About Us

Policy Options: Subsidies & Taxes

A case study of energy policy in Denmark

Denmark's largest Wind Farm, Middelgrunden

Denmark's wind-turbine construction industry is the largest in the world. The turbines are the nation's largest export, with a turnover of more than $800 million. About 13,000 people work for the industry. In 2002, wind energy contributed to 18% of electricity consumption. The Danish government initially promoted wind energy to improve local air quality, but now their motivation is reducing carbon dioxide emissions.

The Danish Ministry of the Environment and Energy originally set targets at 10% wind energy in 2005, but because of the policies' success, the targets were increased to 16%, and now it is expected to be 21% for 2003 (Danish Wind Industry).

Denmark uses a combination of tax and subsidy policies that support wind energy. They include voluntary agreements with electricity utilities on building new capacity, tax programs and subsidies to non-utility generators. Some subsidies they use include buy-back rates, tax benefits and infrastructure standards that mandate utilities to pay for transmission networks that support wind-capacity additions and tax benefits.


In 1979, Denmark implemented a subsidy equal to 30% of wind turbine investment costs. This spurred much investment and led to the initial deployment of 200-300 machines a year. These subsidies were phased out for wind power in 1989, after they helped increase the reliability and decrease the price of turbines. Until 1999, the government provided direct grants for each kWh turbine owners sold to the grid. Now Denmark has about 15 subsidy programs for both energy production and consumption. The largest subsidy is a production subsidy per kWh for electricity generated from renewable energy resources. The majority of the subsidy schemes "are directed primarily at converting central and electric heating systems to district heathing and to expanding and renovating the existing district heating network" (Renewable Energy Policy Project)

Denmark's subsidy programs are exemplary models because they have been temporary and effective.


Wind energy is supported by a partial rebate from the Danish electricity tax. While there is no tax on the fuels used for electricity, an overall tax on electricity is used to promote energy efficiency. Three separate energy taxes also promote the use of renewables; 1) a tax that varies for natural gas, unleaded gasoline, diesel fuel and other energy 2) a carbon dioxide tax and 3) a sulfur dioxide tax. In addition, Denmark adjusts rates for space heating and for "heavy" and "light" uses of energy. Energy taxes account for about 7% of domestic revenue (REPP).

Denmark has invested more in wind energy than any other European nation in the last 15 years. Green taxation policies complement the subsidies by encouraging energy efficiency. Together they engendered the largest turbine manufacturing center in the world in a very small country.

For detailed information on Danish tax and subsidy policies:

Renewable Energy Policy Project, An overview of Wind Energy in Denmark
Danish Wind Industry, Energy Policy Brief

Additional Resources:

Reforming Energy Subsidies (289 kb .pdf)
International Institute for Sustainable Development