Based on the Green Tax Package 1995, provided for reform of the tax system between 1996 and 2000. It contained four principal elements: - three tax elements consisting of an energy tax, a CO2 tax and an SO2 tax; - a distinction between three different purposes for energy use when assessing the tax: space heating, light industrial processes and heavy industrial processes; - provisions for a significantly reduced tax rate in the case of specific energy-intensive activities, conditional upon a business committing itself to reducing energy consumption through an agreement negotiated between the company and the Danish Energy Agency (if the company did not fulfil the agreement, reimbursements already paid had to be returned and the tax imposed in full); and - gradual phase-in of the taxes. A large part of the additional revenues from the Green Tax Package were transferred back to enterprises through reduced taxation on employing labour and reductions in employers social security contributions. A smaller share was redirected to the industry and service sectors to provide investment grants for energy efficiency measures. These grants could be up to 30% of the initial outlay on a project with a payback period of between two and nine years. About DKK 1.8 billion (Eur 242 million) was set aside for these subsidies (capital grants) for 1996-2000. The Danish Energy Agency (now the Danish Energy Authority) established a list of 40 standard solutions for energy efficiency improvements and determined which projects would qualify. Eligible projects had to increase energy efficiency, reduce CO2 or SO2 emissions or be of a developmental character. Companies could also suggest individual solutions. Applications for support rose from 2,800 in 1996 to 7,000 in 2000. In an evaluation carried out in 1999, the government estimated that the Green Tax Package 1995 resulted in a net decrease of the overall tax burden by DKK 335 million and that CO2 emissions from industry in 2005 would be reduced by 3.8%, corresponding to 2.3 million tonnes1. Half of this was due to the taxes and the rest to subsidy and voluntary agreement schemes. In the case of the CO2 tax, the difference between the tax rate with and without voluntary agreements grew significantly between 1996 and 2001. EARLIER HISTORY OF ENERGY TAXATION IN DENMARK: Taxation of energy products has a long history in Denmark, dating back to the first tax on petrol introduced in 1917. As of 1980, taxation of a large number of products through the economy was motivated in part by environmental considerations and to save resources, especially energy. Energy taxes comprise taxes and duties on carbon dioxide, sulphur, electricity, natural gas, petrol and specific petroleum products. In 1991, energy taxes were reformed into an energy and carbon tax to reflect Denmarks environmental concerns. A large share of the tax revenues was used for energy efficiency measures and since the tax system came into effect in 1992 it has been expanded. Denmark embarked on a green tax reform to shift the tax burden away from income and towards resource use. This system was put into place between 1994 and 1998. Energy taxes were raised progressively, particularly on coal and electricity consumption, leading to an average increase in taxation on heating and power of 30% from 1994 to 1998. The main effect was that households paid lower income taxes and higher environmental taxes.