Carbon Pricing in Nordic Countries
Since the 1990s, Nordic countries have raised their carbon taxes and at times introduced double pricing (carbon tax and ETS allowances) with a view to achieving their national climate targets. Support measures (offsetting to preserve purchasing power, subsidies, tax exemptions) have also been implemented which have encouraged ambitious industrial solutions (low-carbon steel, bioenergy, electrification, carbon capture and storage, etc.), forming low-carbon industrial hubs in Nordic countries.
Nordic countries (i.e. Denmark, Finland, Iceland, Norway and Sweden) introduced carbon neutrality targets at a very early stage and made the decision long ago to raise their national carbon price levels in order to expedite the greenhouse gas (GHG) emission reduction process (see Chart on cover page).
High levels of explicit carbon pricing have had a significant impact in these countries. Carbon taxes have been a major factor in cutting CO2 emissions since the early 1990s, particularly in the heating and transport sectors, with Sweden acting as the trailblazer.
Just like the Alain Quinet report in France, several Nordic countries have estimated the carbon price required to achieve their climate targets and then, as in Denmark and Norway, have decided, in order to bridge the carbon pricing gap needed to achieve their climate objectives, to significantly raise their respective national nominal carbon tax rates in 2022 and impose double carbon pricing (carbon tax and European carbon allowances) on certain industries, thereby standing out from other European countries.
Concurrently, support measures were implemented to safeguard household purchasing power together with target subsidies and partial tax exemptions for certain industrial sectors. These measures helped to ensure the acceptance of carbon pricing.
Potential fossil fuel substitutes have also been promoted in industry, prompting the development of strategic industrial sectors such as low-carbon steel. Bioenergy (biomass-fuelled heating networks, black liquor) and electrification (electrical industrial processes, electrolysers, electric vehicles, heat pumps) have therefore established a foothold as a result of the increase in carbon prices. In 2023, far-reaching government support on an unprecedented scale was proposed for carbon capture and storage, most notably in Norway and Denmark. This proposal was made with a view to forming a Nordic hub that would play a pioneering role across the globe and could be used to reduce carbon emissions produced by certain industrial activities in the EU.