Caroline Klein
OECD Economic Surveys: Denmark 2026
Abstract
Denmark is at the forefront of climate mitigation policy with the ambition to reach climate neutrality by 2045 and a comprehensive package of policies including a broad carbon pricing system. Following the 2022 Green Tax Reform and the 2024 Green Tripartite Agreement that expands carbon pricing to agriculture production - a first in the OECD - it is now on track to meet its 2030 greenhouse gas emissions target. However, additional efforts will be needed to meet the 2045 government target. Further action is also needed to adapt to a changing climate. Large and rising exposure to sea level rise, windstorms, heavy precipitations and floodings calls for accelerating and better coordinating investment in adaptation measures. Fragmentation of adaptation policy has narrowed its scope and impeded coordination. Investment incentives and support for adaptation need strengthening, while reform of the insurance system should aim to maintain high protection against climate-related damages.
Denmark is among leading countries in climate action and has managed to reduce substantially its greenhouse gas emissions (GHG) since 1990 (Figure 2.1, Panel A). It uses a vast range of policy instruments for climate change mitigation, combining regulatory measures, market-based instruments, and public support. The Green Tripartite Agreement signed in November 2024 introduced new measures which should allow to meet the country’s 2030 target of a 70% emission reduction compared to 1990 levels. Denmark also plays a central role in the Coalition of Finance Ministers for Climate Action. Emission projections and the effectiveness of climate policies remain uncertain though, making timely monitoring and transparent contingency measures essential for achieving targets (Danish Council on Climate Change, 2024). Reaching the government’s targets of climate neutrality by 2045 and reducing GHG emissions by 110% by 2050 go beyond the EU target and will require additional policy action. At the same time, rising temperatures, more frequent extreme weather events and rising coastal erosion call for greater focus on climate adaptation.
Note: Blue bars in Panel A and data in Panel B show national emissions inventory under UNFCCC rules, including emissions from land use, land-use change, and forestry (LULUCF). Starting from 2024, data show 2025 projections of the Danish Centre for Environment and Energy (shaded areas in Panel A).
Source: Ministry of Climate, Energy and Utilities, "Klimastatus og-fremskrivning 2025", April 2025; Statistics Denmark; Denmark's National Inventory Document 2024; and Danish Centre for Environment and Energy, Projection of greenhouse gas emissions - 2020 to 2040 data.
2.1.1. Denmark is on track to meet its 2030 emission reduction targets
After the rapid progress in the decarbonisation of energy industries and the building sector (see Chapter 4), emission reduction efforts should now concentrate on transport and agriculture. These two sectors accounted for nearly two thirds of total emissions in 2023 and are expected to remain the main emitters going forward (Figure 2.1, Panel B). Under the EU Effort Sharing Regulation, Denmark is required to halve emissions in the non-ETS sectors relative to 2005 by 2030, essentially in these two sectors. International transports operated by Danish companies are also large emitters but are not accounted for in Denmark’s emissions under the Paris Agreement. When included in emission accounting, GHG emissions in Denmark have broadly remained at their 1990 level (Figure 2.1, Panel A), although most of this is associated with activities outside Denmark.
Denmark uses a vast range of policy instruments for climate change mitigation, combining regulatory measures, market-based instruments, and public support to most-affected firms and green technologies development. The policy focus has been increasingly on taxing GHG emissions to cut emissions in activities with the lowest abatement costs in an efficient way across activities and on helping channel private investment to climate-consistent projects. The 2022 Green Tax Reform and the 2024 Green Tripartite Agreement expand the coverage and set a clear path for carbon pricing from 2025 onwards, including for livestock farming (Box 2.1). Generous subsidies to finance decarbonisation and tax deductions in sectors exposed to international competition have supported the acceptance of the reform by those more affected but have increased its socio-economic cost.
Denmark is among the OECD countries with the highest levels of effective carbon taxation, but significant discrepancies across sectors subsist (Figure 2.2). The 2022 Green Tax Agreement and the 2024 Green Tripartite Agreement aim to expand the coverage of carbon pricing and create a predictable framework for companies’ climate change transition. They combine financial incentives for emission cuts with targeted support to limit carbon leakage risks.
Phase 1 – carbon taxation of industrial and energy activities (2022 Green Tax Agreement)
In industrial and energy sectors, the carbon tax will rise to 750 DKK (EUR 100, 2022-price levels) per tCO2 by 2030 for firms not covered by the EU Emission Trading Scheme. A 375 DKK (EUR 50, 2022-price levels) per tCO2 tax and a minimum carbon price will be introduced for firms covered by the EU ETS. The cement industry and other mineralogical processes benefit from a reduced rate. International transports are fully exempted and the fishery industry benefit from an exemption until 2029. In some sectors, the increase of the carbon tax is offset by cuts in the energy tax (Figure 2.2, Panel B). A Green Fund of EUR 7.2 billion (around 2% of GDP) supports investment from 2024 to 2040, including on offshore wind development and CO2 capture and storage. How the carbon taxation system will adjust to the implementation of EU-ETS2 in 2028 remains uncertain at this stage.
