This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries. The economic situation and policies of Denmark were reviewed by the Committee on 13 October 2021. The draft report was then revised in the light of the discussions and given final approval as the agreed report of the whole Committee on 15 November 2021.

Denmark used its large fiscal space when COVID-19 hit. Rapid action to support firms and households in spring 2020 and again in the winter contained the economic contraction to one of the mildest in Europe. Fast vaccine rollout enabled the removal of shutdown restrictions and an early reopening, though restrictions on the unvaccinated were reintroduced in late 2021 as Delta variant cases rose rapidly. Low interest rates and credit guarantees have also facilitated the recovery.

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. While employment rates for these groups have now recovered, policy should return to addressing long term structural issues facing these groups, such as helping the labour-market entry of young people and improving the integration of migrants.

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.

Denmark’s energy, transport and agriculture sectors are responsible for a large share of the country’s greenhouse gas emissions. Fast decarbonisation of these sectors will require radical transformations of business plans, large public and private investments, and a reskilling of the workforce. In the energy sector (electricity and district heating), past progress made to ramp up clean technologies provides a good blueprint to achieve further decarbonisation, but the focus will need to be put soon on lowering reliance on woody biomass. In the transport sector, emissions have continued to increase despite the shift to more fuel-efficient vehicles, highlighting the need for more transformative policies to expand alternatives to individual car uses. In agriculture, little has been done so far to cut emissions, especially from livestock. The sector is subject to leakage risks, but nonetheless should be encouraged to transform its practices. Helping farmers to monitor their GHG emissions should be combined with more stringent regulation.