Combining voluntary agreements and taxes — an evaluation of the Danish agreement scheme on energy efficiency in industry

In this paper the Danish agreement scheme on energy efficiency in industry is described and evaluated. The basis for this evaluation is an implementation study of the agreement scheme and five evaluation criteria examining the practical considerations related to the choice of policy instruments. A distinct feature of the Danish scheme is that it is closely connected to a CO2 tax on trade and industry. This connection is important for the understanding and the functioning of the scheme. The scheme has certain advantages: the prevention of free riding is effective, the scheme is flexible over time and the agreements do actually have an impact on firm behaviour. But there are also drawbacks: the administrative costs and search costs are high and the impact on innovation and networking among firms is low.