Phase 2 – carbon taxation of agriculture non-energy emissions (2024 Green Tripartite Agreement)
Among a broader reform of agriculture land use, taxes on GHG emissions from livestock, agricultural lime and carbon-rich low-lying soils will be introduced in 2030. A base deduction of 60% of emissions will apply to the average emissions from diverse types of agriculture activities resulting in an effective tax rate of DKK 120 (EUR 16) per tCO2 in 2030, increasing to DKK 300 (EUR 40) per tCO2 from 2035. Carbon taxes on low-lying soils of DKK 40 (5 EUR) in 2030 and agricultural chalk of DKK 750 (100 EUR) will be introduced from 2028. Taxes on fluorinated greenhouse gases (F-gases) will increase to DKK 750 (EUR 100) per tCO2 from 2027. While estimates are subject to high uncertainty, the reform is projected to reduce GHG emissions by at least 1.8 million tCO2 in 2030 and between 3.3 and 3.6 million tCO2 in 2035, around 15% and 27% of 2023 GHG emissions from agriculture in Denmark, respectively.
Measures have been put in place to support farmers during the transition. The tax is designed to ensure that most climate effective farmers can avoid the tax, as reducing emissions to the level of the base deduction is possible with existing climate solutions. The proceeds from the new carbon tax will be redistributed to the agricultural industry. Some regulatory fees for slaughterhouses will be reduced from 2029, and subsidies will be provided to encourage lower fertiliser use. EUR 5.3 billion will be invested in rewetting land combined with the tax on emissions from carbon-rich peat soils. EUR 1.3 billion will be allocated to support the production of biochar through pyrolysis. The total cost of the reform for public finances is estimated at around EUR 4.3 billion from 2025 to 2030 and at EUR 7.5 billion by 2045 (Danish Government, 2024; Beck, 2024).
Note: In Panel A, “Carbon tax” refers to all taxes for which the rate is explicitly linked to the carbon content of the fuel or where the tax is levied directly on GHG emissions. Rates are those applicable on 1 April 2023. See OECD (2024), Supplement to Pricing Greenhouse Gas Emissions 2024: Gearing Up to Bring Emissions Down, for country-specific details on data coverage. In Panel B, net effective carbon rates include the carbon tax, EU-ETS 1 and energy taxes. EU-ETS 2 is not included.
Source: OECD (2025), OECD Net effective carbon rates (database); and Danish Ministry of Taxation.
Socio-economic impact of the reforms
The implementation of the first phase of the green tax reform is estimated to have a small negative impact on activity, reducing employment in industry by 1300 (DORS, 2022). In agriculture (phase 2), low effective levels of carbon taxation and subsidies should avoid large cuts in agricultural activities and related negative local social effects, with an estimated 2% decline of employment in agriculture by 2035 (2000 job losses, Ministry of Finance, 2024). The reform’s overall impact on employment is projected to be broadly neutral.
Measures to reduce emissions vary widely in their abatement costs, as illustrated by available estimates (Table 2.1). For instance, the cost efficiency of subsidies to pyrolysis is questionable given estimated relatively high abatement costs and large uncertainty about their environmental impact (Langhede, 2024). The government should systematically ensure technological neutrality when allocating funds, offer subsidies awarded through a competitive application process, and improve transparency on abatement costs of planned measures. Denmark could also go further in making emission pricing more uniform across sectors by setting a clear roadmap for the phaseout of rebates in carbon pricing, notably in the emission-intensive cement industry and in agriculture, as suggested in past Economic Surveys (Table 2.2). This could be done during the planned revision of the Agreement of the Green Tax Reform in 2026 for mineralogical processes.
Note: The shadow price measures the loss of economic welfare related to the measure and excludes or includes estimated externalities (socio economic value of environmental effects). Estimates for the “Carbon tax” are taken from the L183 bill on carbon and energy taxation. (1) and (2) draw on the Green Tax Reform final report in absence of updated estimates for the 2024 Green Tripartite Agreement (model 1 and model 2b respectively). Model 2b includes a tax of DKK 750 per CO2 tonne with a 50% base deduction on livestock, subsidies on fertiliser use, rewetting of land, and afforestation. Estimates on biochar produced by pyrolysis provided by the Danish Ministry of Climate, Energy and Utilities are shown in brackets. Estimates on Carbon Capture and Storage relate to 2022-2024 public tenders.
Source: Expert Group for a Green Tax Reform; Danish Ministry of Climate, Energy and Utilities; Danish Ministry of Taxation; OECD calculations.
With the high level of ambition in emissions reduction, carbon capture and storage (CCS) is expected to play an important role, with more than 20% of emissions reduction needed to achieve the 2030 target relying on the deployment of the technology. Denmark has three funding schemes totalling approximately DKK 38 billion for CCS projects and the first tender was completed in 2023. Difficulties to coordinate the establishment of CCS value chains (between capture, transport and storage), to establish transport and storage infrastructure in time for CCS projects to operate effectively within the timeline, as well as uncertainty about the Carbon Removal Credits schemes have made it difficult to achieve initial ambitious targets for CCS development (Danish Energy Agency, 2024). Like in Sweden, negative emissions can be traded through voluntary carbon removal certificates. Pricing of negative emissions should be further promoted, ideally within an EU framework.
