The tax provides a mechanism by which pollution can be reduced in an economically efficient manner. The basic principle for the mechanism is that the pollution abatement should be cost efficient, not only concerning the distribution between the measures of abatement but also concerning the speed by which the total amount of pollutant emissions is reduced over time. The concept combines those efficiency advantages of a pollution tax with an innovative way of setting the level of the tax using the decisions of individual firms acting on an open market. Höglund’s tax does not consider damages to the environment when setting the level of the tax. Rather, the level of the tax is dependent on the development and adoption of cleaner technology. Höglund’s tax also subjects polluting firms to short-term volatility. This drives firms to buy and sell pollution contracts on market in order to hedge their abatement decisions.
The research undertaken here involved contributions from several important agencies and institutes including; Nutek (project’s financier), Miljödepartementet, Naturvårdsverket, Näringslivsdepartementet, Gothenburg University, Elforsk, Energimyndigheten. IVL hosted two reference group meetings where the concept and research results were presented and discussed.Input obtained from these organisations served to strengthen and improve the analysis.
The report recommends further research into the mechanism.