This paper applies a DYNK (Dynamic New Keynesian) model to compare the traditional environmental tax reform for greenhouse
gas emissions with a taxation scheme that taxes greenhouse gas emissions embodied in consumption within the framework of a
unilateral policy of the EU 27. The embodied emissions of different commodities are taxed independently of their origin. The
greenhouse gas tax rates applied are identical and new revenues are in both cases recycled via lower social security contributions
of employers. The article shows the macroeconomic results, driven by the different impact of the taxation schemes on price
competitiveness of EU 27 firms. These differences drive the leakage and show negative leakage in the case of taxing embodied
greenhouse gas emissions. Both taxation schemes are also regressive for household incomes emphasising the importance of the
choice of revenue recycling. In terms of emission reduction, we find the taxation of emissions embodied in consumption less
effective.