Environmental taxation in Denmark Changes since 2009 In 2009 the energy taxation in Denmark was increased and the level of income taxes reduced in a tax reform, which contained elements not far from the ideas of the Environmental Fiscal Reform. During the last 3 years part of the energy taxes, which were adopted in 2009, has been removed or lowered – not for private households, but for enterprises.
Spring Package 2.0. The former liberal-‐conservative government proposed in 2009 a tax reform, which lowered the level of income taxes and increased the energy taxes. The proposals were negotiated in parliament and the government succeeded in concluding a broad political agreement called the “Spring Package 2.0.”. The purpose of the increased energy taxes was to reduce the energy consumption by 4% in 2020 and limit the CO2 emissions. The philosophy was that “polluters should pay more”. The increased energy taxation also made it possible to reduce the income taxation, which was of great importance for the government. In June 2009 a majority of the Danish parliament voted for Act 527, which implemented the political agreement. The changes are mentioned below: • An additional tax on electricity, gas, coal and oil was introduced for fiscal reasons -‐ 0.85 euro pr. kWh or 2.3 euro pr. GJ. • In consequence taxes on electricity, gas and oil, used for heating were increased by 15%. • Energy used for cooling should be taxed in the same way as energy for heating. • The access for business to a reimbursement of part of the energy tax payment was reduced over a long transition period. • For energy-‐intensive processes the access to reimbursement of the taxes was reduced, inspired by the reduction of the allocation of free allowances in the European Emission Trading System. • Some chemical processes, electrolysis and other energy-‐intensive industrial processes were completely exempted from the new rules. • A more uniform taxation of energy used in combined heat and power plants was introduced -‐ it made district heating from big plants more expensive.
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• The landfill taxation was increased and a new tax on hazardous waste was introduced To improve the Danish competitiveness the transition period was prolonged compared to the decisions in “Spring package 2.0.”. The higher level of energy taxation linked to industrial production processes would now be fully achieved in 2015.
A new act from 2011 A competitiveness analysis from the Ministry of Economic and Business Affairs from 2010 stated the following: The energy taxes were manageable additional expenses for the majority of the companies, because an equivalent increase of the prices was possible without loss of market shares, or could be compensated by lower wages. However in the case of industrial processes the report expressed fear that the additional tax expense would create competitiveness problems. Following the competitiveness report the Danish parliament voted for a new act, Act 625, in June 2011. • The act changed the earlier decided increase of the taxation level related to energy consumption in business processes. The taxation level for 2013 was reduced to a third of the originally decided, which in turn was hastened to 2012. • It was decided to reimburse a smaller part of the taxes paid by companies using electricity to space heating and water heating in offices, etc. After the reimbursement there is an equal taxation of electricity based heating in companies and in private households. • For different reasons, including fiscal reasons, the Danish parliament increased the taxation of surplus heat from industrial processes used for space heating. The overall taxation level was reduced to 55% of the taxation level decided in the “Spring Package 2.0.”
The Energy Agreement from 2012 After the election in September 2011 the Social Democrats, the Socialists and the Social Liberal party formed the new government. In March 2012 a new Energy Agreement was concluded. The Agreement contained a range of initiatives bringing Denmark a step closer to the target of 100% renewable energy in the energy systems and in the transport sectors by 2050. It was decided to increase the energy savings to be realized by energy companies and promote development and use of new technologies and to promote efficient use of renewable energy in enterprises. It was decided, that the expansion of renewables in electricity production was to be
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financed through the Public Service Obligation schemes (PSO), which are a supplement to the price of electricity paid by the consumers. Following this political agreement the Danish Parliament voted for Act 1395 in December 2012. Act 1395: • lowered the energy tax on electricity used for heating affecting both private households and enterprises in order to promote the use of heat pumps. • removed the fat tax and the earlier decided increase of the sugar tax • increased the income taxation for fiscal reasons With this act the revenue from energy and fat and sugar taxes was reduced by 4 billion DKK and the income taxes increased by 3.4 billion DKK. The consumption of fossil fuels will drop as a result of the Energy Agreement in 2012. Consequently, the state revenues from taxes on coal, oil and gas also will drop. In order to compensate the decrease in the revenues a new act, Act 70, was adopted in January 2013. • It introduced, what was called a security of supply tax on all fuels – biomass and fossil – used for space heating. It was adopted in two steps. For fossil fuels it came into force by 1 February 2013. Instead of creating a new tax, the government made it a part of the existing energy taxes on fuels and surplus heat – raised by 17 %. For biomass the tax has not yet come into force. As it is a new tax on biomass it must be notified to the EU-‐Commission, and problems concerning wood for domestic wood stoves have not yet been solved. • At the same time the level of taxation of energy used in energy intensive processes was lowered futher. It was decided that the tax level on energy used in energy intensive processes would not be increased until 2020. The annual revenue from the energy taxes was reduced by 1 billion DKK. These two acts were thus a step backward viewed from the perspective of the Environmental Fiscal Reform. However, the decline was not as large as it looked because the Energy agreement also meant a considerable increase of the PSO tariff on electricity. The Public Service Obligation Scheme is financing the growth in renewables. The PSO tariff is not a tax, but a tariff. However, from a consumer perspective the difference is not that great.
