Do Monopolies Justifiably Fear Environmental Tax Reforms?

It is often argued that without tax-exemptions for the production sector environmental tax reforms substantially reduce profits and endanger employment. We challenge this view and investigate the consequences of both a small and a large tax reform in the case of a monopoly. We show that these suspected effects are unlikely to emerge. Rather the contrary, for a wide range of ex ante tax systems, profits and employment of non-polluting factors increase – and, in this sense, together with a positive environmental effect, a double, or even a triple dividend can often be attained. What we should, however, be concerned about is the effect of a green tax reform on the demand for environmentally harmful factors of production. When the double dividend fails, it frequently does so because the environmental dividend is lost.