Too hot to handle?: Benefits and costs of stimulating the use of biofuels in the Swedish heating sector

This paper evaluates the impact of changes in current Swedish energy taxation by analyzing a panel of approximately 150 district heating plants in Sweden. We estimate plant-specific production functions and derive the economic repercussions of changing the energy tax system. We also estimate the resulting changes of emissions of Sulfur, NOx, particulates and CO2. Our results raise the issue of whether or not the Swedish tax system needs to be complemented with additional environmental taxes, covering, say, emissions of particulates. Because the geographical variation of damages is likely to be substantial, an overall re-assessment of current regulatory schemes seems preferable.