Denmark’s Pioneering Policies and the Socio-economic Implications of Decarbonisation

Jessica Hoeps

Pressure is mounting for countries to act ahead of the United Nations (UN) online Climate Summit on the 12th of December 2020, following the rescheduling of the Glasgow Summit for November 2021. The ‘Sprint for Glasgow’ is underway, in a last-ditch effort to meet the goals of the 2016 Paris Agreement. Denmark has never shied away from bold action in the fight against climate change, reinforcing its status as a world leader. In December, they committed to becoming the first major oil-producing nation to announce the end of exploration in the North Sea, aiming to phase out all extraction by 2050. The Danish Minister for Climate, Energy and Utilities, Dan Jørgensen stated: “When the calendar reads 2050, the oil and gas valves will be turned off for good, in line with our commitment to climate neutrality stipulated by the Danish Climate Act.”


As seen in Denmark’s 2019 election, constituents across Europe voted for populist leaders that prioritise climate action. While the British government announced an ambitious plan in early December to cut emissions by 68 per cent compared to 1990 levels by 2030, faster than any other major economy, reports are urging British gas and oil firms to follow Denmark’s lead and also phase out North Sea extraction. These commitments are turning attention to neighbouring Norway’s inaction, a far larger producer of fossil fuels, as their oil output is set to continue growing. As the top producer of oil in the European Union, Denmark’s move should be applauded, as other oil-producing nations must take similar leaps to turn the tide toward clean energy.


Industry Impacts


This announcement marks the end of a five-decade-long era in which fossil fuel revenue has helped the country become one of the world’s richest and most progressive countries. The Scandinavian powerhouse has earned more than $88 billion USD in revenue from fossil fuel extraction since 1972. Denmark’s oil and gas industry has been dwindling over the past decade; however, 4,000 workers are expected to be displaced as the barrels dry up.


Many criticise the 2050 commitment as apathy and not ambition, with a distant target several decades away. The extended timeline has been justified as being a timely transition that will see the loss of an industry worth $2.1billion USD to the Danish economy. A hyper-aggressive transition will inevitably result in detrimental socio-economic impacts such as undersupply of utilities and infrastructure. A balance must be struck between pioneering green energy and technology, while providing the appropriate economic and social support given by a deeply entrenched industry.


Denmark has been gradually phasing out its reliance on fossil fuels across sectors, with only one per cent of its extracted oil being exported and less than 11 per cent of its electricity coming from non-renewable sources. Favouring renewable sources such as hydroelectric, wind power, biomass and imported nuclear energy, with policies pertaining to infrastructure development, taxation and investment. Their ‘greener’ composition of taxes has taken a ‘carrot and stick’ approach to nudge individual and company behaviour toward favourable alternatives, with 12 per cent of tax revenue coming from energy policies. Similarly, Danish pension funds are divesting from oil companies in favour of greener alternatives, demonstrating how corporate responsibility is driving investment.


The next step for Denmark is to implement a transition strategy for workers affected by the 2050 commitment, engaging industry leaders, and trade unions to mobilise the workforce. With ‘green’ sectors expecting to grow, assisting in re-skilling displaced workers will mitigate adverse socio-economic impacts. Additional exploration and continued investment into the promising potential of carbon capture and storage, which can repurpose old oil and gas wells, will see Denmark remain at the forefront of green technology.


Learning from Denmark


Denmark appears to have found a winning balance between economic growth and carbon reduction. While its economic success story has depended on a carbon-dioxide footprint, it is successfully transitioning to green energy with a clear end in mind. The Danish model of phasing out coal, supporting renewable energy infrastructure and investing in research and development is working.


Recent research conducted by McKinsey & Co proposes that Europe can achieve climate neutrality with no net socio-economic cost to society. The strategy firm outlines that transitioning to renewable energy could see Europe make a net gain of five million jobs and reduce the average cost of living for low and middle-income households. This research illustrates that the utopian vision of a decarbonised Europe is not as unobtainable as once thought. Modernity is faced with the crucial environmental imperative of stopping greenhouse gas emissions. The decarbonisation of Denmark is well on its way; let’s make sure the rest of Europe isn’t far behind.


Jessica Hoeps is a Master of Public Policy student and has previously completed a Bachelor of Politics, Philosophy and Economics and a Bachelor of Commerce from the Australian National University. Jessica currently works as a public sector consultant and has a passion for political economy and international policy.