Danish ministers propose historic carbon tax agreement for agriculture and reforestation efforts

Just before the summer break, several ministers introduced a historic agreement imposing a carbon tax on Danish agriculture and allocating billions of kroner for the state to acquire agricultural land or support reforestation efforts. This agreement, known as the Green Tripartite Agreement, involves various interest organizations, including Agriculture & Food and the Danish Society for Nature Conservation.

The agreement allocates over 40 billion kroner, funded by the state, but taxpayers won’t be the only ones footing the bill, according to Danva, the interest organization of Danish waterworks. The cost of agricultural land is expected to rise. State subsidies for reforestation and land purchases will boost demand, prompting evaluations from several economists, including Michael Svarer, former chairman of the expert committee that suggested the carbon tax for agriculture.

As water suppliers aim to protect groundwater, they face two costly options: either purchasing the land or compensating farmers for refraining from pesticide use. Carl-Emil Larsen, director of Danva, emphasized that these significant land transformations would result in higher land prices, thereby increasing compensation for farmers.

The tripartite agreement specifies that up to 20,000 hectares designated for reforestation will focus on drinking water protection. However, this amount represents only about 10% of what needs protection, and the funding is only partially provided by the state. Overall, the expectation is to protect 200,000 hectares against pesticides, with total costs reaching around 30 billion kroner.

While it remains uncertain how much land prices will rise due to the agreement, expected increases seem greater than those predicted by the expert committee. National economist Michael Svarer and Torsten Hasforth, chief economist at the green think tank Concito, agree that political decisions to keep land prices stable could have contributed to higher anticipated increases.

Environment Minister Magnus Heunicke indicated that the additional costs for households would be limited, estimating an annual increase of 75-100 kroner per household when factoring in the expected land price impacts.