338 L. BOSCÁN ET AL.
Service Obligation (PSO) used to finance renewable subsidies, industrial
consumers pay a much higher share of Value Added Tax (VAT). The situation is similar in other ranges of consumption for residential, industrial,
and commercial consumers. Denmark has one of the highest end-user
electricity prices in Europe.
How can this be reconciled with the ambitions of Danish policymakers
to decarbonize by means of electrification? While it is a feasible idea
from the technical and environmental perspective, as the Danish electricity sector is already decarbonized (see Fig. 13.4), economic feasibility
remains to be proven for final consumers. The Danish government is
aware of this issue and has started taking measures to make electricity
more accessible. First, the Danish government introduced a gradual elimination of the PSO payment in the period 2017–2022 in response to
the EU’s concerns about its implications for discrimination against nonDanish renewable energy producers participating in the European energy
market. To compensate for the elimination of this end-user-paid subsidy
to renewable producers, the Danish government slightly increased general
taxation and will use these proceeds as a funding source for renewable
projects (Hvelplund et al. 2017). Electricity taxes for final consumption
and heating have also been reduced. There is also an ongoing initiative to introduce dynamic taxes and to increase cooperation between the
Transmission System Operator (TSO) and Distribution System Operators
(DSOs) in their tariff design, aiming at incentivizing flexible electricity
usage.
Once again, however, it is difficult to predict the extent to which
end-users will become incentivized to adopt more efficient, electricitybased technologies. Financing the transition to renewables in a nondistortionary manner may require comprehensive tax reform, which
focuses both on the structure of taxes, i.e., the signals it sends to endusers, and on the taxpayers, who bear the burden. While the argument
for renewable funding through general taxation is not without detractors,
as “RES support will compete in the political arena against other budgets
of societal interest” (Hvelplund et al. 2017, p. 574), there are voices
raised in favor of it. Notably, Newbery (2015) and Robinson et al. (2017)
consider that renewables share the characteristics of public goods and thus
are less distortionary if financed through broad-based taxes rather than
through narrowly based taxes. Denmark appears to be moving in this
direction.
Service Obligation (PSO) used to finance renewable subsidies, industrial
consumers pay a much higher share of Value Added Tax (VAT). The situation is similar in other ranges of consumption for residential, industrial,
and commercial consumers. Denmark has one of the highest end-user
electricity prices in Europe.
How can this be reconciled with the ambitions of Danish policymakers
to decarbonize by means of electrification? While it is a feasible idea
from the technical and environmental perspective, as the Danish electricity sector is already decarbonized (see Fig. 13.4), economic feasibility
remains to be proven for final consumers. The Danish government is
aware of this issue and has started taking measures to make electricity
more accessible. First, the Danish government introduced a gradual elimination of the PSO payment in the period 2017–2022 in response to
the EU’s concerns about its implications for discrimination against nonDanish renewable energy producers participating in the European energy
market. To compensate for the elimination of this end-user-paid subsidy
to renewable producers, the Danish government slightly increased general
taxation and will use these proceeds as a funding source for renewable
projects (Hvelplund et al. 2017). Electricity taxes for final consumption
and heating have also been reduced. There is also an ongoing initiative to introduce dynamic taxes and to increase cooperation between the
Transmission System Operator (TSO) and Distribution System Operators
(DSOs) in their tariff design, aiming at incentivizing flexible electricity
usage.
Once again, however, it is difficult to predict the extent to which
end-users will become incentivized to adopt more efficient, electricitybased technologies. Financing the transition to renewables in a nondistortionary manner may require comprehensive tax reform, which
focuses both on the structure of taxes, i.e., the signals it sends to endusers, and on the taxpayers, who bear the burden. While the argument
for renewable funding through general taxation is not without detractors,
as “RES support will compete in the political arena against other budgets
of societal interest” (Hvelplund et al. 2017, p. 574), there are voices
raised in favor of it. Notably, Newbery (2015) and Robinson et al. (2017)
consider that renewables share the characteristics of public goods and thus
are less distortionary if financed through broad-based taxes rather than
through narrowly based taxes. Denmark appears to be moving in this
direction.