This paper investigates how to implement residential dynamic taxation in Denmark. To this end, it proposes three dynamic schemes that can be implemented by the Danish government. In particular, the paper studies one Ad-valorem and two different per-unit tax schemes, which respectively depend on electricity consumption and CO 2 emissions. A second contribution of the paper is to perform a holistic impact assessment based on six different categories, which decision makers can utilize to evaluate taxation schemes. These are: CO 2 emissions saved; the social cost of CO 2 savings; revenue neutrality; the composition of the production mix; transparency and predictability of taxation schemes; and how much consumption can be shifted. Based on the findings, a recommendation directed at Danish decision makers in the energy sector is presented. Results stand in contrast to earlier findings in the literature and suggest that a per-unit (excise) dynamic taxation scheme that depends on the level of consumption is preferred over a per-unit taxation scheme that depends on CO 2 emissions or an Ad-valorem tax on the retail electricity price. This assessment is based on the considerations that the preferred scheme: (1) incentivizes greater demand-side flexibility, (2) reduces CO 2 emissions more efficiently, (3) depends on a predictable random variable, i.e. electricity consumption.
- Dynamic taxation
- Residential consumer flexibility
- Implicit demand response