Environmental Taxes Don Fullerton, Andrew Leicester, Stephen Smith Discussion by Agnar Sandmo

SUMMARY 1. Introduction. Part A. Principles. 2. Environmental regulation: Instrumental choice. Quotas: Fixed or tradable. Taxes: Pros and cons. Efficiency: Static and dynamic. Resistance to lobbying. Costs of administration.

SUMMARY (CONT.) 3. Designing environmental taxes. 4. Revenue aspects. The tax base: Emission, input or output? The importance of transactions-based taxes. 4. Revenue aspects. The double dividend: Does it exist? The importance of specifying the initial situation and the policy instruments of a green tax reform.

SUMMARY (CONT.) Part B. Applications. 5. Carbon taxes on energy use by industry and households. The carbon tax and global climate change. The optimal time profile of the carbon tax. 6. Road transport externalities. A tax on emissions is too costly Alternatives to emissions taxes.

SUMMARY (CONT.) 7. Aviation taxes. 8. Taxes and waste management. Made complicated by international considerations. 8. Taxes and waste management. Difficult to choose the right tax base. 9. Conclusions.

DISCUSSION Principles of policy design. The importance of ensuring that individuals and firms are ”policy takers”. The tradeoff between this and the principle of targeting. Evasion of environmental taxes does not necessarily lead to inefficiency.

DISCUSSION (CONT.) The double dividend. In a fully optimal tax system there is no dividend. Importance of the tax reform approach. A missing perspective: The employment dividend. Intrinsic and extrinsic incentives. The hypothesis of crowding out of intrinsic incentives is important but difficult to test.

DISCUSSION (CONT.) The importance of elasticities. The distinction between short-run and long-run elasticities is very important for environmental policy. International aspects of the carbon tax. Should the carbon tax be designed to achieve global production efficiency? The global equality-efficiency tradeoff.