As post-Brexit farming policies across the UK continue to develop with varying levels of divergence from the EU’s Common Agricultural Policy, it is worth examining what is happening with agricultural policy at a national level in EU countries. Denmark provides a striking example of a very different approach to that taken in the UK.
Holly Tomlinson explores how this new tax works, its context and how this sits alongside the UK’s approach.
On Monday 18 November 2024, the Danish Government announced that the major political parties had agreed the details of a new tax on greenhouse gas emissions from agriculture, making it the first country in the world to do so.
The tax, which forms part of Denmark’s new Green Tripartite Agreement, will target emissions from livestock, drained peatland, liming and fluorinated gases on different rates per metric ton of CO2e basis. The Green Tripartite Agreement also includes: a Green Land Fund, with 40 billion DKK aimed at setting aside agricultural land, accelerating afforestation, and peatland rewetting to support biodiversity & carbon sequestration; strengthening of the regulatory framework of nitrogen discharge; and payments to incentivise farmers to reduce fertilizer and use biochar.
How did this come about?
The tax and the broader Agreement have their origins in Denmark’s 2020 National Climate Change Law, which committed the country to net zero greenhouse gas emissions by 2050, with interim targets of a 70% by 2030 and 50-54% by 2025, from a 1990 baseline. With its substantial intensive dairy and pork sectors, and accounting for over 25% of national emissions, it was clear that Denmark’s agriculture sector would require special treatment. In 2021 a broad political agreement was reached on the Green Transition of Danish Agriculture and an emissions reduction target was announced requiring 55-65 per cent by 2030 compared with 1990 levels. Substantial negotiations between representatives of agricultural business organisations, environmental organisations, labour unions, industry and government followed, before the Green Tripartite Agreement was announced in June 2024, co-signed by representatives from all these sectors.
The Agreement then went to the Danish Parliament and the version announced on 18 November was close to the most ambitious of the options proposed for nitrogen emissions. With respect to the tax rates for livestock emissions, the marginal rate will be 300 DKK (about £34) /ton of CO2e in 2030 rising to 750 DKK (about £84)/ton CO2e, in 2035. Whilst this tax is expected to lead to a 4% decline in overall agricultural production, it is designed to motivate more efficient production. Farmers will receive a rebate for the first 60% of average emissions per animal, meaning that if a farmer is able to take advantage of developments in feed, technology and manure management to reduce the lifetime emissions of an animal to 40% less than average, they would pay no tax on that animal. After this rebate the effective tax will be DKK 120 DKK per ton CO2e in 2030 rising to 300 DKK per ton in 2035. Emissions from liming will incur 750 DKK per ton CO2e increasing from 2028 to 2030 and those from drained peatland will incur a tax of 40 DKK /ton CO2e starting in 2028.
But it is also worth reflecting that Denmark has long history of nitrogen pollution both on land and leaching into the marine environment. It is a big domestic issue, often grabbing headlines and is higher profile than in other countries. They have tried various approaches to cut emissions, most of which have not made a lot of impact. So the tax has been argued by some as an acceptance that these previous measures have not worked and something tougher is needed. The EU Water Framework Directive is also worth mentioning here: it requires all ground and surface water bodies to achieve at least Good Status by 2027. Excessive nitrogen run off from farms has created substantial problems in Danish waterways and the country is not on track to meet this requirement. The Agreement aims to address this by requiring the agriculture sector to reduce nitrogen run off by 13,780 tonnes by 2027. However this might be a point of compliance rather than a key driver in Danish action.
How does this compare to UK policies?
Like Denmark, the UK also needs to reduce greenhouse gas emissions from agriculture, including from misuse of peatland, enteric fermentation, slurry and manure management. Defra estimates that Agriculture accounted for 11% of overall UK GHG emissions, which whilst proportionally lower than Denmark, remains significant.
It also has a Climate Change Act (2008), which following a 2019 amendment also requires net zero emissions, based on 1990 levels, by 2050 and agriculture is covered by it. However, whilst sectors such as energy supply have seen significant reductions in GHG emissions, agricultural emissions have not. Whilst fossil fuel electricity generation has been subject to effective taxation via the UK Carbon Price Floor, a tax on GHG emissions from agriculture has not been used by UK Government or devolved administrations.
Developments in post-Brexit farm support across the UK have or plan to introduce more financial incentives for nature friendly farming measures, including some aimed at reducing GHG emissions. This varies in both extent and stage of policy development across all four governments, but none have the kind of comprehensive and targeted approach taken in Denmark. There are no sector specific greenhouse gas emission reduction targets and not even a suggestion of a tax. Nitrogen pollution from agriculture is also an increasing problem, with a mixture of regulations and incentives across the UK aimed at addressing it.
It is beyond the scope of this article to compare all regulations and incentives, but Northern Ireland’s Beef Carbon Reduction Scheme, which aims to reduce the lifetime GHG emissions of cattle, makes an interesting comparison. It offers £75 per animal that is fattened sent to slaughter by a maximum age: 30 months in 2024 dropping to 26 months from 2027 onwards.
Of course, the NI scheme uses the carrot rather than stick, paying for reduced emissions rather than taxing excess; but whilst it might at first glance appear that NI farmers are much better off than their Danish counterparts, it is important to consider the overall agricultural support context. Funding for the NI scheme will need to come out of the post Brexit agricultural support budget (which will also include the broader Farming with Nature package). Comparing the affected farmers’ net position in relation to tax and subsidy, and any consequential impact on effectiveness, will require further detailed analysis. What is clear, however, is that the NI scheme is much more limited: not only does it only apply to beef cattle, but there are also caps on the number of animals eligible for payment at 352,000 per year for the whole of Northern Ireland.
Another key difference in effect will be that Danish farmers have various ways to reduce emissions and lower their tax liability, whilst quick fattening and early slaughter is the only way for NI cattle farmers to benefit from the scheme. Fattening animals quickly tends to rely on high protein feeds such as soy. If this were produced in an environmentally destructive way, such as through rainforest deforestation, then the reduction in GHG emissions from the animals themselves could be offset by the impact of their feed production.
The impact of feed production is also out of scope in the Danish Tax. Whether the tax will incentivise increased feed use (as an attempt to reduce on farm emissions via earlier slaughter) or reduce it by lowering livestock numbers should be monitored as should the consequential whole-system greenhouse gas impact.
What can the UK learn from the Danish development?
The Danish Tripartite Agreement has been criticised for setting the effective rate too low (less than half that of other industries); its reliance on relatively untested technologies to reduce emissions per animal; the lack of an overall systems approach; and for not being ambitious enough on nitrogen to meet the Water Framework Directive targets for 2027.
Nonetheless, the inclusion of agriculture within the scope of greenhouse gas emission taxes does mark an important step in agricultural policy in the context of climate change. Furthermore, the approach to policy making, which led to the apparent consensus and acceptance of the need for such a tax by representatives of many in Danish agriculture, is notable. Multistakeholder negotiations and agreements are common in Danish policy making and this approach has been credited with building consensus for change – which if nothing else is an approach worth learning from.
Photo by Suvrajit 💭 S on Unsplash