2.1.2. Reducing GHG emissions from agriculture production
With the 2024 Green Tripartite Agreement, Denmark has become the first country to introduce a carbon tax on livestock farming (see Box 2.1), although some other countries have had well-developed plans in this area. While its emission intensity has declined below the OECD median, agriculture remains among the most greenhouse gas- and energy-intensive sectors in Denmark, due to its focus on livestock and dairy production (OECD, 2021). The decision to initially implement low effective taxation levels helped to reach an agreement with the agricultural sector. Carbon leakage risks and the relatively unproven mitigation technologies may also provide some justification for starting with a low rate initially as was done with the original EU ETS for instance. However, this may delay the transition by postponing deep structural changes needed for the decarbonisation, including future technology developments and adoption. Incentives for technology adoption could be strengthened by providing a GHG-reduction audit to qualify for transition support in large farms, as done in industry, and developing partnerships between research institutions and private companies. The tax level should be regularly revised as planned, to reflect progress in technical abatement measures.
Accurately measuring and monitoring emissions at the farm level presents technical challenges, as illustrated by New Zealand’s experience. Initiatives, such as the He Waka Eke Noa partnership, to develop systems for farm-level emissions reporting exposed limitations in existing measurement tools and models, which often rely on generalised assumptions or national averages that lack precision. Denmark should strike a balance between minimising implementation costs for farmers and developing a sufficiently precise system to ensure fair treatment and meaningful incentives for emission reductions. Supervision may also be challenging as noted by the National Audit Office on the control of nitrogen emissions from fertilisers (National Audit Office, 2024).
The Green Tripartite Agreement includes a vast reform of land use with the conversion of agricultural land into forest and natural reserves and a new target for rewetting land. Rewetting of carbon rich soils should be accelerated as it contributes to carbon sequestration and reduces nutrient loads in the environment to the benefits of biodiversity, quality of air, soils and waterbodies. Only 0.1% of the 140 000 hectares of carbon-rich lowland soils targeted for uptake by 2030 had been taken out by the end of 2023. A Green Land‑Use Fund with a budget of DKK 43 billion is established to finance land conversions up to 2045. “Watershed steering committees” chaired by the municipalities will be in charge of designing conversion plans by 2025 and their implementation by 2027 to facilitate engagement and coordination among stakeholders. However, there has been a lack of clarity on prioritisation as for the restructuring of land use so far, calling for designing a national land-use strategy.
2.1.3. Reducing GHG emissions in the transport sector
The transport sector is the second largest GHG emissions emitter and per capita transport-related emissions are above the OECD average. Emissions in the sector have increased compared to 1990 but are on a declining trend since 2007. The fast electrification of the car fleet is projected to reduce transport emissions by almost two thirds by 2035 relative to 1990. The uptake of zero emission vehicles has surged and at above 60% of newly registered cars is now among the highest in the OECD, supported by a large deduction on the registration tax for zero-emission vehicles. Planned cuts in the electricity tax in 2026-27 should further support car fleet electrification. Emissions from domestic shipping and aviation, accounting for only around 5% of transport sector’s total, are expected to decline more modestly, as, for most, switch to alternative fuels remains economically unviable.
As recommended in past Surveys, alternative and cost-efficient measures should be adopted to reduce emissions from road use. The high take-up rate of electric cars suggests that support to electric cars could be reduced in line with the narrowing price gap between electric and conventional cars (DORS, 2025). The commuter tax deduction and allowances should be lowered, and public transportation networks be expanded further (OECD, 2021; Table 2.2). Diesel-fuelled trucks and cars account for around half of emissions in road transportation. Increasing the diesel tax would help reducing emissions from road transport, including from foreign heavy goods vehicles refuelling in Denmark where the tax is lower (Danish Council on Climate Change, 2024). A distance and CO2-based toll for heavy vehicles (KmToll) was introduced in 2025 and will be gradually extended to the entire public road network by 2028, which is welcome. Extending it to passenger cars should be considered to reduce road use and compensate for revenue losses from fossil fuels taxation (see Chapter 1).
The development of a nationwide public charging network, including for trucks supported electrification in transports and should continue. Accelerating the expansion of the electricity network will be key, calling for strategic planning and investment in grid upgrades (cf. below). The Danish Competition and Consumer Authority has identified significant barriers to competition in the electric vehicle charging market, including complex bundling of home/public charging services (Danish Competition and Consumer Authority, 2023). Measures are needed to increase price transparency, reduce switching costs, simplify payment methods to foster a more competitive and efficient market structure resulting in lower prices for consumers.
While they have decoupled from growth in freight volumes over the past decade, emissions from Danish international transport companies have stabilised at a relatively high level. The shipping sector consists of a large amount of capital-intensive fixed assets with long lifespans, which makes a transition to zero emissions both long and costly (ITF, 2022). Emissions from maritime transport are partly covered in the EU ETS and the FuelEU Maritime initiative increases financial incentives to switch to bio and alternative fuels. Following the agreement on the International Maritime Organisation Net-zero Framework in early 2025, a GHG fuel standard and a global pricing mechanism for emissions could be established by 2027. National action plans can support the achievement of international commitments through complementary national action. Denmark should define such a plan, as done in Finland, Japan, Norway, among others (Box 2.2).
