An environmental tax-shift with indirect desirable effects

Abstract

Imposing environmental taxation on external costs of energy will not only affect the environmental impact of the energy sector itself, but it will tend to decrease environmental damage from other sectors of the economy as well. We have assessed the effects of a shift of taxation from taxing labour to taxation of external costs caused in the energy sector. Several examples give results compatible with the hypothesis that the changing price relation between labour and energy resulting from such a tax shift will make re-use, repairs and recycling increasingly competitive and thus tend to decrease mining as well as waste production. Likewise, less energy-intensive commodities and services in general would become increasingly competitive, and would tend to decrease the environmental load further. These environmentally desirable effects are beyond the taxed external effects of the energy sector itself and occur as an indirect effect of the increased relative price of energy.