Refunded emission payments theory, distribution of costs, and Swedish experience of NOx abatement

In this paper, we discuss the effect of refunding environmental charges. Taxes are often resisted by polluters because they imply both abatement and tax costs. When charges are refunded, the incentives for abatement are essentially the same as for a tax as long as there are many producers. The incidence and distribution of costs is however different. Lower net tax payments reduce resistance from the polluters and make refunded emissions payments politically easier to implement at a sufficiently high charge level to have significant abatement effects. We describe and examine the refunded emissions payment scheme as a policy instrument and compare it with taxes and permits with regard to allocative properties, distribution of costs, property rights, and, consequently, the politics of implementation. As an empirical example, the Swedish charge on nitrogen oxides is analyzed.