EU ETS Country Profile - Denmark
Updated 19 February 2008

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• General Overview
• Legal Framework Related to Climate Change
• The Danish National Allocation Plan (NAP)
• Research and Development Priorities
• Links to Relevant Websites

Back in the 1970s more than 90% of the total fuel consumption in Denmark was based on oil whereof most of the fuel was imported. As a consequence of the oil crises in 1973 the energy sector, which had been more or less unregulated, became the centre of political attention. The first energy policy statement was published in 1974 and subsequently energy policies, initially enhancing diversification and security of fuel supply, cost effectiveness and later also taking environmental concerns into account. The importance of renewable energy increased in line with these political priorities both as a mean to decrease the dependency on imported fuel supply but later also as a means to reduce the emission of greenhouse gases.

Renewable energy has throughout the period been supported by investment subsidies and taxation refunds (1980s) replaced by feed-in-tariffs (1990-2000s). Also increased utilization of natural gas as well as supporting the promotion of CHP has been of political interest. As a result more than 80% of the total electricity production in 2004 derived from combined heat and power production. The development of climate friendly energy technologies has been highly prioritised as a means to reduce environmental impacts from previous high carbon intensive energy production.

The Danish commitment under the Kyoto Protocol is to reduce the level of GHG emissions by 21% compared to the emission level in the base year 1990.

Due to long standing focus on energy efficiency measures as well as increased use of renewable energy sources, which accounts for 15% of the total energy consumption, the total CO₂ emissions related to energy consumption in Denmark has been decreasing since 1990, except for the last two years that show an increasing trend. The main contributor to the fall in emissions can be ascribed the residential sector, the agriculture and industry as well as trade and service sectors. Contrary CO₂ emissions from the transport sector are increasing.

Denmark is lagging behind in the effort to reduce GHG emissions. The total GHG emission level rose from 69.6 million tonne CO₂eq in the base year to 73.9 million tonne CO₂eq in 2003. Considering the contribution of emission reductions from measures initiated domestically as well as internationally through the use of the flexible mechanisms, it is estimated that Denmark will be short of approximately 8-13 million tonnes CO₂eq in 2008-2012.

Projections of GHG emissions (with existing measures) and the deficit for complying with the Danish emission reduction target

Million tonnes of CO2eq	Base year '90/'95 [1]	2003	"2010" [2]	"2015" [3]	2020	2025	2030
CO2 [4]	52.9	59.2	59.0	58.8	55.2	54.2	54.9
Methane (CH4)	5.7	5.9	5.6	5.3	5.2	5.2	5.2
Nitrous oxide (N2O)	10.7	8.1	6.9	6.8	6.6	6.5	6.5
Industrial gases, HFCs, PFCs and SF6	0.3	0.7	0.8	0.5	0.2	0.2	0.2
Total emissions	69.6	73.9	72.3	71.4	67.2	66.1	66.8
Of which exports of electricity (- means import)	-6.3	6.9	4.4	2.3	1.4	0.9	2.7
Kyoto target (-21%)			55.0
Reductions in other countries from funds allocated to JI and CDM projects			4.5
Deficit including JI and CDM			7.8/12.8 [5]
[1] Base year for carbon dioxide (CO2), methane and nitrous oxide in 1990. In accordance with the Kyoto Protocol 1995 is chosen as the base year for industrial gases.
[2] "2010" stands for mean emissions in 2008-2012
[3] "2015" stands for mean emissions in 2013-2017
[4] Here net emisson of CO2 is inventorised under the Kyoto Protocol because removal of CO2 in forests planted since 1990 is included cf. Protocol article 3.3
[5] The deficit has been calculated both on the basis of the assumption of taking imports of electricity in 1990 into account cf. the political statement of the Council and the European Commission and on the basis of Denmark's legal commitment under the EU Burden Sharing Agreement
Source: Denmark’s Fourth National Communication on Climate Change to the UNFCCC

