In Denmark, levies are the driver of green transition in many areas. A levy is the most cost-efficient way to stimulate green transition next to transferable quotas. The basic idea is to put a price on emissions (here calculated as CO2-equivalents) and thereby incentivize reduced emissions. The polluter decides if it is best to reduce emissions or pay the levy – and the polluter decides how to reduce emissions.
Levies work if they are significant enough to motivate changes e.g. energy savings and/or switch to zero carbon fuel. Furthermore, levies need to be transparent prospectively to stimulate investments in green transition e.g. production of zero carbon fuels and development of new engines etc. In addition, levies should be adjusted over time in parallel to technological development. Finally, levy revenues can reduce green transition costs by reimbursing the revenue as financial subsidies to zero carbon fuels.
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