The purpose of this paper is to analyze the effects that energy taxes may have on reducing environmental pollution in Greece. We study the demand for residential energy for the period 1965-1998, and on the basis of these estimates we make forecasts for CO2 emissions in the coming years. Furthermore we develop alternative scenarios for tax changes, and study their effects on CO2 emissions. According to our findings the harmonization of the Greek energy taxes to the average European Union levels implies an increase of total CO2 emissions by 6% annually. If taxes are raised, however, to the highest European Union levels, the CO2 emissions are restricted significantly. These empirical findings may indicate that environmental taxation cannot be the unique instrument for combating Pollution. (c) 2004 Elsevier Ltd. All rights reserved.