The Green Market Transition
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The Green Market Transition

Carbon Taxes, Energy Subsidies and Smart Instrument Mixes

Edited by Stefan E. Weishaar, Larry Kreiser, Janet E. Milne, Hope Ashiabor and Michael Mehling

The Paris Agreement’s key objective is the strengthening of the global response to climate change by transitioning the world to an increasingly green economy. In this book, environmental tax and climate law experts examine carbon taxes energy subsidies, and support schemes for carbon and energy policies. Chapters reflect on the underlying policy dynamics and the constraints of various fiscal measures, and consider the harmonisation of smart instrument mixes.
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Chapter 15: Towards a ‘third dividend’ analysis for innovative environmental taxation policies and allocations: a smart instrument mix for the reduction of CO2 emissions

Sixtine Van Outryve d’Ydewalle and Sébastien Wolff


In the face of the necessity to drastically change our natural resources production and consumption, there is a need to open the political imagination for mixing smart instruments. In addition to classical environmental taxes, the ‘extraction taxes’ proposed in this chapter would, on the one hand, allow for an important reduction of fossil resources supply on energy markets, and, on the other hand, raise revenues from common resources to support innovative ecological projects. Therefore, this chapter aims to explore the possibilities of (1) innovative taxation and (2) innovative income allocation to reverse this existing trend. First, the chapter discusses the possibility of implementing a tax on fossil resources extraction, creating a ‘third dividend’ in the current tax law framework. This tax income could come from licencing the extraction of or directly from selling the fossil resources to the consumer, and could therefore be added to the double dividend classically recognised with environmental taxes (reduction of negative externalities and tax incomes). To this end, the chapter will analyse the legal framework surrounding the implementation and allocation of revenues coming from an ‘extraction tax’, focusing on practical and legal limits that States would encounter under European law. Second, this chapter proposes to magnify the effect of such ‘third dividend’ from ‘extraction taxes’ to reduce CO2 emissions by allocating these tax revenues to low-carbon social innovations. Indeed, the reasoning underlying this governance tool that is taxation will be put into question in the light of the necessity to switch from a paradigm of ‘heteroregulation’ of individuals to one of human autonomy in order to increase environmental-friendly behaviours. To this end, take a glimpse of the existing ecological innovations already undertaken by citizens through two existing bottom-up initiatives: a community-led renewable energy project in Denmark and a town gathering a myriad of local low-carbon resilient initiatives in the United Kingdom. It is our view that mixing top-down instruments with bottom-up tools could constitute smart instrument mixes capable of galvanising the ecological transition towards sustainable societies.

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