The effort to fulfil the Danish emission reduction commitment under the Kyoto Protocol is relying on the Danish Climate Strategy launched by the Danish government in 2003. The strategy relies on a cost effective approach to comply with the emission reduction target and different measures have been initiated to enhance compliance. The main initiatives related to the energy sector that affects the Danish effort to reduce emissions are as follows:

• National Allocation Plan (NAP) for industries included in the Emission Trading Directive, Directive 2003/87/EC.
• Energy Savings Action Plan - Strategy for Energy Savings and Efficiency
• Biomass Agreement – Strategy for the promotion of utilization of biomass in the energy production
• Promotion of renewable energy and CHP - price supplement for suppliers of environmentally friendly electricity

Other associated strategies that affect possibilities for reducing GHG emissions in the energy sectors:

• Energy Strategy 2025 – Planning of the energy sector to overcome future challenges (inc. security of fuel supply, energy efficiency and environmental concerns)

Energy production and supply accounts for 44% of Denmark’s total emissions of greenhouse gases. However, due to long standing focus on energy efficiency measures as well as increased use of renewable energy sources, which accounts for 15.8% of the total energy consumption, the total CO₂ emissions related to energy consumption in Denmark has been decreasing since 1990. The main contributor to the fall in emissions can be ascribed to the residential sector, the agriculture and industry as well as trade and service sectors. Contrary CO₂ emissions from the transport sector are increasing.

As the Danish energy sector accounts for almost half of the total amount of GHG emissions nationally, the energy sector plays a particular important role in the Danish effort to reduce emissions.

The Danish power system encompasses approximately 6000 electricity production plants, which can be divided into three main types of generation facilities:

• Centralised power stations: these are located on 15 special sites and primarily use coal and to a lesser extent biomass.
• Decentralised CHP plants: these encompass around 600 generators, industrial and local plants. They typically use natural gas, waste, biogas and biomass.
• Wind turbines: As of 1 January 2005 there were approx. 5,400 wind turbines in Denmark. The installed capacity has been stable since then.

Coal is the main source of fuel for power generation in Denmark. Regarding utilization of renewable energy, wind power and biomass accounts for the main share, contributing by 16% and 5% respectively of the total electricity production.

The installed capacity of wind power has not increased in the latest years as the current support system is not competitive to other countries, so that investors in renewable energy tend to invest in other countries. It has not been possible to reach an agreement in the parliament on changes as there are disputes on the implementation on current political agreements.

Relevant legislation related to climate change and the Danish NAP

Laws/orders	Name	Objective
Law No 493 of 09/06/2004 (In Force)	Law on CO2-allowances	The objective of the law is to bring about a cost-effective reduction of the greenhouse gas CO2 by means of a system of negotiable allowances.
Law No 410 of 01/06/2005 (In Force)	Law amending the law on CO2-allowances	Amendment to the law no 493 to allow for the use of carbon credits from flexible mechanisms under the Danish CO2-allowance system, following the EU Linking Directive, Directive 2004/101/EC
Order No 386 of 27/04/2006 (In Force)	Bekendtgørelse om ansøgning om tilladelse til projekter og godkendelse af JI- og CDM-kreditter
Order No 478 of 15/06/2005 (In Force)	Bekendtgørelse om verifikation og rapportering af CO2-udledning fra produktionsenheder m.v. (Verifikationsbekendtgørelsen)
Order No 571 of 18/06/2004 (In Force)	Bekendtgørelse om gebyr for ydelser efter lov om CO2-kvoter

Legislation for the promotion of CHP and renewables

Laws/orders	Name	Objective
No 692 of 25/08/1999 (in force)	The order on the exploration of renewable energy sources	The objective of this order is to promote the use of renewable energy sources for energy production through subsidies. Financial grants can be provided to energy efficiency measures and energy savings in relation to utilization of renewable energy.
No 512 of 16/06/2003 (in force)	The order on subsidised electricity production	The aim is to promote the expansion of CHP and at the same time protect private consumers from increasing heat prices; electricity production from CHP plants not exceeding a capacity of 25 MWe receives financial support. The subsidies are provided to natural gas and biogas based decentralized CHP, industrial CHP plants based on natural gas as well as waste combustion at CHP plants.