National Actions Plans can contribute to achieving international commitments to decarbonise international maritime transport by defining coherent legislative and investment measures to meet or surpass International Maritime Organisation (IMO) climate targets by mobilising a broad range of national stakeholders, coordinating their actions, including with other national strategies, and by allocating resources for research on innovative emissions abatement measures in the sector. They can stimulate private sector engagement and investment by sending a clear signal on future plans.
Following IMO’s guidelines for designing Action Plans, the Plans could include changes in national regulation and institutions for the implementation of IMO instruments, as well as initiatives to promote ship energy efficiency, the adoption of zero or low-carbon fuels and port emission reduction activities among others. The plans should foster training, awareness, research, and partnerships to enable technical and operational innovation. National Action Plans typically include detailed targets and measures, notably regulation, taxation, funding, for instance by ship types (Norway) or by low-emission technology (Japan).
Denmark supports the development of alternative fuels, such as hydrogen and derived fuels, like e-methane, to reduce emission in hard to electrify transports. It invested DKK 1.3 billion in Power-to-X and allocated DKK 1.8 billion to support sustainable domestic aviation, including for the use of e-fuels. Power-to-X initiatives that consist of using electricity produced from renewable sources, capturing CO2 emissions and convert them into e-fuels could contribute to a circular carbon economy and offer an alternative to conventional fuels. However, these technologies are not cost-competitive due to high capital costs to establish infrastructure for production, transportation and storage, their low production efficiency (energy losses during the conversion process) and regulatory hurdles in emissions accounting. The deployment of other low carbon technologies using renewable energy sources in transports, such as rotor sails on ships, are also hindered by emissions accounting based on inputs rather than emission reductions (Haugh et al., 2025). Denmark should pursue its effort to promote alternative fuels, ideally through international collaboration at the EU level, while systematically considering alternative options and costs.
2.1.4. Fostering investment in the electricity sector
Denmark is among the most energy efficient OECD countries and reliance on fossil fuels has declined significantly over the past two decades. Its energy system has transformed significantly, integrating green technologies, notably offshore wind, biomethane, and combined heat and power plants. Renewables made up around 45% of total energy supply and 55% of total energy production in 2023. Denmark plans to eliminate reliance on fossil fuels by 2050, through extensive electrification and adoption of biofuels. More than 80% of electricity production already comes from renewable energy sources (RES), among the highest rates in the OECD and this share is projected to reach 100% by 2030.
Biomass accounted for almost 70% of renewable energy in 2022, 30% of which was imported. Biomass use in the energy sector is considered CO2 neutral according to UN emission accounting guidelines and, combined with carbon capture and storage technologies, could help reach carbon neutrality in Denmark. However, the assumption from a lifecycle perspective has been challenged in the scientific literature. There are also negative local air pollution effects from burning biomass and harvesting can be detrimental for the use of land as carbon sinks, for biodiversity and soil quality, with the precise environmental effects dependent on the type and source of biomass. High reliance on wood biomass is projected to significantly decline by 2035 and sustainability requirements were strengthened in 2025. As recommended in past Surveys, incentives for wood biomass use (tax exemptions and subsidies) should be further reduced to better account for its climate and environmental impact (Table 2.2). This would help to reduce overreliance on this energy source, short-term GHG and pollution emissions, import dependency and pressures on this scare resource. Technology-neutral support to green innovation should continue, as it can help to optimise the use of wood biomass and mitigate its negative environmental impact.
There have been delays in plans to expand renewable energy production capacity. Denmark’s initial plans to expand offshore wind power generation have been revised with a new political agreement in May 2025. In 2024, public auctions failed, as tender procedures could not adjust to changes in market conditions, notably large increases in investment and construction costs and heightened uncertainty on future electricity prices. A revenue stabilisation model - contracts for difference – has been introduced (up to DKK 55.2 bn over the next 20 years) and should help to meet the targets by reducing investment risks. Allowing more flexibility in tender procedures to adapt to market conditions and address challenges identified during market dialogue could also help reduce the risk of auction failures and unnecessary delays in projects. Onshore renewable energy investments have been hindered by changes in the support scheme, grid charges, and permitting barriers (IEA, 2023). Swift implementation of recommendations from the task force “National Energy Crisis Staff” to remove administrative and regulatory barriers to RES investment should continue (Table 2.2).
The slow pace of grid investment is another important barrier to renewables deployment (IEA, 2023). Grid capacity has reached its upper limit in some areas, expansion has been significantly delayed, and transmission grid investments are estimated to DKK 45 billion by 2027, increasing annual investment to DKK 11 billion over the next 4 years (0.4% of GDP, Energinet, 2024). Adequate and timely expansion of the electricity grid remains challenging due to long procedures, calling for aligning expropriation procedures to those applied in other public infrastructure projects and establishing fast-track processes for simple expansion projects (NEKST, 2024). Expanding the use of overriding public interest provisions in project approvals should also be considered as done in Germany or Switzerland. Balancing the electricity system and maintaining price stability will also become increasingly difficult as wind and solar energy expand and controllable capacity, such as gas power, is phased out, making supply more weather-dependent and less flexible. Meeting growing balancing needs will require further investment in interconnection, storage, and flexible generation. In particular, measures should be taken to further strengthen cross-border electricity market integration in the context of the Nordic electricity market. Technologies, such as Power-to-X, could help but should be evaluated through transparent, full life-cycle cost-benefit analyses.
