressed in terms of nominal national currency amounts.

Table 1. Fiscal cost of support measures for fossil fuels (in billions of national currency)

	2017	2018	2019	2020	2021	2022
Tax expenditures	7.631	8.269	8.720	9.478	9.427	10.182
Direct transfers	0.000	0.000	0.000	0.000	0.000	0.965
Total	7.631	8.269	8.720	9.478	9.427	11.147

1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.

2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.

3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.

4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.

Source: OECD Inventory of support measures for fossil fuels (2023).

Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.

Table 2. Selected support measures for fossil fuels with a large fiscal cost (in billions of national currency)

Measures associated with large fiscal cost in 2022		2022	2017	Variation since 2017
Tax expenditures
	Commuter deduction	4.123	4.439	-0.316
	Lower diesel tax for lorries, buses and tractors	2.800	1.350	1.450
	Energy Duty Exemption for Fuel Used in Agriculture	1.100	1.200	-0.100
Direct transfers
	Energy cheque	0.965	(Started in 2022)	0.965

1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports).

2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.

3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.

4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.

Source: OECD Inventory of support measures for fossil fuels (2023).

Table 3. Description of selected support measures for fossil fuels

Commuter deduction	Commuters travelling more than 24 km to and from work (12 km each way), are entitled a deduction for transport between home and work, regardless of the mean of transportation. Meanwhile, most commuters commute by fossil-fuelled vehicles. There are two main deduction rates: one from 25-120 km and another for above 120 km. Besides these, there are various rules and exceptions regarding certain commuters being entitled to a different deduction rate related to their income, occupation or where they work. The actual tax relief is approximately 26% of what has been deduced. The Danish Government does not regard tax deduction for commuters as lost tax revenue but rather considers it as a rule in the tax system. Data is therefore limited to data extractions from 2015-2019 used in parliament discussions. Estimate are based on best available data at the current time, isolating fossil-fuelled vehicles, using data on commuters from The Danish National Travel Survey (TU). The estimate is conservative, leaving out subsidies to fossil-fuelled vehicles that it was not possible to isolate. Commuters deduction for commuters travelling by fossil-fuelled public transport has thus not been included. Neither has commuters carpooling or commuters combining their commute with carpooling, bicycle or public transport. Various rules and exceptions regarding certain commuters being entitled to a different deduction rate has not been included either. If these different factors had been included, the FFS would probably be a little higher.
Lower diesel tax for lorries, buses and tractors	This tax expense arises from the fact that the fuel tax on diesel oil is lower than the tax on petrol for lorries, buses and tractors. This tax expense is attempted to counteract the countervailing charge, which thus constitutes a tax penalty which should even out the tax difference between the diesel and petrol taxes for lorries, buses and tractors. As the tax charge does not fully cancel the tax expense, the net effect is a tax expense.
Energy Duty Exemption for Fuel Used in Agriculture	Motor fuel, except gasoline used in agricultural systems, may have its energy tax to be reduced to 1.6% of the full energy tax (1.8% prior to 2021). There is, however, no reimbursement for the CO2 tax. Agricultural use includes horticulture, forestry, fisheries, aquaculture, or fur farming.
Energy cheque	The Danish government implemented a DKK 3 750 (EUR 504) tax-free cheque to help around 320 000 households among the hardest hit by the price surge to pay their energy bills. Households are eligible if they live in an area with district heating driven primarily by gas power plants or have individual gas heating. They must also earn less than DKK 550 000 (EUR 73 909) annually to qualify for the scheme. Update: In March 2022, the amount has been raised to DKK 6 000 and the eligibility criteria has been relaxed, so around 419 000 households should be covered. The total cost of the measure should reach DKK 2 billion. This is a one-off cheque. cash Transfers. Costs include those in the following two posts: municipalities and support for expedited replacement.

Data sources

Country data in OECD.stat

OECD Fossil Fuel Support Portal

National data sources

Note on the Methodology

Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.

The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.