Executive Summary

Environmental economic taxes encounter more political resistance today than just two decades ago. At the same time, the green transition is more acute than ever, as a response to environmental degradation and climate warming. The Nordic countries have used green charges for more than three decades and have, therefore long experience and are often perceived as frontrunners in the green transition. However, this image does not fully live up to its reputation anymore. This report presents the findings of the impact of selected green taxes and charges in the Nordic countries—Denmark, Finland, Norway, and Sweden. The analysis for each charge respectively focuses on whether the charge has had or not had the desired effect on market behaviour and the reasons behind it. The analysis discusses the likely reasons for the variations in the effects of the instruments and internal and external parameters that have been successful for the outcome on the market. To mention a few of the parameters are charge level, precision of the charge, political alignment and synergies with other market instruments, and to what extent these parameters have had a positive or negative effect on the desired environmental effect. The study examines eight specific charges—two from each country which are Denmark's tax on pesticides and tax on residential electricity consumption, Finland's carbon tax and beverage packaging tax (deposit refund system), Norway's NO_X fund and waste incineration tax, and Sweden's aviation and plastic bag taxes.

The analysis highlights that green charges often fall short of optimal levels needed to fully internalise environmental costs and that the precision of their design has a greater influence on outcomes than the charge level itself. Policies with strong public and industry acceptance tend to be more stable and effective, with acceptance often tied to equity considerations and synergies with other national objectives. However, a significant challenge lies in balancing the need for high charge levels to address externalities while achieving political and social acceptability. Export-oriented sectors face additional complexities in reconciling competitiveness with environmental objectives. Moreover, while many green charges align positively with broader policy goals, a lack of coherent scientific evaluations hinders the ability to design and implement policies based on robust evidence.

Based on policy impact studies, interviews and workshop discussions with field experts, we offer the following eight recommendations, primarily for guiding policymakers and authorities, in designing effective environmental policies in the green transition.

Continue/expand the use of green charges: Green charges, aligned with the polluter pays principle, are recommended when bans or EU policies like the EU ETS do not address negative externalities.
Set taxes and incentives close to the externality: Identify the negative externalities in consumption and production value chains and target policies as close to the negative externalities as possible.
Encourage studies assessing policy impact: ex-ante and ex-post studies, supported by redirected funding or agency procurements, to evaluate policy impacts and design variations, with Nordic comparisons offer valuable insights.
Prioritise evidence-based policy and policy-based evidence: Countries should prioritise evidence-based policy by using robust methods, encouraging experimentation with control groups, and tailoring designs through ex-ante assessments to ensure scalability and practical application.
Be aware of potential unintended consequences: Consider potential unintended consequences, such as crowding out intrinsic motivation, substitution effects, or mental accounting, and carefully design and study policy instruments to address these risks effectively.
Combine charges with a comprehensive policy mix: Green charges should be combined with a comprehensive policy mix, including redistributive measures and investments in green technology, to enhance effectiveness, prevent backlashes, and increase public acceptance.
Harmonise long-term policy goals and industry signals: Countries should harmonise long-term policy goals with industry signals to foster confidence, encourage long-term investments, and proactively address the fiscal impacts of green transitions.
Harmonise policy development across countries: The Nordic countries would benefit from a harmonised reginal policy development to reduce leakage, maximise impacts, and pave the way for broader continental and global agreements.