The double dividend of recycling revenue from a carbon tax to reduce both emissions and distorting labour taxes is now seen as making an increase in GDP possible. Taking energy saving technological change into account may increase GDP further, as if prices act as an incentive for innovation, this pro- vides lasting change in energy productivity which would not be reversed by future price reductions. Long-run energy elasticities as low as -0.15 as found here make taxes a rather ineffective means of bringing about the large reductions in energy intensity required for atmospheric CO 2 stabilization. In the longer run, the induced technological innovation will have an increasingly important role, but requires very long planning horizons. Interfuel substitution away from coal and into gas has an important role to play in the short term in some countries, but its effect is limited.