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The Energy Agreement 2012-2020

In March 2012, the Danish parliament decided on the Energy Agreement 2012-2020. This agreement was the first step to achieve Denmark’s long-term domestic target of 100% renewable energy in both the transport and energy sectors by 2050. To reach the goal of 100% independence from fossil fuel in the national energy mix, the Danish government planned to decrease the consumption of oil, gas and coal by 33% between 2012-2020. Meanwhile, the government planned to provide half of the electricity from wind power, and to increase the share of renewable energy in gross energy consumption to 35%. By achieving these goals, the agreement would lead to 34% lower CO2 emissions than they were in 1990.

Danish Energy Transition

The Energy Agreement 2012-2020 indicates that the Danish government planned to achieve the long-term goal by improving energy efficiency, electrifying energy consumption, and expanding renewable energy supply. The agreement regards wind power and new energy technologies as an efficient tool to reduce the carbon emission. The plan suggests development of 1800 MW onshore wind turbines and over 1500 MW offshore wind turbines to increase electricity production from wind power. In order to increase the energy efficiency, the agreement commits a DKK 100 million fund toward renewable energy technologies for electricity production. The deal also seeks to increase the share of biomass in the energy mix. This goal was be achieved through legislation against new oil-fired boilers and financial support to companies and households that convert from fossil fuel to biomass.

Energy Transition through Taxation

The Danish Energy Agreement includes massive investment on renewable energy. Denmark introduces several policies related to environmental taxes. The current tax system in Denmark mainly includes three components: an energy tax, an electricity tax, and a CO₂ tax. The energy tax is applied to all fuels that are not used for electricity generation. In order to generate revenues to finance the energy shift of the country, the Danish government increases the public service obligation tax on oil gas and coal to incentivize citizens to make more sustainable choices. The government also exempts energy tax on biomass to encourage the usage of renewable energy. This amount of tax will be used to cover the cost of expanding renewable electricity and the gas network. Meanwhile, the Danish government applies immediate relaxation in electricity and electric heating taxes to encourage the use of electricity. This policy aims to further transform current energy structure in Denmark. The CO₂ tax is a relatively small part in the current tax system and maintained its current state. In addition to these policies, the government introduces a “security of supply tax” on space heating to cover the subsidies for biogas and other renewable energy. These changes toward environmental tax have worked together to provide funding for the energy agreement and encourage citizens to make a more environmentally friendly choice of energy.

Current State of the Energy Agreement

As of 2019, the data from Denmark suggests a promising future of achieving the current energy policy agreement 2012-2020. According to data from the European Network of Transmission System Operators for Electricity, wind turbines in Denmark can produce enough power to cover 46% of the total electricity consumption. Meanwhile, the share of coal in the Danish electricity mix has also fallen by one-third in the latest two years. The decreasing consumption of coals and increasing share of renewable energy create a low level of CO₂ emission from electricity. Many Danish power plants are now switching from fossil fuels into biomass, including wood pellets, wood chips and straw. Nearly two-third of Danish households received district heating, which is now largely produced from biomass and other renewable energy. As Lars Aagaard, the CEO of Danish Energy, mentions, the trend is heading in the right direction. The current energy structure has almost achieved the energy goal of 2020 and shows the path of further development of energy transition.

The Future

Although the Energy Strategy 2050 has achieved success in the first stage, further development is challenging. Although most parties in the current Danish parliament still agree with the reduction target of 70% from 1990 levels by 2030, some have started to reconsider the possibility of achieving this goal. In order to reduce the cost of electricity in Denmark, the government is now gradually phasing out the Danish green energy tax (PSO tax) which supported a huge part of the energy agreement. Although this act makes Danish electricity price levels more competitive, it decreases the funds significantly. Some people then criticized that reducing PSO tax would effectively decrease Denmark’s green ambitions and scale back the energy plan. In the past eight years, Denmark has acted as an international leader in the area of renewable energy. It is necessary for the government to keep focusing on the energy transition and provide efficient policies in order to achieve carbon-neutrality in 2050.

Resources

Danish Energy Agreement for 2012-2020: https://www.iea.org/policies/606-danish-energy-agreement-for-2012-2020

Denmark reaches 2020-goal for solar energy before time: https://um.dk/en/news/newsdisplaypage/?newsid=25147b44-3dce-4647-8788-ad9243c22df2

Accelerating green energy toward 2020: https://ens.dk/sites/ens.dk/files/EnergiKlimapolitik/accelerating_green_energy_towards_2020.pdf

State of Green: https://stateofgreen.com/en/partners/state-of-green/news/2019-the-greenest-year-ever-in-denmark/

New Danish energy agreement: https://www.airclim.org/acidnews/new-danish-energy-agreement