Denmark is First Country to Tax Agriculture Emissions

Globally, agriculture, forestry, and land use account for around a quarter of GHG emissions. These emissions come from the cultivation of crops and livestock and deforestation.

Therefore, keeping global warming below 1.5°C would include slashing emissions from agriculture and those linked to food production.

However, so far, world governments’ emission reduction efforts have focused more on fossil fuels than on the agriculture sector.

Denmark’s groundbreaking agriculture climate policy

Denmark announced an agricultural emissions tax in June 2024. This climate policy move is hailed as groundbreaking because it makes Denmark the first country to impose a tax on agricultural greenhouse gas emissions, which it plans to implement in 2030 and increase in 2035. The country has set an ambitious goal to reduce 70% of its emissions across all sectors by 2030.

Denmark is a big dairy and pork producer, producing food three times more than it consumes, and emissions from its agriculture sector account for a quarter of the country’s total emissions. With measures already in place to decarbonize its transportation and energy sectors, achieving its emissions reduction goal could not happen without slashing agricultural emissions.

Denmark’s agricultural emissions include methane from cow burps, applying nitrogen fertilizer and manure to soils, and those emitted from draining and farming peatlands, which release carbon dioxide.

The Danish government, the environmental community and the agricultural industry have agreed to a historic Green Tripartite Agreement. According to WRI, this innovative green policy combines regulatory teeth and large-scale government funding to address emissions to reduce the country’s nitrogen pollution and improve biodiversity by restoring peatlands and planting new forests.

The WRI article shows the three key elements in Denmark’s innovative agriculture and climate policy:

1) A Livestock Emissions Tax

The agreement includes a marginal tax on livestock emissions that exceed reduction targets. Pork and dairy producers will not pay taxes on 60% of average emissions per animal, so farmers can avoid taxes if they can cut their emissions by 40% of today’s average.

However, farms will pay about $40 per ton of emissions (carbon dioxide equivalent) above these average levels in 2030, which will rise to around $100 in 2035. Taxes at that rate provide a powerful incentive to reduce emissions to the target level. The revenue these taxes generate will go into a fund designed to help all producers reduce emissions.

2) Incentives to Reduce Nitrogen Pollution

Denmark will pay farmers $100 per ton to reduce greenhouse gas emissions from nitrogen fertilization of farm fields, such as nitrous oxide. It intends to use funds from the EU’s Common Agricultural Policy. Nitrogen use by the agricultural sector has been one of the leading causes of marine, freshwater and groundwater pollution and overall nature degradation in the EU.

3) Promote Biodiversity and Preserve and Sequester Carbon

Denmark will restore 140,000 hectares of drained peatlands for agricultural use and establish 250,000 hectares of new forest by 2045. Overall, around 10% of Denmark’s land will be turned into valuable habitats in ways that either reduce carbon emissions or store them. Forest restoration will focus on native trees and those fields that leach the most nitrogen into coastal waters. Denmark is establishing a new Green Area Fund with 40 billion Danish kroner ($6 billion) to support this restoration.

The article notes that, taken together, the policy is remarkably comprehensive in balancing agricultural production, emissions reductions, and nature restoration.

Read the WRI Article: Denmark’s Groundbreaking Agriculture Climate Policy Sets Strong Example for the World

Denmark’s agriculture is significant and should inspire countries starting from high agricultural emitting countries to create similar policies.

Below is a graph from Statista of countries with the highest agricultural emissions based on 2021 data.

While New Zealand is not included in the list, its agricultural emissions account for half of its total emissions, coming from its estimated 10 million cows and 26 million sheep.

New Zealand’s agricultural emissions are at 50%, which makes it unique and represents a much higher proportion than most other countries, with average agricultural emissions of around 7.5% of their total emissions. Methane (CH4) accounts for the majority of agricultural emissions in New Zealand and comes mainly from farmed livestock, such as sheep and cattle.

In 2022, New Zealand’s government proposed the world’s first levy on agriculture emissions, including those related to the burps, urine and dung from livestock like cows and sheep to reach net-zero greenhouse gas emissions by 2050. The aim is for the agricultural emissions-pricing system to come into force in 2025.

However, strong pushbacks from its farmers have forced the government to scrap what would have been the world’s first tax on agriculture emissions.

The tax was highly controversial. Farmers and rural communities in New Zealand protested, claiming it would lead to higher costs and negatively affect their livelihoods. Some farmers argued that they were already doing their part to reduce emissions, and the tax would disproportionately affect them compared to other sectors of the economy.

Agriculture Minister Todd McClay says New Zealand farmers are some of the world’s most carbon-efficient food producers.

“The Government is committed to meeting our climate change obligations without shutting down Kiwi farms. It doesn’t make sense to send jobs and production overseas while less carbon-efficient countries produce the food the world needs” (Agriculture, 2024).

“That is why we are focused on finding practical tools and technology for our farmers to reduce their emissions in a way that won’t reduce production or exports”, McClay adds (Agriculture, 2024).

The decision to abandon the tax is a setback for New Zealand’s ambitious climate change goals. The country plans to become carbon neutral by 2050, and the agricultural sector’s emissions are a significant challenge in reaching this goal. New Zealand’s scrapping of the agrarian emissions tax reflects the complexities of addressing climate change in a large agricultural sector.