Due to liberalization of the energy system the Danish approach on promotion of CHP and renewables is generally relying on market mechanisms to ensure cost efficiency in the effort to enhance climate friendly energy production. However, some supportive schemes are in force to enhance clean energy production.

The main support to renewable energy in Denmark takes the form of a fixed price system. In general two approaches is used to support renewable energy in Denmark:

• fixed premiums added to the market price for wind energy up to a maximum price
• feed-in-tariffs for biogas and biomass, where a supplement payment is added to the market price to reach a fixed tariff

An overview of the existing support schemes are shown in the table below:

Price support to renewable energy production in Denmark

Wind
Category	Settlement price	Premium	Premium
Existing turbines out of transitional arrangements [1]	Spot price + a compensation for balancing costs of 0.3 € cents / kWh (DKK 0.023)	Maximum 1.3 € cents / kWh up to 20 years (DKK 0.10)
Turbines erected between 1 Jan 03 - 31 Dec 04 [1]	Spot price + a compensation for balancing costs of 0.3 € cents / kWh (DKK 0.023)	2.2 € cents / kWh for the first 12.000 full load hours if a scrap certificate has been used [2] (DKK 0.17)	Maximum 1.3 € cents / kWh up to 20 years (DKK 0.10)
New turbines erected from 1 Jan 05	Spot price + a compensation for balancing costs of 0.3 € cents/kWh (DKK 0.023)	1.6 € cent / kWh for the first 12.000 full load hours if a scrap certificate has been used [3] (DKK 0.12)	1.3 € cents / kWh up to 20 years (DKK 0.10)
Small turbines [4]	8.0 € cents / kWh (DKK 0.60)
Solid Biomass
Category	Settlement price		Premium
Existing and new plants	Spot price + supplement payment = fixed price on 4.0 € cents / kWh (DKK 0.30) up to 10 years from operation. At least 10 years from 1 Aug 01		1.3 € cents / kWh (DKK 0.10)
Biogas
Category	Settlement price	Premium
Existing plants operational before 21 Apr 04 [5]	Spot price + supplement payment to reach a fixed price of 8.0 € cents / kWh up to 20 years from grid connection (DKK 0.60). Minimum in 15 years from 1 Dec 04.
Plants grid connected between 22 Apr 04 - 1 Dec 08 [5]	Spot price + supplement payment to reach a fixed price of 8.0 € cents / kWh up to 10 years from grid connection (DKK 0.60) and 5.4 € euro cents / kWh the following 10 years (DKK 0.40). The supplement is given up to 8 PJ/year.
Combined with other fuels	Spot price	3.5 € cents / kWh up to 10 years (DKK 0.26) followed by 0.8 € cents / kWh (DKK 0.06)
Other Renewable Energies (RE)
Category	Settlement price	Premium
Plants grid connected after 21 Apr 04 significant for future RE production [6]	Spot price + supplement payment to reach a fixed price on 8.0 € cents / kWh (DKK 0.60) up to 10 years from grid connection and 5.4 cents / kWh (DKK 0.40) for the following 10 years.
Others [7]	Spot price	1.3 € cents / kWh up to 20 years from grid connection (DKK 0.10)
Combination of Renewable Energies and other fuels [8]
Category	Settlement price	Premium
Plants using RE by, at the latest, 21 Apr 04		3.5 € cents / kWh up to 20 years, at least 15 years from 1 Jan 04 (DKK 0.26)
Plants using RE after 21 Apr 04 significant for future RE production [6]		3.5 € cents / kWh for 10 years (DKK 0.26) and 0.8 € cents / kWh in the following 10 years (DKK 0.06)
Waste
Category	Settlement price	Premium
Electricity effect > 10 MV from 1 Jan 05 Electricity effect > 5 MV from 1 Jan 07	Spot price	Unknown figure, based on previous support, up to 20 years from grid connection, at least 15 years from 1 Jan 04
[1] Spot price + premium may not exceed 4.8 € cents / kWh (DKK 0.36)
[2] A scrap certificate is given to producers taking down turbines with an effect on 150 kW or below between 1 Mar 99 - 31 Dec 03
[3] A scrap certificate is given to producers taking down turbines with an effect on 450 kW or below connected to the grid in the period between 1 Jan 05 - 31 Dec 09. If the monthly settlement price exceeds 6.4 € cents / kWh the premium will be reduced accordingly (DKK 0.48)
[4] Small turbines are turbines with a capacity up to 25 kW and grid connected in its own installation
[5] Plants not settled after these conditions receive a premium to the market price of 1.3 € cents / kWh up to 20 years from grid connection (DKK 0.10)
[6] Encompasses tidal/wave power, solar energy plants, fuel cells using renewable energy, biomass gasification, as well as Sterling motors or similar using biomass. Other plants can be permitted separately, with the exception of hydro power in streams and already applied production technologies used for the combustion of biomass.
[7] Supplement payments cannot be obtained for PV-plants with an effect below 6 kW, if connected to installations in buildings exempted from electricity taxation.
[8] On a yearly basis a share of 10-94% of the fuel value of the added fuels has to be based on RE.
Note: The spot price is fixed at the Nordic power pool "Nordpool" every hour according to the supply and demand of electricity.
Source: Damsø, C, "EU Renewable Energy Policy"

