The main purpose of this master’s thesis is to conduct a socio-economic analysis of the potential consequences of the increased Danish tax on the emission of nitrogen oxide (NOx) emitted from stationary combustion. Furthermore an alternative tax based on a refunded payment (REP) system where the refund depends on the producers NOx-emission compared to their share of total energy production/usage is suggested; the aim is to secure economic incitement to reduce NOx through investment in reduction technology. The REP program is combined with a targeted financial support for R&D related to NOx-reduction. The two different tax models are analyzed through a welfare economic cost-benefit analysis, presentation of cases from relevant producers and an analysis of the potential for developing a Danish environmental technology industry based on solutions for NOx-reduction by public-private cooperation.

The cost-benefit analysis shows that if Denmark levies a tax on NOx-emission without the neighbouring countries follow suit the Danish welfare gains could be overlooked no matter which tax model is chosen. The welfare economic analysis focus on the health effects the reduction of NOx gives but the loss of Danish competiveness is ignored although it should be included in the socio-economic analysis. The cases show that the producers with energy demanding production will experience a decline in competiveness although the alternative tax model would reduce this loss. However, competiveness should be analysed but from a sectorial and a national level; the decline of competiveness in one sector could be off-set by an increase in another. This lead to an analysis of the potential for developing an industry based on NOx-reduction through public-private cooperation if the alternative tax-model is implemented.

The main result of the thesis is that there is a considerable socio-economics potential in NOx-reduction if the alternative tax-model is implemented. A prerequisite to maximize the welfare gains, reduce the loss in competiveness and secure the development of a Danish industry within NOx-reduction is political action. The politicians should work for ambitious international NOx-reductions, e.g. within the EU; to secure the welfare gains from Danish NOx-reduction, and to ensure the export opportunities for Danish companies with competences within NOx-reduction.