2.2.1. Low altitude and a long coastline expose Denmark to climate risks
Denmark has the second-lowest average altitude in Europe, after the Netherlands, which makes it particularly vulnerable to coastal flooding and erosion from rising sea levels (Maes, 2022). Exposure to coastal flooding is the fifth highest in the OECD (Figure 2.3). About one in twenty people lives in a coastal area likely to flood once every ten years and around 30% of Denmark’s area is vulnerable to flooding from storm surges, cloudburst and rising ground water levels (FOGP, 2024). More than 40% of built-up area is exposed to violent windstorms, the fifth largest share in the OECD. Other climate risks, such as heat stress, wildfire or drought are relatively less pronounced than in other OECD countries but have risen.
Note: A return period is the average or estimated time that an event is likely to recur. In Panel A and C, data are based on models of storm surges and extreme sea levels, and do not include sea level rise.
Source: OECD (2025), "Exposure to coastal flooding" and "Exposure to wind threats", OECD Environment Statistics (database); and Maes, M. et al. (2022), “Monitoring exposure to climate-related hazards: Indicator methodology and key results”, OECD Environment Working Papers, No. 201.
Extreme rainfall events and storm surges have caused significant damages in Denmark. Although this partly reflects the high value of assets and the high insurance coverage, economic losses linked to extreme weather events such as storms and flooding have been relatively high compared with other European countries (Figure 2.4, Panel A). In 2011, a sudden cloudburst in the Greater Copenhagen area paralysed transport infrastructure for several days, disrupted healthcare services and induced insurance-covered costs alone of DKK 6 billion (Halsnæs et al., 2022). In 2023, an historic storm surge and record-breaking amounts of rain caused over DKK 3 billion damage (FOGP, 2024).
Future climate-related damages are projected to rise substantially due to intensifying rainfall and sea level rise. Under a medium-high emission scenario, which corresponds to global temperature change of around 3° by 2100, events currently expected once every 20 years could occur annually or biennially by 2100 (National Center for Climate Research, 2024). In absence of protection measures, the number of people in Denmark affected by storm surges is projected to increase fivefold over the next century and around 16 000 buildings would be flooded from cloudbursts annually (Kaspersen and Halsnæs, 2025). Projections of the costs of flooding from torrential rain and storm surges suggest they could almost quadruple to reach DKK 27 billion per year in a century’s time (1.1% of GDP), a low-bound estimate as it does not include impact on health, nature and some business activities (Halsnæs et al., 2024). In particular, in the absence of protective action, floodings in Copenhagen could result in substantial economic losses and widespread disruption. Notwithstanding direct economic losses of climate hazards, increasing climate risks can depreciate property values and affect credits institutions. Exposure of credit institutions collateralised by real estate at risk of flooding is significant and concentrated in a few areas (Jygert and Mirone, 2021).
Adaptation measures are essential to reduce economic losses from extreme weather events and can entail large positive externalities exceeding direct private gains. This includes investments in adaptive infrastructure, such as coastal defence, water storage facilities, resilient transportation networks, or energy systems. Under a medium-high emission scenario, adaptation measures for flooding and storm surge, including upgrading drainage networks and sewer systems, creating water retention areas and strengthening coastal protection with seawalls, are estimated to reduce damages from around DKK 400 billion to DKK 225 billion at a cost of about DKK 100 billion over the next century (Halsnæs et al., 2024). Alternative local and nature-based measures could potentially have a higher benefit-cost ratio.
Economic losses per capita due to weather- and climate-related extreme events, 1980 to 2024
Source: European Environment Agency (www.eea.europa.eu/en/analysis/indicators/economic-losses-from-climate-related).
2.2.2. Improving the national framework for adaptation
Climate change adaptation policy is mostly decentralised in Denmark and responsibility for planning adaptation measures lies with municipalities. All municipalities have a climate action plan and municipalities highly exposed to flood risks have to prepare risk management plans in line with the EU Flood Directive. Bottom-up design of adaptation plans, and involvement of local stakeholders can help build broad local support, avoid blockage in implementation, and ensure consistency with local development plans. However, high fragmentation of adaptation policies can lead to inefficiencies. Adaptation plans have been uneven across municipalities in terms of details and coverage (Gram-Hanssen et al., 2023). They often miss common approaches, tend to focus on most pressing climate risks, thereby overlooking certain risks, such as heatwaves and droughts and prioritise municipal assets (Holmbo Lind and Hansen, 2024).
Revising the 2008 National Climate Change Adaptation Strategy and the 2012 National Action Plan is needed to address a broader range of climate physical risks and address gaps. The 2023 National Plan on coastal protection and rising groundwater and the 2025 Acceleration Package are first steps. A second national plan is foreseen to further increase investment in coastal protection and establish new funding mechanisms. Denmark could take inspiration of OECD good practices to adaptation planning and implementation (Box 2.3). The revised national framework should include measurable targets against which progress can be assessed and a clear sharing of responsibilities to ensure accountability. Possible interactions and conflicts with other policy priorities, such as nature protection or climate change mitigation, should also be addressed. In particular, adaptation policy should articulate with the implementation of the Green Tripartite Agreement on agriculture land use as planned measures, such as rewetting agriculture land, can contribute to improving climate resilience.
