Kicking off our series on the Danish agriculture in general, and the Green Tripartite Agreement in particular, here Emil Fraas of CONCITO introduces the broad contours of the Green Tripartite Agreement (GTA). As well as an introductory outline to the agreement, his focus is on the background that led to it, funding to support it, the role Nitrogen plays in the agreement, how integrated or otherwise the GTA is to the Common agricultural policy (CAP) and other enabling circumstances. Frass sees positives in the GTA, while also seeing merit in more ambition on climate, biodiversity and diet. (Updated 18/11/24 with new Nitrogen targets, see Enabling policies section below)
Denmark has garnered global attention as the first country to introduce a national CO2e tax targeting the agricultural sector. This was made possible through an unusual political agreement, the Green Tripartite Agreement, which was negotiated and cosigned by representatives from the government, agricultural business organisations, environmental organisations, labor unions and leading industry stakeholders. The agreement has now been forwarded to parliament where negotiations are ongoing, and hopefully a broad agreement will be reached in the forthcoming weeks ahead.
To understand how the Green Tripartite Agreement came about, it is essential to examine the political agreements and dialogues that laid the groundwork.
Enabling policies
In 2020, Denmark passed the National Climate Law, legally committing the country to reduce its GHG emissions by 70% in 2030, using 1990 as the baseline year. Additionally, a sub-target of 50-54 % by 2025 and a net zero target for 2050 are specified in the law. In 2021, a broad political agreement was reached on the Green Transition of Danish Agriculture recognising that the agricultural sector required special attention for Denmark to achieve net zero by 2050. This agreement specified that the Agriculture Forestry and Other Land Use (AFOLU) sector is required to cut GHG emissions by 55-65% in 2030 compared to 1990. The agreement also specifies that the agricultural sector must reduce nitrogen runoff by 10,800 tons by 2027 to deliver on the EU Water Framework Directive.
(Note – After recent political negotiations the final reduction target on nitrogen discharge is set to 13,780 tons by 2027 after an initial reduction of 10,800 tons)
The Green Tripartite Agreement is a deal designed to deliver these results. Therefore, it’s important to recognise that the Green Tripartite Agreement did not emerge in isolation. Rather, it is the result of a long process, built on several other legislative packages paving the way.
What’s in the Green Tripartite Agreement?
The Green Tripartite Agreement establishes both (1) CO2e taxes on emissions from certain AFOLU sectors, (2) create a Green Land Fund aimed at setting aside agricultural land, accelerating afforestation, and peatland rewetting making room for new nature in Denmark and (3) strengthen the regulatory framework of nitrogen discharge. Specifically, the CO2e tax applies to livestock, peatland, liming, and F-gases, along with subsidies for reducing fertilizer use and biochar storage.
The first component of the Green Tripartite Agreement regarding taxation depends on the source of emissions. For livestock the marginal tax rate is set at 300 DKK per ton in 2030 and 750 DKK per ton (approximately 40 and 100 EUR/ton) in 2035, but it also includes a rebate of 60% that reflects an estimate for the availability technologies and measures available for farmers. That means that the efficient tax starts at DKK 120 per ton CO2e in 2030 rising to DKK 300 per ton in 2035 (approximately 16 and 40 EUR/ton). For liming, the tax will be DKK 750 (approx. EUR 100/ton) per ton CO2e increasing from 2028 to 2030, while emissions from drained peatlands used for agriculture will be taxed at DKK 40 (approx. EUR 5/ton) per ton CO2e starting in 2028.
The main socio-economic effects, estimated by the government, include a reduction in agricultural production and employment due to the introduction of the CO2e tax on livestock. For instance, by 2030, the agricultural sector is expected to see a 4% decline in production and a loss of 1,500 jobs, rising to 6% and 1,950 jobs by 2035. Additionally, it is also estimated that there will be price increases for meat and dairy products, with beef seeing a rise of 2% by 2030 and 4% by 2035.
Recognising the agreement as a possible game changer for the green transition of the Danish agricultural sector and a much more sustainable land use in Denmark, CONCITO would have preferred a stronger signal from the tax and, and it also still remains uncertain whether this agreement will be sufficient for bringing Denmark on a path to climate neutrality. A notable shortcoming of the Green Tripartite Agreement is that it fails to substantially incentivise the development of future green and plant based food production and value chains. In more general terms, the question is whether the agreement has too much focus on upholding the current agricultural structure and emphasis on technological interventions, rather that structural change.
Money talks
The second component of the Green Tripartite Agreement consists of creating a Green Land Fund with approx. DKK 40 billion (approx. EUR 5.4 billion) – a substantial sum – to support targeted efforts such as afforestation of agricultural land in environmentally sensitive areas, rewetting of drained peatlands in agricultural use, strategic land acquisitions and additional initiatives related to managing nitrogen reductions.
The initiatives in the Green Land Fund aim to set aside 15 % of the existing agricultural area for nature and production forest. In total it is expected that 250,000 hectares of afforestation will be achieved by 2045, expanding forest cover by 40 %, from 15 to 21 % of the land cover. For peatlands, the target is to rewet and restore 140,000 hectares of drained peatlands currently used for agriculture, including buffer zones. However, only part of these new nature areas will be classified as protected nature. A target of the agreement is to increase the area of protected nature in Denmark from the current 15% to 20% of the total land area. A concerning aspect in this context is the weak definition and requirements for protected nature in Denmark, which currently include highways and industrial facilities. The Danish Biodiversity council estimates, that in reality, only 1.6% of Denmark’s land area is truly protected.
