CO2 tax and the green tax reform: what it means for companies

One of the most tangible ways the public is pushing for a green transition is through taxation: making it more expensive to emit CO2, and cheaper not to. With the green tax reform for industry, a CO2 tax for all industrial companies became a reality from 1 January 2025.

§The principle: the polluter pays

The basic idea in a CO2 tax is simple: the more a company emits, the more it should pay. This provides a direct economic incentive to reduce emissions — either by using less energy, switching to greener energy sources, or changing processes so less CO2 is released along the way.

§Two tracks: quota-covered and non-quota-covered

The tax is structured differently, depending on whether a company is already covered by the EU's carbon quota trading system or not. Companies outside the quota system pay the highest tax rate, while companies within the quota system pay a lower rate, because they already pay for their emissions through quota trading. For certain mineralogical processes, a special, lower rate applies, among other things because these processes have fewer alternatives for reducing emissions with current technology.

§The overall climate goal

When the whole green tax reform agreement is fully phased in, the goal is for it to deliver a significant contribution to Denmark's overall CO2 reduction toward 2030—described as one of the largest single contributions to the Climate Act since it was enacted. The duty is therefore not just a revenue source for the state, but a central control tool in Danish climate policy.

§Support for transition

Because the fee can be an economic challenge for companies that have not yet converted their production the reform comes with support schemes. Funds have been allocated for investment support in the period towards the end of the 2020s where companies can apply for grants for specific CO2-reducing projects as well as a competition-based operating support scheme that runs further into the future.

• 01Investment support: subsidy for projects that reduce the company's CO2 emissions
• 02Operating grant: competitive arrangement running over a longer period
• 03Differentiated tax rates depending on whether the company is quota-covered
• 04The tax gradually increases towards 2030 to give companies time to transition

§What does it mean for employees?

For the individual employee the CO2 tax means that energy efficiency and emissions are no longer just a matter of good reputation — it is now a direct line on the company's accounts. Proposals that save energy or reduce emissions in daily work therefore get a clearer economic value for the company than before.

§Significance for subcontractors and small businesses

Although the CO₂ tax initially directly hits the emitting industrial companies it is also felt by their sub-suppliers and business partners. A company that must pay more for its own emissions will often look more closely at whether suppliers' processes and transport can be made greener because it affects the total cost. Smaller companies that supply an industry subject to tax can therefore experience increasing demands for documentation of their own energy consumption and emissions even though they are not directly covered by the tax.

§Context with climate accounting

The CO2 tax and the company's climate account (divided into Scope 1, 2 and 3) are closely linked in practice although they are two different things: the tax is an economic consequence of the emissions while the climate account is the accounting itself. The same basic data — consumption of fuel, gas and electricity — is typically used for both. Good consumption recording is therefore not only relevant for being able to document the climate effort externally but also for being able to predict and control the company's future tax bill.