The Green Tax Package increased the CO2 tax on trade and industry, which also
were levied an energy tax on space heating and an SO2 tax. In order not to increase
the overall tax burden on trade and industry, the additional revenues from the green
taxes should be recycled to these sectors by reducing the employers’ non-wage
costs for labour. Since such transfers would disadvantage the energy-intensive industry
over the trade sector, the green taxes were supplemented with the VA and
subsidy schemes. The VA scheme was inspired by the Dutch system (Togeby et al.,
1998). In addition, the CO2 tax was differentiated between three categories of applications:
heavy process, light process and space heating. Heavy process was levied
the lowest CO2 tax and space heating the highest (see Table 1). In order to enable
companies to adjust, the CO2 tax was gradually increased from 1996 until
2000. In 2001 Denmark changed Governments, after which the subsidy scheme was
terminated.