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It has often been claimed that there will be a ‘double dividend’ from the introduction of environmental taxes. Not only will it improve the quality of the environment by substituting taxes that actually improve the allocation of resources for taxes that distort it but there will also be another social gain in addition to the primary one. The chapter takes a critical look at three notions of the double dividend—a more efficient tax system, a lower rate of unemployment, and a lower marginal cost of public funds. In all three cases, it is found that a double dividend is a real possibility, but there is no guarantee that it will actually occur. The analysis identifies the conditions under which green tax reforms are likely to be successful with respect to each of the three dividends.

ETRs have been implemented in several of the old EU member states, such as Denmark, Germany, Finland, Netherlands, Sweden, and the UK. This chapter very briefly identifies the key characteristics of these green tax reform packages, with a special focus on Germany and the UK. Recent years have seen a growth in support for ETRs in the new EU member states, with Estonia and the Czech Republic introducing this policy instrument, and the chapter discusses the prospects for ETR in new EU member states, with a focus on the Estonian ETR, highlighting some differences in the overall revenue structure between old and new EU member states. The chapter then reviews the theoretical literature on ETR and the ‘double dividend’ hypothesis, before moving on to a review of the empirical modelling literature that assesses the effects of the ETRs on the environment and the economy through estimates of changes in emissions, sectoral effects, such as changes in output, employment, and trade, and macroeconomic variables, such as GDP and total employment.

This chapter reviews the theoretical debate on the properties of environmental tax reforms and implications for competitiveness. Starting from the Porter hypothesis, a claim was made for improvements in competitiveness from shifting taxation from good to bad – from labour to pollution. The chapter argues with reference to Leibenstein (1966) that the benefits of tax‐shifting need to be appreciated not only from the perspective of allocative efficiency, but also from associated improvements in incentive efficiency. The review is followed by a closer inspection of the concept of competitiveness, whereby both its broader connotations as well as some official definitions are considered. The purpose is to present a clarification of the conceptual and methodological basis for the assessment of competitiveness impacts for energy‐intensive industries and European economies undertaken in this book. In the final section, the chapter presents the research methodology underlying the book as a whole and provides a brief introduction to individual chapters. The need for a complementary research design combining a top‐down macroeconomic with bottom‐up sectoral approaches is argued.

This chapter provides an overview of carbon‐energy taxation introduced under environmental tax reforms in Europe. First a broad overview of the relative shares of taxes on energy, transport, and pollution is presented. This overview treats developments in EU‐15 as well as in the ten new member states and shows that tax‐reform proposals are considered across Europe as a whole. Developments in tax‐shifting are most advanced in Denmark, Finland, Germany, Netherlands, Slovenia, Sweden, and the UK. Comprehensive reform proposals have also been put forward in countries such as France, Italy, and Belgium, while currently among the new member states Estonia and Czech Republic have announced tax shifts to be implemented. The chapter investigates whether there have been ‘implicit’ tax shifts, i.e. by examining how the ratios of labour taxation‐to‐GDP and of environmental taxes‐to‐GDP have developed during the last decade. Furthermore, the chapter looks into how European countries have designed their tax shifts, and in this connection how the concern of potential losses of competitiveness have been addressed and mitigated. This is done by explaining the different principles and measures applied in the seven countries which have already introduced tax shifts.

This book presents a new approach for designing energy and environmental policies for the United States. In the absence of hidden costs of energy the role of government policy would be to maintain competitive and smoothly function markets for energy. Environmental policy requires that users of fossil fuels bear the costs of health and other damages. This can be achieved by levying taxes on emissions that are equal to the incremental damages. By using the revenues from environmental taxes we are able to reduce the rate of taxation on capital income and produce a double dividend, consisting of substantial reductions in pollution and an improvement in economic performance.