This GGKP working paper provides a conceptual framework for assessing the effectiveness (strengths and weaknesses) of a green fiscal reform. Economic theory is clear on the process for designing efficient environmental policies: eliminate energy production and consumption subsidies and use a Pigouvian fee to send appropriate signals through the market on the optimal use of different energy sources. Beyond that policy prescription, a number of choices remain: use of revenues, costs of administration, monitoring and oversight and other practical issues.
Policies can be assessed along a number of non-environmental dimensions, including potential for raising revenue, efficiency and distributional implications, broader economic impacts (e.g. economic growth, labour market outcomes) and political feasibility. The paper views a number of green fiscal reforms throughout the world through these various dimensions.