A host of countries are experimenting with taxes that discourage environmentally damaging practices, yet the level of the taxes may not always correspond to the environmental costs, suggests new research reported in the December 15 issue of ES&T (2002, 36, 5289–5295). The study shows that Swedish taxes on fossil fuels and forest residue fuels are influencing energy users to move away from fossil fuels, but the taxes may be encouraging the use of forest residues more than is justified by the fuel’s environmental and health costs.

There is a broad body of research demonstrating that environmental taxes change fuel choices, but this is one of the first studies to compare the tax level on a fuel to the fuel’s cost to society, says Marie Lynn Miranda, an economist at Duke University and lead author of the paper. To determine the tax, production, health, and environmental costs associated with the use of oil, coal, natural gas, and forest residue fuels, Miranda and colleagues relied on estimates from the literature and interviews with Swedish experts. These estimates were then converted into Swedish kronor per megawatt-hour of energy output, allowing comparisons across fuel types in the energy sector.

Over the past 10 years, Sweden has cut income taxes, while instituting taxes on CO₂, sulfur, and energy, which have helped lower emissions of CO₂ by 3–4% and sulfur dioxide by 80%. Sweden’s abundant wood residues are exempted from these taxes, even though the environmental and health costs of burning wood residues are significant—, Miranda says. The taxes on natural gas are 2–3 times higher than their environmental costs, potentially dissuading Swedes from using a cleaner fossil fuel, she notes.

Meanwhile, Germany, which has shifted 2% of its tax burden from income to energy and fossil fuel tariffs, adopted a draft bill on November 5 to boost these energy taxes in 2003, predicted to generate $1.4 billion in additional revenue.

Despite these moves, the scale of tax shifting is relatively small, accounting for only 3% of tax revenues worldwide, says Bernie Fischlowitz-Roberts, researcher with the U.S. Earth Policy Institute, an environmental organization. —JANET PELLEY