A formal system for coordinating, monitoring and evaluating adaptation efforts needs to be established. Cooperation across government levels has happened on an ad hoc basis so far. While the Ministry of Environment holds the responsibility for national initiatives, legislation, and guidance, it does not oversee municipal plans. Furthermore, policies relevant to adaptation, including the green transition, land use and emergency planning, are dispersed across different ministries. This can lead to a lack of coordination and integration among policies, hindering a unified approach to climate adaptation. Denmark, unlike other Nordic countries, lacks elements of a regular monitoring, reporting and evaluations system, such as formal annual reporting procedures on adaptation progress to the respective Parliaments or plans to make them more comprehensive (Gram-Hanssen et al., 2023). The mandate of the Danish Council on Climate Change does not cover adaptation issues.
Successful climate change adaptation planning requires considering four main policy stages:
Risk assessment is essential to prioritise efforts on adaptation. In the UK, the government should produce a Climate Change Risk Assessment every 5 years that outlines current and projected climate impacts. This assessment helps determine the most urgent policy actions, key uncertainties, and research needs to better understand societal risks.
Planning outlines the roles and responsibilities that members of government and society have in responding to climate change. Chile’s Climate Change Law introduced legal requirements for the regular development of climate adaptation plans across different levels of government, with sectoral, regional, and communal adaptation plans.
Implementation requires clear and actionable measures. Following Sweden’s approach for climate mitigation policy, a climate adaptation report could be published as part of the annual Budget Bill to establish how the provisions and allowances of the Government’s Budget contribute or detract from the country’s adaptation targets. This would involve legislators who set budgets and public bodies responsible for the implementation of adaptation measures in climate policy planning.
Monitoring, evaluation and learning. South Korea’s National Adaptation Plan for 2021 – 2025 requires mid-term and end-of-period evaluations, as well as annual stocktakes. The plan provides for annual self-evaluations by each government ministry as well as annual evaluation of critical climate adaptation projects performed by citizens’ evaluation groups, with members across all levels of society.
Improving information on climate risks and their potential costs is critical for cost effective climate adaptation. While information on climate-related risks is available, including detailed flood-risk maps, a systematic national assessment of exposure and vulnerability across key natural hazards and sectors is missing (Gram-Hanssen et al., 2023). Denmark also lacks a comprehensive assessment of future climate-related economic damages, including their impact on health, business activity, and biodiversity. Identifying groups of people that could be disproportionally affected by climate-related damages would also help targeting policies to the most vulnerable.
Assessing adaptation projects at the local level and their expected impact on future costs would help better identify risks and needs. A national screening tool – KAMP – integrates detailed projections on climate change impact to support adaptation and land-use planning at the local level but does not assess how existing infrastructure or planned adaptation projects reduce risks. Another tool for municipal planning - Kystplanlægger - outlines coastal flood risks and provides recommendations for potential coastal protection projects, but underlying data need updating, notably to include existing coastal protection measures. Alternative tools have been developed in parallel by local governments (OS2-SkadesØkonomi). Nevertheless, data on adaptation measures are not systematically collected and only around one third of municipalities use indicators to measure progress in their climate action plans (Holmbo Lind and Hansen, 2024), calling for strengthening the evaluation framework. Plans from the 2025 Acceleration Package to enhance data collection, including on the effectiveness of existing dikes, and to develop climate adaptation models are steps in the right direction.
Easing access to insurance data on the location and the cost of damages would improve risk assessment capacity but would require revising data protection regulation (FOGP, 2024). Revisions to the legislative framework are being explored. Mandating disclosure of compensation paid following natural disasters like in France and, in the longer term, establishing a confidential database of individual insurance claims would help to assess the financial consequences of natural disasters and inform prevention efforts.
2.2.3. Preventing construction in high-risk areas
Climate related risks can be limited by using zoning restrictions and spatial planning which is the responsibility of local authorities in Denmark. Under the 2018 Planning Act, municipalities are required to integrate climate adaptation considerations into land use planning, However, implementation has been inconsistent. Over 8,000 private residential buildings have been built in areas at risk of flooding between 2009 and 2021 (FOGP, 2024). In 2024, a government agreement proposed to strengthen the Planning Act by requiring municipalities to use standardized methods and data to identify flood-prone areas and by limiting new construction in these zones unless preventive measures are in place. Changes to the legislation are planned for the first half of 2026. To ensure uniform coastal protection standards across municipalities, nationwide regulations should be revised as planned. However, restrictions on construction in high-risk areas should also cover built areas, and managed retreat and setback zones made compulsory in local land-use plans in line with new national guidelines. In the Netherlands, the Environmental Planning Act streamlines regulation for spatial planning, environmental management and permitting.
Accessible information on climate risks would help households to better integrate these risks into their decision-making, including when buying a house. National and local initiatives to increase awareness such as online mapping tools of flooding risks could be complemented with public education campaigns. Adding climate-related risks to national mandatory certification of buildings, for instance by establishing a flood risk labelling scheme that details the level of risk, prevention measures in place and recommendations for the prevention of risks, would also raise the level of awareness.
