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In this paper, we study the impact of energy taxes and the EU ETS on a large number of firms in Europe between 1996 and 2007. Using company level micro-data, we examine how firms in different sectors were affected by environmental policies. Aspects of behavior and performance studied include total factor productivity, employment levels, investment behavior and profitability. On the whole, energy taxes increased total factor productivity and returns to capital but decreased employment, with a mixed effect on investment, for the sectors included in our analysis. However, large sectoral variation is observed, with some industries losing out in terms of productivity and profitability when faced with increased energy taxes, while others benefitted. [ABSTRACT FROM AUTHOR]

A number of recent studies on taxation in the presence of externalities in a second-best framework consider the implications of taking into account the feedback effects of environmental quality. This paper explores by means of GEM-E3. a computable general equilibrium model .for the EU countries, the importance of the ,feedback effects of the health related benefits from an environmental policy. The modelling framework implemented in GEM-E3 allows for three channels through which the feedback can occur: a decrease in medical expenditure, an increase in the consumers' available time and an increase of labour productivity in the production sectors. The results show that the explicit modelling of the health related effect of air pollution on consumers and producers allows for a more precise evaluation of the impact of environmental policies on private consumption and employment. Relative to the included benefits the feedback effects are large. However, in terms of global effect, the impacts of the feedback are small, compared to the standard GEM-E3 model where the health related benefits are evaluated ex-post. [ABSTRACT FROM AUTHOR]