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The CO2-quota law is the cornerstone in Denmark's climate strategy

MINISTRY OF ECONOMIC AND BUSINESS AFFAIRS and MINISTRY OF THE ENVIRONMENT Denmark's international climate commitment. Global climatic changes are caused by, among other things, emission of greenhouse gases and increase in the overall concentration of greenhouse gases in the atmosphere.

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The CO2-quota law is the cornerstone in Denmark's climate strategy

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  1. MINISTRY OF ECONOMIC AND BUSINESS AFFAIRS and MINISTRY OF THE ENVIRONMENTDenmark's international climate commitment • Global climatic changes are caused by, among other things, emission of greenhouse gases and increase in the overall concentration of greenhouse gases in the atmosphere. • The 1997 Kyoto Protocol established a ceiling for the emission of greenhouse gases by industrialised countries. According to the Protocol and the EU's 1998 cost-sharing resolution, Denmark has a commitment to reduce, between 2008 and 2012, the average annual emission of greenhouse gases by 21% with respect to 1990. • The costs to society of fulfilling the Danish climate commitment have been estimated as between DKr 1-2 billion and DKr 4-5 billion per year between 2008-2012, depending on the means used. Irrespective of how the task is accomplished, it will ultimately be the Danish citizens who will pay for it. • In 2006, Denmark's current climate commitments will be re-examinedand the Danish climate strategy will be reviewed with a view to implementing any necessary further increases.

  2. The CO2-quota law is the cornerstone in Denmark's climate strategy • The EU's Minister of the Environment passed the quota directive during the Danish EU presidency in 2002. The directive makes it possible to reduce greenhouse-gas emissions in a cost-effective way. • Implementation of the directive in Denmark in the form of the quota law is the cornerstone in the government's climate strategy as of February 2003 and manifests the government's desire for a cost-effective reduction of greenhouse-gases. • The government has taken the lead with an overall quota of 33.5 million tons, corresponding to a decrease in emissions of approximately 6 million tons yearly between 2005 and 2007. This level is a delicate balance between respect for the environment and respect for competitiveness and jobs. • Once the quota law for the 2005-2007 transition period has been submitted, Parliament will debate the Bill. At the same time, the quota-allocation plan will be sent to the European Commission for approval. The law is a first step. Further reductions will be required in 2008-2012.

  3. Quota allocation and estimated emissions by the enterprises covered by the law

  4. Principles for allocation of CO2-quotas • Quotas are allocated corresponding to a totally annual emission of 33.5 milliontonsin the 2005-2007 test period. This corresponds to a 15% reduction with respect to estimated emissions during that period. • Just under 32 million tons CO2 is allocated free-of-charge to enterprises covered by the quota regulation. • Electricity- and heat producers are allocated approximately 21.7 million tons. (For electricity producers, this corresponds to a reduction of approximately 1.3 million tons with respect to the quota ceiling - of 20 million tons - in effect). • In addition, a total of approximately 120 enterprises (industry and offshore) are allocated quotas corresponding to the benchmark emission in the period (1998-2000 or 2000), as well as a supplement for expansion until the law is introduced. A total of approximately 9.1 million tons. • An annual pool (1 million tons per year) is set aside to promote production growth, operation of new enterprises and expansion of existing enterprises. • The state auctions off 5% of the quotas (approximately 1.7 million tons). The proceeds are used to adjust CO2 taxes and to purchase Jl- and CDM credits.

  5. Estimated emissions and quotas for sectors covered

  6. Economic impact (quota price 50 DKr/ton and electricity-price increase of 2 øre/kWh) • The European market determines the purchase price of CO2 quotas. • If the quota price is 50 DKr/ton, it is expected that the cost of electricity in the EU will increase by 2 øre/kWh. • With an increase in the cost of electricity of 2 øre/kWh, industry's electricity bill will increase by approximately 400 million DKr and the bill for households will increase by approximately 200 million DKr (exclusive of VAT). For a typical family: 100 DKr per year (exclusive of VAT). • Danish electricity producers gain more with the increase in the price of electricity than they lose with the cost of quota purchase. The net profit for electricity producers covered by the quotas should be approximately 400 million DKr per year in the 2005-2007 period. • The total cost to quota-regulated industrial enterprises (including offshore) of quota purchase is approximately DKr 20-25 million; a number of individual enterprises may face considerable costs. • The State receives revenue of approximately DKr 80 million per year from quota auctions. Used to administrate the CO2-tax for enterprises covered by the quota as well as to purchase Jl- and CDM credits.

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