Efficient use of green taxes in the CHP sector

Since 1977 green taxes have been used in the Danish power and heat sector. Green taxes principally assure an efficient, market-based reduction of pollution by reducing the energy consumption or increasing the share of renewable energy in power and heat production. This report takes its point of departure in four potential barriers which prevent a marketbased, cost-effective increase of the proportion of renewable energy in power and heat production. We primarily concentrate on three policy measures. 5. green and lessgreen taxes; 6. mandatory combined heat and power production; 7. fuel restrictions. Furthermore, we analyse a fourth characteristic in the law: 8. high transactions costs connected to the enlargement of renewable energy. The purpose of the report is to describe how the four potential barriers contradict the theoretically efficient application of green taxes in the power and heat sector. We do this: 1) by clarifying how legislation in the power and heat sector affects the extension of renewable energy; and 2) by evaluating the theoretically efficient application of green taxes in the power and heat sector in relation to legislation. (au)