The capital of the Green Land Fund is substantial, and it should be recognised as a critical factor in the success of landing the agreement, as well as one of the reasons the agriculture organisations cosigned the Green Tripartite Agreement.
The conclusions from the Strategic dialogue on the future of Agriculture in the EU recommend the establishment of a new temporary transition fund and nature restoration fund, which could be modeled after the Danish example. A green transition of the agricultural sector will inevitably bring changes to the sector’s socio-economic structure and production. Therefore, having a clear plan to make the transition as smooth and fair as possible, offering pathways for farmers is essential for creating feasible policies. Of course there will always be a need to balance positive and negative incentives when driving a transition – in this case between regulations and funding.
Nitrogen
The third and often-overlooked aspect of the Green Tripartite Agreement is the regulation of nitrogen. Currently, Denmark is not on track to meet the requirements set by the Water Framework Directive by 2027. The Green Tripartite Agreement, however, includes concrete policy measures to reduce nitrogen leaching into vulnerable Danish waterbodies. These measures are targeted at areas where action is most critical and include mandatory set-aside or fallowing of land, as a consequence if the nitrogen leaching quota for a specific water body is exceeded.
Animal husbandry is concentrated in the western regions of the country, where the combination of sandy soils, cropping systems and high precipitation leads to significant nitrogen leaching. Through the new regulatory regime on nitrogen, farmers who hold large quantities of peatland or areas with high degrees of nitrogen leaching potential have an incentive to convert their land use away from intensive arable land to more extensive use or afforestation partly through the means provided by the Green Land Fund.
The Green Tripartite Agreement has the potential to reshape agricultural production, reducing land use to levels that allow for acceptable nitrogen loss, while also recognising that Denmark in the future will still produce significant amount of food products focusing on the use of the more robust and less vulnerable agricultural areas in terms of nitrogen discharge and climate emissions. Producing more food on less land following the principle of land efficient food production is key.
Limited synergies between the Green Tripartite Agreement and the Common Agricultural Policy
The current Common Agricultural Policy (CAP) is designed to align agricultural practices with EU environmental and climate goals through a new delivery model that allows Member States to focus on enhancing these efforts. However, CONCITO’s analysis of the Danish CAP implementation in 2023 revealed minimal climate and environmental benefits, with only a 1% reduction in GHG emissions from agriculture and a modest decrease in nitrogen discharge, indicating that CAP funds largely serve as income support capitalised into agricultural land prices, which are somewhat higher in Denmark than the rate of return in agricultural production suggests.
These findings echo a recent European Court of Auditors report, highlighting ongoing challenges in achieving the intended environmental impacts of the CAP. Although the national CAP strategic plan represents a significant budget, approx. 1 billion yearly, which could be effectively redirected to finance major components of the Agreement, there remains a weak linkage between the Agreement and the national implementation of the CAP. The funding for the Green Land Fund consists primarily of additional national resources, and the CAP is only mentioned in the context of financing a subsidy for reduced nitrogen fertilization and maintaining basic income support, which are preconditions for afforestation efforts. This represents a missed opportunity to enhance the effectiveness of the national CAP strategic plan.
(see below for a summary of CONCITO’s position on the CAP strategic Plans and Denmark)
Other enabling circumstances
Another key factor in the development of the Green Tripartite Agreement is the combination of favorable public finances and Denmark’s political negotiation culture. It is essential to recognise that Denmark benefits from a strong fiscal position, with substantial public finance surpluses. This financial advantage facilitated negotiations on the Green Land Fund, a situation that is not easily replicable in other EU countries or globally.
Furthermore, while the introduction of a CO2e tax represents an extra financial burden on the farmers, the Danish agricultural sector appears robust enough to absorb this impact, reflecting its strong financial health and adaptive capacity. This burden on farmers in Denmark would be less onerous compared to their European counterparts, as Danish farmers have experienced a major consolidation over the last decades.
Additionally, Denmark’s political negotiation culture plays a crucial role. Major political reforms are often ratified with broad bipartisan support, ensuring policy consistency and reducing the likelihood of reversals when new governments take office.
Recognising the importance of these factors in enabling Denmark to create a political framework like the Green Tripartite Agreement, and in ensuring its longevity, is just as critical as understanding the financial commitments involved.
Conclusion
Denmark’s Green Tripartite Agreement is a significant step towards reducing agricultural emissions, made possible by a lengthy political process and a favourable economic context. However, political agreement is not yet finalised, and an effective implementation of an ensuing agreement is not a given.
Strengthening of climate action, support for furthering climate-friendly diets, and a stronger framework for achieving biodiversity efforts, remain essential for ensuring the agri-food transition and the long-term success of the agreement. But overall, CONCITO considers the tripartite agreement an important step forward in the ongoing process of making food production less environmentally burdensome and create a framework for the needed green transition of the food system.
More
Impact and Opportunities of the 2023-27 CAP Reform in Denmark
Strategic Dialogue on Agriculture – what’s in it, what’s next?
Missing Targets and Making Partnerships – Denmark and Climate Change
