How should green taxation be designed? We argue that to design green taxes which are high enough to have the desired incentive effects, tax revenues must be reimbursed, either by earmarking them for environmental subsidies or by reducing other taxes directed at industry. If green tax schemes can be designed this way, industry will have little incentive to mobilise strong opposition to green taxation. However, in practice, the requirement of reimbursement may be difficult to fulfil because, with few exceptions, polluting industries are not homogeneous. This means that reimbursement will redistribute financial resources within industry and thus create winners and losers. Still, we demonstrate how green taxation can be used in heterogeneous industries which can be created by operating separate tax schemes for each branch of industry.
Environmental Politics, 2003, Vol 12, Issue 4, p. 76-95