The Danish National All ocation Plan (NAP) covers 380 production units. In the first period from 2005 to 2007 the total allocation of allowances was 33.5 million tonnes annually. Thjis will be lowered to 24.5 million tonnes in the NAP-2 covering 2008-2012. This shall be compared to projected emissions of 29.7 million tonnes if further investments in energy efficiency and renewable energy are not made. The allocation of allowances follows a two stringed approach. The Danish NAP has divided the installations covered by the ETS in two sectors: “Electricity Production” and “Other sectors”. The electricity producers have been allocated 57% of their historic emissions while other sectors have been allocated 87% of their fuel related emissions and 98% of their process related emissions. The lower allocations to electricity producers is due to the fact that the prices of the allowances is internalised into the electricity price. The historic emissions are defined as the average emissions in 1998-2004 or the emissions in 2004, if this value is higher. The average emissions basis favours companies that have made energy efficiency efforts since 1998.

Although emission allowances allocated for the 2005-2007 period were less than the expected amounts in the involved sectors, the companies did not have strong difficulties to fulfil their commitments, and the need for buying allowances in this period was small. However the electricity sector was dependent on buying additional carbon credits as their allocations were tighter and e.g. did not include emissions due to export of electricity.

The favourable allocation of allowances to the Danish ETS industries has resulted in an initial ‘wait and see’ attitude among Danish companies to initiate further emission reduction measures in addition to those already implemented. The main trend among the Danish ETS companies is that using the EU emission-trading scheme is the most attractive, secure and economic feasible way to fulfil obligations in the short-term. The limited time horizon for the allocation periods only covering few years at the time together with the relatively high emission reduction costs as the cheapest options already have been used seems to be the main barrier for Danish ETS companies to engage in emission reduction measures involving long-term investments. The general picture is that companies lack clear perspectives on future allocations in order to initiate large investments into emission reduction initiatives. Only few companies have initiated actual emission reduction strategies due to the ETS; however the general picture is that increasing focus on emission reduction initiatives is currently being considered at company level as it is seen as a way to gain competitiveness in a market with increasing fuel costs.

The possibilities and approaches to comply with current and future allocation plans are listed below. The list only takes into account the main sectors under the Danish NAP (in terms of numbers of installations).

