Reconciling Environmental Policy with Employment, International Competitiveness and Participation Requirements

Politicians understand that a conventional double dividend policy - defined asreduction of greenhouse gas emissions and unemployment through taxation of energy and CO2emissions and subsidization of wage costs - and the aim of keeping international competitivenessof all sectors intact may be mutually exclusive concepts at least as long as internationallycoordinated solutions are not available. It is suggested that a double dividend policy that aimsat reducing GHG emissions and unemployment without a direct violation of internationalcompetitiveness has to tax energy use and CO2 emissions of households and should use therevenues to subsidize investment in energy or pollution-saving technologies to reduce investmentcosts of firms. Thereby reduction of energy coefficients is achieved together with lowers costsand prices of goods. This is an increase in competitiveness and employment in anenvironmentally friendly way and may induce other parts of the world to participate in GHGemission reduction policies or speed up the achievement of an internationally cooperativesolution. According to this proposal the principle of causation has to be dropped in partnationally but not internationally. Using these positive incentives, competitiveness of sectors willonly be affected through indirect general equilibrium effects.