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Denmark will temporarily reduce tax on electricity starting from the fourth quarter of this year as a means of "compensation to citizens for its rising energy prices".

The tax cut will reduce the electricity tax by 4 krone (0.57 US cents) per kilowatt hour (kwh) in the October-December period to 72.3 krone, according to a cross-party agreement posted on the website of the Ministry of Finance.

The new policy will remain valid next year, slashing the electricity tax by 4.3 krone per kwh to 68.8 krone, Xinhua news agency quoted the agreement as saying.

Many Danes have felt the pinch of climbing energy prices following the Russia-Ukraine war. As a result, the government has reached a broad agreement offering short-term compensations to those who suffer the most from inflation, the Ministry said in a statement.

The agreement acknowledges that lower electricity tax will cost the state 475 million krone in revenue.

The temporary reduction in electricity tax is part of a larger agreement suDanish kronerpported by Parliament's broad majority, which will distribute a total of 3.1 billion krone to the citizens.

The agreement also includes a new green fund of 53 billion krone to accelerate green transition and phase out fossil fuels between 2024 and 2040.

Meanwhile, the parties agree that the green fund should be prioritised wisely and contribute to Denmark's green transition, including the achievement of Denmark's climate goals, through offshore wind development, afforestation, pyrolysis and carbon capture.