2.2.4. Supporting municipalities to advance adaptation projects
The implementation of local adaptation plans has been patchy across Denmark due to a lack of funding, expertise, and regulatory barriers to municipal investment. In Copenhagen, various infrastructure projects, from underground reservoirs, sea walls, and the 275-hectare Lynetteholm artificial island, have been developed in recent years to shield the city from storm surges. However, smaller municipalities struggle to translate high level goals into concrete projects, calling for strengthening technical support as envisaged in the 2023 Adaptation Plan. Under the 2025 Acceleration Package, the Danish Coastal Authority will collaborate with selected municipalities to conduct feasibility studies on coastal protection in 14 priority areas and guidance for cost-benefit analyses of adaptation projects will be provided. An Environmental Impact Assessment for storm surge protection in the Capital Region will also be carried out.
Financing large scale projects is a major obstacle for municipalities, including for large cities. Climate-proofing Denmark against 20-year cloudburst events and 100-year storm surge events is estimated to cost DKK 69 and 37 billion respectively (Halsnæs et al., 2024). State funding for local adaptation projects has almost quadrupled since 2019 (from around DKK 100 million in 2018-19 to DKK 370 million in 2024-25 on average) but has been ad hoc and has often fallen short of meeting the needs. A total DKK 1.3 bn has been allocated under the 2023 Adaptation Plan to reduce the risk of flooding and erosion, but only DKK 150 million has been directed to municipal projects through the Kystpuljen national coastal protection fund, which is widely regarded as inadequate to meet local needs. The 2025 Acceleration Package allocates DKK 246 million to the fund for the period 2026 to 2028 and the 2026 Finance Act provides an additional DKK 532 million for 2026-2029. In addition, an agreement has been concluded between the Danish government and the City of Copenhagen to finance infrastructure projects associated with Lynetteholm artificial island, with a DKK 19.8 bn loan from the central government. Nevertheless, the costs associated with climate risk prevention should be more effectively incorporated into the budgeting process and long-term fiscal planning (see Chapter 1). A dedicated recurring national grant for climate adaptation could be established to ensure predictable long-term funding.
The costs of implementing adaptation measures are generally distributed between municipalities and private stakeholders following a “principle of benefit”: financial responsibility falls on the beneficiaries according to their relative gains. While cost-sharing frameworks work well for small scale projects, they face challenges in large, multi-municipal urban regions with diverse interests and hard-to-verify benefits and costs (Fryd et al., 2021). Alternative models should be explored, and regional or national coordination considered for complex climate adaptation projects like done in the Netherlands. The project aiming at protecting critical infrastructure of the Copenhagen metropolitan area against storm surges, coordinated by the Ministry of Transport and involving four municipalities, is a step in the right direction. Joint initiatives across municipalities are often limited, as a single municipality is legally responsible for the project and must bear the full financial burden (Gram-Hanssen et al., 2023). A legal framework that clarifies responsibilities in joint projects would facilitate cooperation between municipalities. Another option would be to set up regional water boards to cover water issues across municipal boundaries and steering groups to ensure coordination like in the Netherlands (Box 2.4).
While national schemes should be established to finance large scale projects, allowing for efficiency gains and coordination across administrative boundaries, barriers to municipal investment should be addressed for local prevention measures. Under Denmark’s national rules, municipalities’ investment and borrowing are strictly capped. The investment cap sets an annual ceiling on the total amount municipalities can spend on investments, no matter if the funding comes from loans, reserves, or grants. In addition, there are strict limits on the amount municipalities may borrow and the types of spending that can be financed by issuing debt. The Danish Ministry of Interior grants single municipalities discretionary permission to borrow, within yearly fixed ceilings of the aggregate value of such approvals, so-called loan pools. Long-term debt of municipalities has declined over the past decade to around 12% of GDP in early 2025. While the cap on investment aims to prioritise capital spending at the local level and ensure compliance with fiscal rules, it tends to slow adaptation projects given their high upfront investment costs and the challenge of competing with existing spending priorities. To allow these new adaptation spending needs to be met, the investment ceiling and borrowing restrictions should be made more flexible for local projects, provided that safeguards are in place to encourage the prioritisation of projects and ensuring consistency with national fiscal rules. Innovative financing models could also be envisaged to leverage private investment. For instance, the construction of the Lynetteholm artificial island in Copenhagen is financed by the sale of land by a publicly owned company and future incomes from urban development (see Chapter 4). A national fund dedicated to finance preventive and adaptation actions and not restricted to coastal protection would help meet the cost of adaptation and could contribute to ensuring coordination across different municipalities. In France, adaptation measures can be financed by the “fonds de prévention des risques naturels majeurs” which is funded by the “Catnat” premium, a mandatory contribution from all property insurance policies.
National or regional plans for climate change adaptation can contribute to a better sharing of responsibilities across stakeholders for complex projects, allowing for cost mutualisation and improved cost efficiency. In the Netherlands, the Delta programme started in 2010 to adapt to sea level rise, extreme river discharge and drought, guarantee the population safety and the quality of water mostly by improving land planning. It is a knowledge source that brings together field surveys addressed to provinces and cities, knowledge of research centres and business expertise. It aims to define efficient safety norms, establish objectives and agenda on field of action, defined by natural, rather than administrative, boundaries.
