Abstract
Among a variety of environmental taxes which have been introduced in Sweden since the early 1990s, the carbon tax and nitrogen oxides emission charge are examined for their effects on technological changes. The carbon tax triggered the massive turnover from fossil fuels to biomass fuels and developments of associated technologies in local heat supply sector, but its effects on the manufacturing industries have been limited, chiefly because the tax was reduced for manufacturers to keep them competitive in the global market. In contrast, the nitrogen oxides emission charge has been successful in stimulating adoption of new technologies due to a relatively high charge rate which was made possible by a system of refund according to the amount of energy produced. The both measures have led to evolutionary, if not revolutionary, innovation. The environmental tax can be very effective even at an initially insufficient rate if the rate is expected to rise in future. The success of the environmental tax depends on its appropriate combination with other political measures.
