Green realism – An assessment of the Danish government’s climate & energy policy

Helene Dyrhauge |

Since the Danish national election in June, the new government – a minority government consisting of the liberal party Venstre led by Prime Minister Lars Løkke Rasmussen – has started to roll back Denmark’s climate change commitment.  The new government’s return to a more critical climate position is likely to have a negative impact on Denmark climate change commitments.

The Løkke Rasmussen government’s climate and energy policy is built on green realism[i], where economic growth, jobs and welfare are preconditions for future generations being able to enjoy the same level of environmental protection and experience of nature as we do today. Clearly, this will not lead to sustainable development instead the assumption that economic growth and competitiveness will enable protection of the environment is closer to ecological modernisation. Moreover, the transition to a green economy is not supported by state funding; indeed the government wants ‘more environment for less money’. This is evident in the proposed budget for 2016, which introduces spending cuts on all levels and policy fields, from culture, education, welfare to environment, whilst introducing tax reliefs for businesses.

The minister for climate and energy Lars Christian Lilleholt has stated that although the green housing/job plan (tax rebates as incentive for people to make their houses more environmental efficient) will reduce CO2 emission the removal of the NOx charges can led to an increase in CO2 emission. Moreover, Lilleholt has recently stated that it would be too costly for businesses to continue to work towards reducing CO2 emissions by 40% by 2020; instead he has suggested a 37% reduction would be acceptable[ii].

The changed policy approach is evident in the government’s energy policy, where it wants to move away from wind power, which has traditionally been the favoured RES-E in Denmark, towards other alternatives to fossil fuels, yet it remains uncertain what these are. Simultaneously Lilleholt wants to scrap the plan to phase out natural gas and coal heating plans by 2025. The government is planning to reform the controversial green PSO taxes for energy intensive industries and wants to reduce the tax to protect competitiveness. The spending cuts for renewable energies and climate change initiatives in addition to the tax cuts will clearly impact the Danish green technology, which according to Borsen[iii] and Dansk Industri[iv], in the past has benefitted from the high taxes that have been used to develop innovative new technologies to improve energy efficiency.  Instead the reduction in green PSO tax will benefit energy intensive industries, including Apple, which is building one of its European datacentre in Denmark.

The roll back of green support schemes and increased focus on economic growth echoes the first Anders Fogh Rasmussen government (2001-2004), which was very sceptical towards the climate change agenda and halted support for wind power by cancelling three planned off-shore wind farms. This forced the Danish green technology sector to focus on export, and today Denmark is one of the world leaders in wind-power and green technologies, but the market has become more competitive. Consequently, the proposed budget cuts for 2016-2019 are likely to have a lasting effect on the Danish green technology sector and its competitiveness.

Importantly, the government rely on parliamentary support from Danish People’s Party, Liberal Alliance[v] and the Conservative Party, without the three parties the government will not be able to carry out its policy proposals. The Danish People’s Party and Liberal Alliance are sceptical of climate change.  The Conservative Party is increasingly positioning itself as the green party on the right, especially, Connie Hedegaard[vi], Former Danish Minister for Climate Change and former EU Commissioner for Climate Action, has spoken out against the government’s policy initiatives.

As a minority government, Løkke Rasmussen relies on all three parties. The government could make an agreement with the opposition, but the opposition does not support the new climate and energy initiatives, so the government might have to give some concessions to the Conservative Party for the 2016 budget to be adopted. The negotiations for the 2016 budget have not finished and there are still many other unresolved issues including spending cuts in all other areas (from education, culture through to welfare) and tax reliefs.

Green realism’s focus on spending cuts and tax reliefs for energy intensive industry is firmly rooted in liberalism. Regardless of whether the government is able to push through its proposals for climate and energy, the green realism strategy signals a change towards a weaker and less ambitious Danish climate change commitment.

[v] There are three political parties with roots in liberalism, Liberal Alliance is closest to Hayek and the minimal state, Venstre is more broad with roots in the agricultural sector, and finally the social liberal party, Radikal Venstre, which prefer to situate itself in the middle and often are in coalitions with social democratic party.