Nitya Somani
COUNTRY - DENMARK
Negative externalities occur when the production or
consumption of a good causes a harmful effect to a third party. If goods or
services have negative externalities, then a situation of market failure will
arise. This is because individuals fail to take into account the costs incurred
by other people. Negative externalities are also referred to as spillover or
external costs. Negative externalities of production occur when there is
overproduction of a particular good or service created by producers. Negative
externalities of consumption occur when there is overconsumption of a
particular good or service created by consumers. In both cases, the marginal
social cost is greater than the marginal private cost.
Global warming is the increase of the Earth’s average
surface temperature due to the effect of greenhouse gases such as carbon
dioxide emissions from burning fossil fuels or from deforestation, which trap
heat that would otherwise escape from the Earth. Among the gases emitted when
fossil fuels are burned, one of the most significant is carbon dioxide, a gas
that traps heat in the Earth’s atmosphere. Over the last 150 years, burning
fossil fuels has resulted in more than a 25% increase in the amount of carbon
dioxide in our atmosphere. Many of the environmental problems faced today
result from fossil fuel dependence. Fossil fuels like coal, oil and gas are
used extensively as sources of energy in factories. Gas is used in households
for various activities. Fossil fuels create a number of negative externalities
associated with climate change.
In
2011, the Danish government unveiled its “Energy Strategy 2050” which describes
how Denmark can achieve its independence from fossil fuels by 2050 and
significantly reduce its greenhouse emissions. The strategy aims to reduce the
energy industry’s use of fossil fuels by 33% in 2020 compared with 2009. The
strategy involves a significant increase in renewable energy obtained from
wind, biomass and biogas. By 2020, construction of
new offshore wind turbines, coastal wind turbines and land-based turbines will
approximately double the wind power production in Denmark. Wind power alone is
expected to cover more than 40 percent of overall electricity consumption by
2020, compared with about 20 percent today. By 2020 more than 60 percent of
electricity consumption will by covered by renewable energy. Meanwhile,
strengthened energy efficiency efforts will reduce gross energy use by 6
percent in 2020, compared with 2006 levels. In reaching the goal, Denmark will
meet the energy efficiency goals set out in the 2008 energy agreement, and the
country will retain its position as a world leader in the area. The strategy
offers an economically responsible path to the conversion of the Danish energy
supply, and includes specific initiatives, that are all fully financed and
which will not damage the nation’s competitiveness. Homeowners will experience
moderate increases in the costs of heat and electricity, but will also be given
opportunities to lower their energy expenses through greater efficiency.
Companies can expect added expenses amounting to 0.1 percent of the rise in
their gross revenue growth by 2020.
The Danish government will grant biogas production subsidies,
subsidies for biogas infrastructure and subsidies for the use of biogas in
industrial processes to encourage the establishment of biogas plants. They hope
to replace coal with biomass by allowing producers and consumers of district
heat freedom of contract. They will also mandate a 10% biofuel additive by
2020.
Carbon taxes and cap and trade schemes are cost-effective ways
to reduce carbon emissions. A carbon tax refers to a tax directly linked to the
level of carbon dioxide emissions. Denmark has a direct national carbon tax.
This tax was implemented in 1992. The Danish carbon tax covers all consumption
of fossil fuels with partial exemption and refund provisions for sectors
covered by the European Union Emission Trading System, energy-intensive
processes, exported goods, fuels in refineries and many transport-related activities.
Fuels used for electricity production are also not taxed by the carbon tax, but
instead, a tax on electricity production is applied. The tax rate as of 2014 was USD31 per tonne carbon
dioxide equivalent.
Different
nations have come together on their own accord to create international
agreements about how to maintain, protect, and care for the earth’s natural
resources. These international agreements and treaties are often drafted during
large meetings, or conventions, that representatives from various interested
nations attend. Through
a number of national and international agreements Denmark has committed itself
to reducing the emission of CO2 and other greenhouse gases. The Kyoto Protocol of 1997 is
probably the most well known of the UN Framework Convention on Climatic Change
updates concerning climate change. At a meeting in Kyoto, Japan, many nations
agreed to set limits on carbon dioxide and other greenhouse gas emissions. The
nations that signed the Kyoto Protocol agreed to a binding contract to limit
their greenhouse gas emissions. To ensure the target is met, the EU-15 Member States have
each taken on agreed national emissions reduction or limitation targets
under what is known as the
"burden sharing" agreement. These national targets are differentiated
according to each Member State's relative wealth at the time of the agreement
but collectively add up to the 8% reduction needed. The targets are legally
binding under EU law. For Denmark, the target is -21% from the base year.
In these ways, Denmark is trying to
fulfill its environmental responsibilities.
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