Economic Instruments - Charges and taxes

Sulpher Tax (Denmark)

Sulpher Tax, Denmark 



Denmark is obliged to meet sulphur emission reduction targets in accordance with international agreements. Although emissions had been falling through the 1980's, it was clear that in order to meet their target (see aims) further measures would need to be introduced, thus leading to the introduction of the sulphur tax. The tax can therefore be considered a green tax since it was developed in order to achieve an environmental target (DEPA 1999, pp93)


The UN-ECE Convention on Long Range Transboundary Air Pollution is an international agreement requiring Denmark to reduce SO2 emissions by 80% of the 1980 level in 2000. (DEPA 1999, pp150) .


1st January 1996


In accordance with international agreements, Denmark is obligated to reduce its emission so that it by the year 2000 correspond to no more than 80% of the 1980 level (DEPA 1999, pp93).

It is an incentive tax to reduce the sulphur content of fossil fuels.


Scope and Coverage The SO2 tax applies similarly to households and industry. The tax has 4 mechanisms which will assist in achieving the anticipated reductions (DEPA 1999, pp93-94):

1. the tax will increase the cost of energy where the production is based on the use of fuels that contain sulphur. Consequently, total energy consumption would decline;

2. the tax will change the energy price structure, thereby providing an incentive to substitute high sulphur content fuels (like coal and oil) with fuels with a lower sulphur content (like gas and gas oils), as the letter become relatively cheaper;

3. the tax will provide an economic incentive for the development of new low sulphur fuels within each of the various fuels types; and

4. the tax will promote improvements of the existing end-of-pipe cleaning equipment .

Currently the charge is based on electricity output, but plans in future to charge based on the sulphur inputs thus increasing the incentive of power plants to use low-sulphur fuels. Institutional Arrangements

The tax can be levied in two different ways:

1. A product tax. This tax is levied on the sulphur content of the applied fuels; and

2. an emission tax. This is a tax that is charges according to the actual emissions of sulphur dioxide. The tax is not imposed on sulphur that is either cleaned, detained in the ash, or detained in other products.

Features of the tax include (DEPA 1999, pp94-95):

The tax only applies to fuels with sulphur content above 0.05% (in 1999). This applies to both optional tax bases. Therefore, a tax of zero applies to petrol, kerosene, and light diesel.

Oil energy products used for electricity production are not liable to the tax until 2000. The rationale for this lies in concerns over competitiveness vis-à-vis electricity production in Germany, Norway, and Sweden. In stead, a specific electricity tax is implemented, which will eventually take the same effect. From year 2000, however, use of energy for electricity production will become liable to a tax based on realised emissions; and

Sea-borne carriage and air transport are both exempted from the tax.

Tax Rates

The tax is a uniform rate of DKK 20 per kilo of SO2. The tax rate has gradually increased between 1996 and 1999, and was due to reach full effect in 2000 (DEPA 1999, pp95).

Product tax: DKK 20/kg sulphur

Emission tax: DKK 10/kg sulphur

Latest figures from Sterner (2003) note a tax of US$1,300 per ton of sulphur emissions.


Industry is awarded some reductions and reimbursements are allowed for filtering out sulphur emissions.

Allocation of Revenues

The tax is recycled to industry until the year 2000. During that period, taxes are only imposed on sulphur contents above specific lower limit values. For very energy intensive coal-based enterprises, there is a scheme for further deductions in general terms. This implies that the enterprises are entitled to deductions for all sulphur contents below 0.2 (the 1996 limit value). Hence, these enterprises are liable to a tax which continues to apply for sulphur content above 0.2, whereas other enterprises are liable to taxes that apply to steadily lower sulphur content. Enterprises are only entitled to deductions providing they comply with certain conditions.

Monitoring and Enforcement

The tax is paid to the Department of Customs and Excise. Administratively, the tax is closely linked to existing systems and procedures, therefore limiting the administrative costs. However, the emissions tax is a fairly new type of tax. Its performance will, therefore be monitored in order to identify possible needs for changes in its design.

Expectations (Ex ante Analysis)

Expected decrease in emissions: 25,000-30,000 tons SO2. (DEPA 1999, pp93)

1980 emission levels: 100,000 tons SO2

2000 expected emission levels: 73,500 tons SO2

(DEPA 1999, pp93)

Possible reduction in overall energy consumption reinforced by a ‘positive correlation between the sulphur content and the CO2 content of fuels.' (DEPA 1999, pp94)


It has been considered very successful. The sulphur content of both fuel gas oil and heavy fuel oil has fallen from 0.2% to 0.05%, and the sulphur content of coal has been reduced by a third (EEA 1999, pp66).

The tax has had a positive impact on the development of sulphur purification plants and technology,' (Danish Ministry of Taxation 1998 cited in EEA 1999, pp66). There has been a 33% reduction of SO2 emissions in 1996 in the other "sectors" by a changeover to low sulphur content fuels (EEA Draft Report 2000, pp7).Sterner (2003) reports a 76% reduction in sulphur emissions in Denmark between 1980 and 1997 (with a 1997 emissions per capita of 22 kg of SOx)

Revenue: (relatively small)

1996: 296.5 MDKK

1998: 375 MDKK

1999: 575 MDKK (expected)

(DEPA 1999, pp96)

Related Instruments

Measures to reduce sulphur emissions which were in place prior to the implementation of the sulphur tax include:

Emissions quotas for power plants

Mandatory desulphurisation units in new power plants

Limited values for the sulphur content of fuels

(DEPA 1999, pp93)

Electricity tax (see means of achieving targets)


Economic Instruments In Environmental Protection in Denmark, Danish Environmental Protection Agency, Ministry of Environment and Energy, 1999, pp93-96, 150

Environmental Taxes, EEA Draft Report, February 2000, pp6 

Review Meeting First Draft Update Taxes Report: Agenda Updated EEA Report on Environmental Taxes (Draft 16th June 1999), Schepelmann, Schegelmich & Luhmann, EEA 18.06.1999, pp 65-66

The Eco-Tax Database of Forum for the Future at Keele University, A Database of Environmental Taxes and Charges, Speck

Sterner, T., 2003. POlicy Instruments for Environmental and Natural Resource Management. Resources for the Future, Washington.

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Posted by admin on 09/06/08

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