The National Bank of Denmark has published a climate transition analysis introducing a new methodology that combines transition scenarios with firm-level data on borrowing to assess economic and financial-sector risks. Using Danish scenarios where technological delays and structural factors slow emissions reductions, it concludes that meeting an illustrative 2035 emissions target could require significantly higher carbon taxes than planned without creating substantial challenges for Danish economic stability or the financial sector. In the carbon tax scenario, taxes are increased uniformly by DKK 320 per tonne of CO2e across already-taxed industries, announced in 2029 and phased in between 2031 and 2035, taking the non-ETS industrial tax to DKK 1,038 per tonne; agriculture retains a 60% basic allowance, implying an effective tax increase of DKK 128 per tonne. The modelled impact on GDP is very small (around ±0.1%), with investment rising by about DKK 11 billion (2%) in the years after announcement and employment increasing by around 3,000 in the short term. The primary budget balance is DKK 1.4 billion lower in 2035, as higher carbon tax revenue (about DKK 400 million) is more than offset by lower income and corporate tax receipts (about DKK 1.8 billion). For banks and mortgage credit institutions, additional impairment charges rise by almost DKK 200 million by 2035, concentrated among certain agricultural borrowers, and the impact varies by portfolio composition across institutions. A second scenario closes the emissions gap via higher carbon capture and storage subsidies, lifting annual subsidy payouts to DKK 1.8 billion in 2035 and reducing the primary budget balance by DKK 3.6 billion, while macroeconomic and banking impacts remain limited and aggregate impairment charges are broadly unchanged. The Bank also flags that climate-related risks can be larger when combined with other shocks, and notes the methodology could be extended to assess losses from physical climate damages.
National Bank of Denmark 2025-11-06
National Bank of Denmark analysis finds a DKK 320 per tonne carbon tax increase would have limited macro and banking effects
The National Bank of Denmark's climate transition analysis combines transition scenarios with firm-level borrowing data to assess economic and financial-sector risks. It finds that achieving a 2035 emissions target may require higher carbon taxes, with minimal impact on economic stability or the financial sector. The analysis also explores increased carbon capture subsidies, noting limited macroeconomic and banking impacts, while highlighting potential risks when combined with other shocks.