OECD Economic Surveys: Denmark 2021
The Danish economy has recovered quickly from the COVID-19 crisis. Rapid action to support firms and households contained the economic contraction to one of the mildest in Europe, while fast vaccine rollout enabled the removal of shutdown restrictions and an early reopening. Policy support should continue to be removed where activity has recovered, though the uncertain worldwide health and economic situation warrants ongoing flexibility. Monetary policy is set to remain strongly expansionary, increasing the importance of being ready to tighten macroprudential regulation if risks from rapid house price appreciation continue to build. The crisis was worse for the young, the foreign-born and those with low educational attainment and policy should support these groups. Further progress in reducing gender gaps is also a priority. Denmark has been a frontrunner in cutting its greenhouse gas emissions through a rapid shift to renewable energy and has set an ambitious legal commitment to reduce emissions by 70% by 2030 and reach carbon neutrality by 2050. Achieving these targets would contribute to global efforts to control climate change, but the transition will have large macroeconomic consequences and entail significant financial risk. This makes it crucial to adopt a cost-effective, inclusive and comprehensive strategy to cut emissions.
SPECIAL FEATURES: CLIMATE CHANGE POLICY
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An effective, inclusive and comprehensive strategy for a decarbonised economy
Denmark has been a frontrunner in policies that reduce greenhouse gas emissions and now plans to achieve carbon neutrality by 2050. Emissions of greenhouse gases peaked in the mid-1990s and have since declined by about 47 million tonnes. Achieving carbon neutrality will require additional cuts of a similar amount. Denmark plans to frontload this effort and more than halve its emissions by 2030. Achieving these ambitious targets would contribute to global efforts to control climate change, but the transition towards carbon neutrality will have large macroeconomic consequences and entail significant financial risks. Rapid changes in consumer behaviour, large amounts of private and public investments, and a reallocation of labour across sectors will be required. The impact of climate policy on public debt will be increased by unavoidable spending to protect the country from changing weather patterns. This makes it crucial to adopt well-designed policies that contain both types of costs and promote the benefits of adaptation to climate change. This chapter outlines a cost-effective, inclusive and comprehensive strategy to decarbonise the Danish economy. It reviews progress so far, discusses macroeconomic consequences of climate policies, and recommends a package of policies.
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