In an attempt to compensate citizens for growing energy prices, Denmark will temporarily lower electricity taxes in the fourth quarter of this year, according to a cross-party agreement posted on the Ministry of Finance’s website.
The tax cut will reduce the electricity tax by 4 krone (US$57 cents) per kilowatt hour (kwh) in the October-December period to 72.3 krone (US$72.3).
Electricity price in Denmark is one of the highest in Europe, with production costs accounting for merely 17% of the consumer costs and 56% going towards taxes to support the welfare state.
Following the Russia-Ukraine war, many Danes have felt the strain of rising energy prices, especially after Russia’s announcement earlier this month of slashing gas flow via the Nord Stream 1 pipeline by 60%, which had led to energy price volatility in Denmark.
As a result, the government has entered into a broad agreement that provides short-term compensation to people who suffer the most from inflation, according to the Ministry’s statement.
The new policy will stay in effect next year, reducing the power tax by 4.3 krone per kwh to 68.8 krone. The Ministry of Finance also acknowledge in the agreement that the lower power tax will cost the state 475 million krona in revenue.
The temporary cut in power tax is part of a bigger agreement supported by a large majority in Parliament, which will distribute a total of 3.1 billion kroner to citizens.
The accord also contains a 53-billion-krone green fund to expedite the green transition and phasing out fossil fuels between 2024 and 2040.
Meanwhile, the parties believe that the green fund should be prioritized properly in order to contribute to the country’s green transition, including achieving Denmark’s climate targets, through offshore wind development, afforestation, pyrolysis, and carbon capture.