Obviously setting eco taxes will have to be done by governments. This will be a complicated affair, since of course there is no objective way of doing this.

It should be remembered, that eco taxes have a double purpose. On the one hand they shall through competition in the market promote scientific and technological developments leading to products using fewer resources per unit of service - increasing resource productivity. On the other hand, they shall also induce consumers to limit material consumption, in order that growth of consumption (in the industrialized countries) will bend more to (immaterial) service consumption, that is for instance entertainment, education and better health service. Gains in resource productivity should not reduce prices on material goods. On the contrary, these prices should increase to reduce material consumption. In setting eco taxes this aspect must also be taken care of.

Parallel with taxing material consumption more taxes on work should be reduced correspondingly. This will have an additional effect on making service more price competetive - more attractive compared to material consumption.

As an example: How should taxes on CO2 be set? If the basis is the recommendation of the IPCC, that CO2 emissions should be at least halved compared to today, the question then becomes, which energy prices (including tax) would lead to such a reduction. This raises the question of price elasticity. Since energy prices vary a great deal from country to country we can obtain a rather good impression of this elasticity. In fact there is a rather strong correlation between energy prices in various industrialized countries and the per capita use of energy. Based on this knowledge, a tax level must be picked. This level must be announced as a likely target level, but the introduction of such a tax must of course take place gradually over a longer period, for instance two decades. Time must be allowed for science and technology to react. Also time for the present stock of energy consuming products and processing plants to serve their time out; otherwise captital losses (for society) will be too great.

Once the tax has been introduced the speed of developments should be monitored. Based on such observations corrections of the tax level may have to be made, but obviously they should be rare and preferably have the character of finetuning in order not to create uncertainty.

For other resources the same question should be posed. How much should we limit the use of this resource? What is the likely price elasticity for it? And then a tax level must be picked.

Setting the right tax is in priciple picking a level which will bring us close to the optimum in a cost/benefit relation. Each incremental step of improvement of environmental conditions is more costly and each incremental step has less benefit (value). The cost and benefit curves have a cutting point, which ideally is the point we should try to hit. Unfortunately both curves are very difficult to quantify - they can only be based on rather uncertain assumptions. But still, the cost/benefit relation should be held in mind. There are limits to how many costs should be taken on to inprove the environment. Except of course in such cases, where a pollutant must be eliminated (as for instance the CFC's) or reduced to an absolute minimum.

Another way to fix a tax rate could be to make substitution - to environmentally better alternatives - economically attractive. For instance fossil energy could be taxed at such a rate, that renewable energy - solar for instance - became competetive, not being taxed. Or virgin plastic materials could be taxed to make recycling of these materials attractive.

As a final note it should be mentioned, that in cases of emission control it can be shown, that a combination of eco taxes and tradable emission permits can result in improved possibilities for hitting the optimum point in the cost/benefit relation.

Setting the right level for eco taxes will be a very difficult task. But that is no argument against the use of eco taxes. It is better to get eco taxes which are not quite optimal - and which can be corrected - than letting resource consumption continue its strong growth, with detrimental effects for the environment.

Certainly the difficulties in setting eco taxes described above will not be the major obstacle to eco tax reforms. The real problem will be, that the taxes necessarily must be international, introduced at the same time by the greater part of the industrial nations. This is necessary in order to avoid distortions in competition and plant relocations. But primarely it is necessary to give a really strong push towards developments in science and technology on a broad international base. The greatest difficulty will be to reach international agreements. Statesmen will be needed to achieve this.

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