Title page
Contents
Foreword 4
Executive summary 9
1. Key Policy Insights 14
Introduction 15
Denmark weathered the crisis well, but imbalances are increasing 16
House prices have risen rapidly 26
Asset price growth is increasing financial stability risks 28
Fiscal policy to support wellbeing 33
Government spending supported the economy during the crisis 33
Sustainable public finances over the long term 35
Reforms to increase productivity growth and labour market inclusion 40
Supporting diffusion of the benefits from the digital transformation 43
Enhancing the benefits from strong female labour market participation 46
Improving the integration of migrants 47
Harnessing synergies between climate action and the local environment 50
References 54
2. An effective, inclusive and comprehensive strategy for a decarbonised economy 61
The climate strategy in Denmark 62
Denmark is exposed directly and indirectly to the impacts of climate change 62
Denmark has reduced its GHG emissions and set ambitious new targets 64
Climate targets call for accelerated action, but this will have socio-economic impacts 67
A strategy to mitigate macroeconomic and financial consequences 68
Curbing labour market adjustment costs 69
The risk of emission leakage through international trade will have to be assessed and curbed to allow for an effective domestic strategy 71
Key policy instruments for a net-zero economy 73
Aligning emission pricing to accelerate the transition 74
Regulation can be a valuable part of the policy mix where cost-effective measures are targeted 83
Private investment is key for meeting climate targets 84
Well-targeted public investment needs to play a role 85
The green transition has important implications for the finance sector 86
Research and development plays a major role in the Danish climate mitigation strategy 88
Enhancing good governance to improve coordination and monitoring 89
References 91
3. Climate policies for energy, transport and agriculture 98
Maintaining progress in the energy sector 99
Policy measures have contributed to the falling cost of renewables 99
Electricity taxes unrelated to environmental effects should be reduced 103
Reliance on biomass for heat and power needs to be reduced 105
The rate of renovations should be increased to meet energy efficiency goals 107
Reversing the increase in GHG emissions in the transport sector 109
The transport sector has become the largest emitter of GHGs 109
Reducing vehicles' carbon intensity is the focus of government policy 110
Shifting the tax burden to encourage sustainable use of transport in a cost-effective way 113
Ramping up mitigation in agriculture 115
Danish agriculture is open to international trade and potentially vulnerable to GHG emission leakage if unilateral measures increase production cost 116
An ambitious policy mix of regulation and subsidies for carbon sequestration can enhance climate change mitigation in agriculture 119
Complementing with steps to encourage sustainable consumption 122
References 125
Table 1. A strong recovery in 2021 10
Table 1.1. The Danish economy has recovered rapidly in 2021 and capacity use is set to tighten 18
Table 1.2. Events that could lead to major changes in the outlook 25
Table 1.3. Past recommendations and actions taken on housing and financial regulation 31
Table 1.4. Past recommendations and actions taken on the fiscal framework, taxation and social institutions 39
Table 1.5. Potential fiscal impact of OECD recommendations 40
Table 1.6. Illustrative economic impact of some reforms proposed in this survey, after 10 years 42
Table 1.7. Past recommendations and actions taken on productivity 50
Table 2.1. Estimated effect of climate mitigation policy on employment by sector 70
Table 2.2. Policy options to reduce emission leakage: strengths and weaknesses of selected instruments 73
Table 2.3. Budgetary impact of a uniform GHG emission price of EUR 60 per tCO₂e 80
Table 2.4. Impact assessment criteria and the Danish implementation of climate policy tools 82
Table 3.1. The direct climate impact of electric and low-carbon vehicles strongly depends on their capacity to substitute for conventional cars 113
Table 3.2. Costs and climate impact of mitigation measures in agriculture 117
Figure 1. The economy has recovered quickly 10
Figure 2. Household gross debt is very high 11
Figure 3. Meeting targets will require accelerating progress in all sectors 12
Figure 4. Renewable generation has grown fast, but relies increasingly on biomass 12
Figure 5. Increasing car use has pushed up transport emissions despite greener vehicles 12
Figure 1.1. Labour productivity is high and growth has been solid 15
Figure 1.2. New confirmed COVID-19 cases and excess mortality 17
Figure 1.3. Substantial economic impact of COVID-19, but less than in many countries 17
Figure 1.4. Consumption has recovered, but savings built up in the crisis have not yet been spent 20
Figure 1.5. Outcomes during the COVID crisis have varied considerably by industry 22
Figure 1.6. The increase in unemployment was smaller than in most OECD countries 23
Figure 1.7. Trade is diverse in terms of recipient countries and products 24
Figure 1.8. Interest rates are lower than befitting economic conditions in Denmark 25