This programme also aims to ensure coordination of national and local initiatives by involving public representatives, public and private companies (like waterboards, civil engineering) and local residents to get expertise and acceptation. The regional water authorities (waterboards) are important stakeholders of the programme. These institutions are in charge of seawalls, water quality and waterways. They are organised into 21 districts and primarily funded through taxes on water and wastewater networks although municipalities or provinces may also contribute as part of partnership arrangements. The Delta programme supports cities and provinces by partly financing some of their local planning projects, based on their effectiveness, urgency, feasibility, and legitimacy. These measures are financed by the Delta fund, which accounts for EUR 27.5 bn until 2050.
Source: National Delta programme 2025
2.2.5. Encouraging prevention while maintaining adequate protection against climate risks
Landowners are generally responsible for climate proofing their properties and financing adaptation measures. Survey data indicate that Denmark’s population recognises the need to adapt to climate change to avoid higher cost in the future, 70% of them seeing adaptation as a policy priority (EIB, 2024). However, only 2% of municipalities find that citizens acknowledge their financial responsibilities in their land protection while the vast majority report that they expect the municipality or State to cover all or part of the costs (KL, 2020). Municipalities should disseminate information to households on how to fulfil their responsibility as for damage prevention and determine contribution of landowners in financing collective risk prevention measures. Providing municipalities with a framework or good practice examples on how to achieve these objectives would help raising awareness. For instance, the Copenhagen municipality, in collaboration with the utility company, provides citizens with annual guidance on how to protect their homes from cloudburst-related damage. The rules for landlords’ financial contributions to collective adaptation projects lack clarity and are applied inconsistently across municipalities. Greater transparency would help reduce landlords’ complaints that often delay coastal protection projects. The establishment of an expert group in end-2025 to design a simpler and transparent model for allocating contributions is a welcome step.
Adaptation measures typically require high upfront investment, and low-income households or small businesses may not have the financial means to protect against climate risks. Public support to private investment in adaptation measures is limited and not targeted. The tax deduction for housing renovation and improvement work of DKK 8 600 (approximately EUR 1 150) can cover adaptation measures but is not means-tested nor conditioned to significant improvement in energy efficiency or climate resilience. Tailored financial instruments could be put in place to support low- and medium-low income households and small businesses, such as means-tested grants, soft loans or mortgage on property.
While having an insurance against flood risk is not mandatory in Denmark, indicators – such as the share of insured losses - suggest the insurance coverage of the population against natural hazards is high (Figure 2.5). A natural disaster compensation scheme administered by the Danish Natural Hazards Council covers damages from uninsurable and low frequency storm surge, inland flooding and droughts. Coverage gaps may occur for events usually not covered by insurance policies (typically storm surge and rising groundwater) and of medium to high frequency. The rising frequency of extreme weather events thus requires adjustments to the coverage provided by the national compensation scheme.
Source: OECD calculations based on data provided by Swiss Re (Swiss Re, sigma database. All rights reserved).
Risk-based pricing mechanisms could be further developed to incentivise preventive measures. Insurers have begun to implement tariff schemes with location-based risk profiling and some offer premium discounts for policyholders who implement risk prevention measures in Denmark. However, the public natural disaster compensation scheme is financed by a low fee on fire insurance (around EUR 5 per year) unrelated to risk exposure, which induces moral hazard and cross-subsidisation (DORS, 2023). The government has started exploring ways to modernise the scheme. By aligning insurance premiums more closely with individual or property-level risk profiles, insurers can encourage policyholders to adopt risk reduction strategies and reduce claims costs. However, implementing risk-based pricing can be challenging due to limited data availability to assess risks. Establishing a cap on the number of events covered by the insurance system would encourage investment in climate-proof buildings or relocation instead of simple repairs after a damage. Compensations could also be conditioned to the implementation of risk management practices and meeting standards like done in the United States (National Flood Insurance Program). These policies should include accompanying support for those most at-risk and vulnerable and be provided with sufficient advance notice. Other options include adjusting the municipal property tax to reflect climate risks as envisaged in the United States (Washington State).
Risk-based pricing could pose challenges by reducing affordability and accessibility of insurance in high-risk areas, especially for low-income households and small businesses. In the same vein, rising frequency and severity of natural disasters will likely increase the cost of insurance in high-risk areas in the medium to long term. Well-designed reinsurance programmes could ensure insurance protection is maintained. In France, private insurers must include insurance against flood risk in property insurance policies. Insurers in turn benefit from government-backed reinsurance mechanisms against damages from extreme events. This government reinsurance mechanism is financed by a low mandatory contribution from all property insurance policies, ensuring protection for all policyholders, but creating a system of cross-subsidisation, where those in lower-risk areas help cover the costs for those in higher-risk areas. The UK’s transitional reinsurance schemes FloodRe provides affordable flood insurance to high-risk properties (excluding recent constructions) funded through a levy on all residential property insurance policies. Subsidies will be phased out through a gradual transition to risk-based pricing by 2039. To further encourage prevention, reinsurance schemes could include subsidies for the adoption of climate proofing measures.
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