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Environmental taxes make companies invest in research

Portrait of Christian Thomann
Christian Thomann, associate professor and one of the researchers behind the study.
Published Oct 24, 2022

Companies with emissions affected by environmental taxes invest more in research and development. This is shown in a new international study by two Indek researchers.

Ambitious environmental goals require tools for society to change. Environmental taxes are such an instrument. You want to encourage companies to emit less by switching to cleaner production technology through price mechanisms. The taxes are not only about adding to the treasury but motivating companies to get rid of the costs of the taxes. In return, society gets environmental improvements.

“It's a win-win situation. And now we know it works. The companies that are affected by environmental taxes invest in knowledge that will reduce the taxes,” says Christian Thomann, one of the two researchers at Indek who participated in an international study recently published in the prestigious The Review of Financial Studies.

Those who have the most to gain from absorbing external knowledge and technical know-how are those with significant emissions. The study shows that they choose to assimilate existing research to reduce emissions instead of developing their own innovations.

“It could be a cement manufacturer who hires someone to implement technology stemming from the latest research into existing facilities. But the companies might also collaborate with universities or research institutes that have developed new technology or hire someone from there. As a researcher, it's satisfying to see that you take part in research results that are available,” says Christian Thomann.
“This also shows that environmental taxes lead to behavioral effects regarding companies' spending on research and development. It is something that was hoped for but which we have now been able to prove.”

Environmental taxes consist of taxes on energy, transport, pollution and natural resources. Last year (2021), environmental taxes in Sweden amounted to roughly SEK 103 billion (source: SCB).

Text: Anna Gullers

Read the full publication here