Figure 1.9. House price growth picked up during the COVID crisis 27
Figure 1.10. House price growth has been particularly strong in Copenhagen 27
Figure 1.11. Rental price growth has been high in Copenhagen 28
Figure 1.12. Household debt is high and held predominantly by high income groups 29
Figure 1.13. Credit has picked up but is contained, while financial institutions are well capitalised 30
Figure 1.14. The share of loans with variable interest rates and deferred amortisation is high but falling 31
Figure 1.15. Denmark could improve further its tax transparency and preventive anti-money laundering measures 32
Figure 1.16. Control of corruption is perceived to be among the best in the OECD 33
Figure 1.17. Fiscal support was substantial, but smaller than in most OECD countries 34
Figure 1.18. Debt is more than sustainable under a number of scenarios 36
Figure 1.19. The fiscal costs of the demographic transition will be concentrated from 2025 to 2040 37
Figure 1.20. The total tax wedge is around average, but top income taxes are high 38
Figure 1.21. Net income for families increases very slowly over some earnings ranges 39
Figure 1.22. Income inequality and relative poverty rates are low, but wealth inequality is higher 41
Figure 1.23. Danish firms are well-placed to benefit from digital transformation 44
Figure 1.24. Investment in ICTs and knowledge-based capital is average among peer countries 45
Figure 1.25. Women suffer a motherhood earnings penalty and are under-represented in management positions 47
Figure 1.26. Denmark has relatively few immigrants, from a mix of migrant streams 48
Figure 1.27. Danish immigrants are behind on skills and employment 49
Figure 1.28. Environmental performance 51
Figure 2.1. Much of Denmark is exposed to flood risk, particularly the greater Copenhagen area 63
Figure 2.2. Denmark has among the lowest emission intensities in OECD countries 64
Figure 2.3. Renewables, including biofuels, are relatively important sources of energy in Denmark 65
Figure 2.4. Carbon emissions based on Danish consumption are much higher, but also declining 65
Figure 2.5. Carbon emission cuts have not prevented strong economic growth in a number of OECD countries 66
Figure 2.6. Denmark will miss its carbon targets under unchanged policies 67
Figure 2.7. Denmark's population is rather supportive of climate policies, except a fossil fuel tax 75
Figure 2.8. Stated support to climate policies 76
Figure 2.9. Emission intensity is negatively correlated with coverage of carbon pricing 78
Figure 2.10. Effective carbon rates are heterogeneous in Denmark in 2021 80
Figure 2.11. Green bonds are still developing, while lending to high-emissions activities varies considerably by industry 87
Figure 2.12. High R&D expenses are correlated with many environmentally-related patents 88
Figure 3.1. Renewable generation has grown fast 99
Figure 3.2. Public support for energy research, development and deployment is moderately high 100
Figure 3.3. Wind and solar are now the cheapest source of electricity after including environmental costs 101
Figure 3.4. Offshore wind capacity has increased rapidly over the past two decades 102
Figure 3.5. Electricity taxes are concentrated on households 104
Figure 3.6. Electricity prices for households are among the highest in the OECD 105
Figure 3.7. Biomass use has grown and now powers the majority of district heating output 106
Figure 3.8. Biomass imports are a large share of Denmark's energy supply 107
Figure 3.9. CO₂ emissions from transport have been increasing after a fall in the late 2000s 109
Figure 3.10. The increasing number of private cars and traffic outweighs greener vehicles 110
Figure 3.11. Denmark's urban areas are slightly over-exposed to air pollution, while congestion is relatively low 115
Figure 3.12. GHG emissions from agriculture in Denmark mainly come from the livestock sector 117
Figure 3.13. Emissions intensity of main agricultural products in Denmark is in many cases lower than non-European countries 119
Figure 3.14. Animal proteins, and particularly beef meat, have huge carbon footprint relative to plant proteins 123
Boxes
Box 1.1. Exceptional fiscal support during the COVID crisis 19
Box 1.2. The Danish "flexicurity" labour market model 21
Box 1.3. Simulation of the potential effect of structural reforms 42
Box 1.4. The Inuit in Greenland 43
Box 2.1. Welfare implications of climate policy: model simulations 69
Box 2.2. Reducing emissions from cement production in Denmark 70
Box 2.3. Acceptability of climate change mitigation policy instruments in Denmark 75
Box 2.4. Building acceptability for carbon pricing: the case of Switzerland 77
Box 2.5. Increasing emissions pricing in non-EU ETS sectors: the case of Germany 78
Box 2.6. Increasing emissions pricing in EU ETS sectors: the case of the Netherlands 79
Box 2.7. Cutting EU emissions by 55%: an ambitious package from the European Commission 83
Box 3.1. Government-supported innovation in offshore wind 102
Box 3.2. Wind energy islands and power-to-X 103
Box 3.3. Agreement on the Green Transition of Danish Agriculture 118
Box 3.4. Case study: mitigating emissions from agriculture in New Zealand - building a pricing scheme in agriculture with the cooperation of stakeholders 122