The climate-fiscal timebomb: Denmark

08 March 2026

Fiscal outlook

Denmark recorded a 4.5% budget surplus and kept debt at 30.5% of GDP in 2024 – one of the EU’s lowest. Historically, the country has been one of the EU’s more frugal members, blocking larger EU budgets. It has only recently indicated a shift in this regard, primarily in response to the bloc’s defence spending.

Deficit measures the level of borrowing in a given year. Debt-to-GDP compares the total public debt to the size of the economy. Both are currently used to determine how much borrowing a member state is allowed to undertake. However, neither measure in itself determines a government’s capacity to sustain higher levels of public investment. Fiscal sustainability depends on growth, the multiplier effects of investment, interest rates, inflation, the structure of the economy and external risks such as climate change. NEF advocates moving away from strict numerical debt targets.

Rising climate costs

Climate impacts are costly. In July 2025, the Danish Meteorological Institute issued its first-ever red rainfall alert as >120mm of rain triggered flash flooding in Zealand. A recent report from the DTU shows that total flood damage to buildings alone will amount to around DKK 406bn (€54.3bn) over the next 100 years, which is still a conservative estimate. At the same time, 175,000 to 245,000 inhabitants could be directly impacted by rising sea levels. From 2020 to 2024, an average of 20% of Denmark’s land area experienced at least one month of extreme drought per year, representing an increase of nearly triple since 1951 – 1960.

What NEF’s modelling shows

Organisation for Economic Co-operation and Development (OECD) projections show Denmark’s GDP declining by 10% by 2050 and 14% by 2070 under current policies. Our modelling shows the following:

Under current policies (BAU – business as usual), Denmark’s debt is 35 pps higher than the baseline in 2050 and 123 pps in 2070.

With early EU mitigation and sufficient adaptation spending, debt is 14 pps higher in 2050 and 15 pps in 2070.

Delayed EU investments and insufficient adaptation results in higher debt levels of 29 pps in 2050 and 48 pps in 2070.

Progressive taxation, such as a wealth tax, combined with EU early action would reduce debt by 14 pps in 2050 by 46 pps in 2070 compared to the climate-agnostic baseline.