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Political and Economic Scope for Permit Markets in Europe

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Public choice theory suggests that it is politically troublesome to impose a uniform tax on harmful emissions in Europe. This is so because industry, in contrast to households, is capable of lobbying against green taxation. When considering industry, taxation even with full refund of the revenue turns out to be problematic due to the ability of the potential losers (energy-intensive firms) to organize and lobby more strongly than the potential winners (labor-intensive firms). Indeed, this suggestion seems to be confirmed by the empirical evidence from green taxation in Europe and the use of permit markets in the US. Therefore, the policy recommendation for e.g. CO2 reduction in Europe is to apply taxation in relation to large and non-organized groups only, such as households and the transportation sector. A permit market, on the other hand, is politically more attrac-tive to the industry (organized polluters) due to the possibility of a free, initial distribution (grand-fathering). As such, a mix of green taxes (in relation to non-organized interests) and grandfathered permit markets (in relation to organized interests) should be considered in the search for cost-effective and politically feasible instruments.
Original languageEnglish
Book seriesZ E W Economic Studies
Issue11
Pages (from-to)77-86
Number of pages10
ISSN1615-6781
Publication statusPublished - 1999

    Research areas

  • Public Choice, Permit Market, Grandfathering, Industry, Households, Lobbyism, Cost-effectiveness, Environmental Regulation, Europe, Group Theory

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