Possibilities for emission reduction initiatives in selected sectors

Sector	Approach
Energy production	Electricity and heat production:
		Mainly relying on emission trading within the EU ETS market and especially for electricity producers also CDM and JI.
		Possibilities for fuel switch but not yet economical attractive compared to carbon trade (long-term investments depends on price development at the carbon market).
	Energy production in industrial sectors:
		As the industry mainly uses natural gas it is anticipated that the most likely and cost efficient option for companies to reduce emissions is through energy efficiency initiatives.
		Fuel switch (mainly biomass) is also considered an option in some industries. However, utilization of biomass for process heat generation is not expected to be attractive due to high installation costs.
Ceramic production	The sector mainly uses natural gas in the production process of tiles and bricks. The kilning process demands a clean gas, thus converting to biomass would influence on the quality of the final product. It is anticipated that it is difficult for small tile and bricks producers to meet future emission reduction targets as the production is already very efficient thus reducing the allocation of allowances will affect the competitiveness of the sector. In this regard some installations could be considering moving their production facilities to other countries.

Only limited interest for using the flexible mechanisms among the Danish ETS companies has been identified, and it is anticipated that companies mostly intends to participate in project development only as buyer of carbon credits, as few companies have the interest or competences in JI/CDM project development. The electricity utilities are allowed to have up to 28.73% of their compliance allowances each year be replaced by CERs or ERUs, while other installations may use up to 6.51%.

Several programmes provide funding for Danish energy research and development:

• The Energy Technology Development and Demonstration Programme (Det Energiteknologiske Udviklings- og Demonstrationsprogram - EUDP) provides funding for development and demonstration of new energy technologies. The programme aims at fulfilling the national energy and climate goals while supporting the development of new production niches. The programme is administrated by The Danish Energy Authority and has an independent board. The programme is expected to have 107.6 million DKK for its first year of operation in 2008. 50 million DKK is earmarket for second generation biofuel. Further info rmation is available in Danish on www.energiforskning.dk/sw43941.asp
  
  
• Energinet.dk, the company responsible for the operation of the Danish electricity transmission system since January 2005 provides funding for energy RD&D projects concerning environmentally friendly production of power. Before 2005 the system operators ELTRA and ELKRAFTSYSTEM were responsible. In 2008 130 million DKK are available for project funding. Further info rmation is available in Danish on www.forskel.dk
  
  
• Danish Energy Association, a commercial and professional organisation for Danish energy companies, provides funding for energy RD&D projects concerning efficient use of electricity. 25 million DKK are available for project funding each year. Further info rmation is available in Danish on www.elforsk.dk
  
  
• The Strategic Research Council (Det Strategiske Forskningsråd) provides funding for research projects within politically prioritised areas. In 2008 a programme committee on Energy and Environment has ‘renewable energy’ and ‘Energy and Environment’ as two out of five areas with a budget of 80 million DKK. Further info rmation available in Danish on www.fi.dk

Name	Address	Description
Danish Energy Authority (DEA)	www.ens.dk	The Danish Energy Authority carries out tasks, nationally and internationally, in relation to the production, supply and consumption of energy. From 2007 the DEA is an Authority under the Ministry of Climate and Energy.
Danish Ministry of Climate and Energy	www.kemin.dk	Ministry of Climate and Energy was established in November 2007 to strengten the preparation for the COP-15 that will be held in Copenhagen in 2009 and coordinate climate and energy policies The ministry covers both national and international efforts on climate.
Danish Ministry of Foreign Affairs (MOFA)	www.um.dk	The Danish Ministry of Foreign affairs works for Denmark's interests in relation to the surrounding world. Among others the MOFA is managing the Danish International Development Assistance (Danida) and is responsible for CDM project development under the Danish government in developing countries
Danish Legal Information (Retsinformation)	www.retsinfo.dk	Retsinformation was established in 1985 and contains all Danish rules and regulations, i.e. all acts passed by the the Danish parliament as well as statutory orders, circulars etc. issued by the administration.
Energinet.dk	www.energinet.dk