The Economic Growth Plan 2013 Economic Growth 2013 is a political agreement entered by the majority of the political parties in Denmark. A part of the agreement is a remarkable reduction of taxes on energy used in business processes. The reduction is not only on energy used in energy intensive processes, but also on electricity used in offices and stores (for lightening of buildings, computers, coolers in stores, etc.). The two bills L 126 and L 129 are discussed below.
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Two taxes on electricity disappear Bill L 219 proposes to abolish the energy saving tax (the former CO2 tax on electricity). The energy saving tax is 0,065 DKK per kWh. For energy used for business processes (industrial processes, lighting, IT, etc.), the energy saving tax simply disappears. For household consumption of electricity and electricity based heating, the energy saving tax is not reduced, but is transferred to an increased electricity tax. The electricity distribution tax will also disappear for the business sector. The electricity distribution tax is now 0.04 DKK per KWh, of which 75% is reimbursed for consumption below 15 million kWh and 100% for consumption above this limit. Lowering the energy taxes to the EU minimum level for business processes
The Parliament had already decided an increase in the reimbursement of the tax on electricity to compensate for the increased tax level on heating. This increased reimbursement in bill L 129 has been accelerated to 2014, where the net taxation of electricity used in business processes will be reduced to the EU minimum tax – 0,004 DKK pr. kWh. When introducing the security of supply tax on fuels, which gradually increases until 2020, it was decided that the current reimbursement rate of 87.3% on fuels used in energy intensive processes similarly should grow to a 91% reimbursement in 2020. Bill number 129 proposes that the 91% reimbursement will be reached in 2014, and from 2015 the energy taxes on fuels used for processes will be reduced to 4.4 DKK pr. GJ, equivalent to EU’s minimum level. The electricity tax on electricity used for heating is reduced to 0,419 DKK for companies and households. The reduction applies to traditional electric heating as well as heat-‐pumps. For energy and climate reasons the reduction can be justified for consumers having heat-‐pump, as this becomes more competitive towards heating with oil or gas. But the reduction on electric heating can not be justified. Electric heating is a very ineffective way of using energy, and the tax reduction reduces the incentive for energy conservation and for changing to district heating. Including “light” processes is a problem
The lowering of energy taxes is of some importance for the energy intensive industries, being part of the global competition. The Danish Ecological Council has strongly advised against including the “light” processes in the proposed reduction of electricity taxes to the EU minimum level. It means that the incentive to
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energy savings in the business sector is strongly weakened, and there are still many cost efficient energy saving projects with very short payback times not yet realized -‐ mainly due to a lack of focus on energy efficiency. Secondly, a great part of the trade and service companies are not very vulnerable to international competition. So even if companies get a saving on energy bills, it does not affect the competitive situation significantly. Electricity taxes constitute only a small part of the total costs. Finally, the reduction means a substantial loss of revenue (3-‐3½ billion DKK). Today there is no reimbursement of the energy saving tax. The only positive aspect is that it will be easier to survey the tax structures and handle the tax rules with a smaller number of energy taxes and no distinction between “light” and “heavy” processes and no differences in the reimbursement of taxes above and below 15 million kWh. The agreements on energy efficiency disappear
Today there is only a basic reimbursement on CO2 taxes on energy used in energy intensive processes, unless the company has reached an agreement with the Danish Energy Agency on energy efficiency. Though there has been some criticism of the administrative challenges, the agreements have also been a classic example of how to ensure focus on energy efficiency without damaging competitiveness. With the removal of the energy saving tax and with the reduction of taxes corresponding to the EU minimum level there is no reason to maintain the energy efficiency agreements, which will therefore be eliminated. The Danish Ecological Council therefore regrets the loss of this opportunity. These agreements on energy efficiency actions were considered a cost-‐effective way to energy efficiency according to the evaluation of green taxes from an inter-‐ministerial working group (“Evaluering af grønne afgifter og erhvervene” from 1999). Subsidy to industrial CPH
The subsidy to industrial combined heat and power generation is increased – to lower the net taxation on industrial CHP
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Change related to waste burning and waste taxes
Bill number 126 abolished the subsidy to electricity production based on waste (to promote recycling and reduce incineration). CO2 tax on non-‐biodegradable plastic is also a part of the bill on Waste Incineration. There is a tax reduction on waste, when a part of the waste is sold. In case of landfilling of hazardous waste there will be a change of the offsetting principles for removal. It is suggested going from a FIFO principle (first in -‐ first out) to a LIFO principle (last in -‐ first out) when the value of the outgoing waste is calculated. Today the value is nearly zero because taxes on landfill and hazardous waste were implemented only a few years ago. So the value in most cases is calculated without taxes. With the new principle the value in most cases will be calculated with taxes. The government thus wants to promote recycling. There will be used 45 million DKK growing to 70 million DKK to develop facilities to hazardous waste and 15 million DKK to develop new technologies targeted shredder companies – treating scrapped cars, white goods etc.
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