Environmental taxes are increasingly seen as a tool for addressing environmental issues. Economists argue that pollution taxes can efficiently achieve environmental goals and may also reduce other distortionary taxes, leading to a "double dividend" of a cleaner environment and a less distortionary tax system. However, this study shows that environmental taxes often worsen existing tax distortions, even when revenues are used to cut other taxes. The optimal pollution tax is typically below the Pigovian level, which fully internalizes pollution damage. This is because environmental quality competes with other collective goods, increasing the marginal costs of environmental policy. The model shows that environmental taxes can affect labor markets and employment. A higher pollution tax reduces employment due to a decline in the real after-tax wage. This is because the tax base erodes, and the lower tax rate on labor income does not fully compensate workers for the adverse effect of the pollution levy. Environmental taxes distort the consumption basket, reducing real after-tax income from work. This makes environmental taxes less efficient than broad-based labor taxes. In the presence of distortionary taxes, pollution taxes become more attractive if revenues are used to cut distortionary taxes rather than returning them in a lump-sum fashion. This leads to a "doubled dividend," where cost reductions are achieved by using pollution tax revenues to cut distortionary taxes. The study highlights the complex interactions between environmental and labor-market distortions, showing that environmental taxes can have significant welfare effects depending on the tax structure and economic context.Environmental taxes are increasingly seen as a tool for addressing environmental issues. Economists argue that pollution taxes can efficiently achieve environmental goals and may also reduce other distortionary taxes, leading to a "double dividend" of a cleaner environment and a less distortionary tax system. However, this study shows that environmental taxes often worsen existing tax distortions, even when revenues are used to cut other taxes. The optimal pollution tax is typically below the Pigovian level, which fully internalizes pollution damage. This is because environmental quality competes with other collective goods, increasing the marginal costs of environmental policy. The model shows that environmental taxes can affect labor markets and employment. A higher pollution tax reduces employment due to a decline in the real after-tax wage. This is because the tax base erodes, and the lower tax rate on labor income does not fully compensate workers for the adverse effect of the pollution levy. Environmental taxes distort the consumption basket, reducing real after-tax income from work. This makes environmental taxes less efficient than broad-based labor taxes. In the presence of distortionary taxes, pollution taxes become more attractive if revenues are used to cut distortionary taxes rather than returning them in a lump-sum fashion. This leads to a "doubled dividend," where cost reductions are achieved by using pollution tax revenues to cut distortionary taxes. The study highlights the complex interactions between environmental and labor-market distortions, showing that environmental taxes can have significant welfare effects depending on the tax structure and economic context.