Environmental taxes on fuels and electricity — some experiences from the Nordic countries

In economic theory, environment-based energy taxation provides a direct financial incentive for environmentally sound economic behaviour in the energy field. In practice, only a few countries have implemented such taxes unilaterally in the 1990s. To be effective, environment-based energy taxes seem to need international implementation. The EU Commission has made three proposals in 1992, 1995 and 1997, but so far none of them has proceeded in the negotiations. In this article, we focus on implemented environmental taxes on fuels and electricity in the Nordic countries. Firstly, the idea of environment-based taxes as a part of sustainable energy policy is presented. Secondly, we review the impacts of this kind of taxes on the environment, energy production and consumption, income distribution, and competitiveness via estimates presented in the literal sources. Thirdly, we review comparative studies of environmental taxes on energy from a methodological perspective. And finally, we analyse the use of energy tax comparisons in political decision-making. A recent energy tax reform in Finland is used as an example.