Environmental problems, such as the depletion of natural resources, global warming, and the destruction of ecological system, are among the most serious problems faced by the whole world. Since the early 1990's, many OECD countries have underten green tax reforms by introducing new environmental taxes to protect the environment. Environmental tax has been more widely used as an instrument of environmental policy than direct regulation, because an economic instrument has comparative advantage over direct regulation in terms of cost effectiveness and pollution abatement incentive. However, it is indicated that one of the important reasons why green tax reform has no further progress over the world is the fear about the negative effect of environmental tax on international competitiveness in the industry and trade sectors. The main purpose of this paper is to analyze the effect of environmental tax on industry and trade by using both theoretical and empirical tools. In the theoretical part, we present two different models, and technical change models, to compare the effects of environmental tax between pollution-intensive and energy-saving industries. As for economic growth, sustained growth is possible with the presence of environmental tax in the technical change model, while it is not in the model. Also, it is shown that optimal values of environmental tax and marginal productivity of physical capital are precisely given for the optimal investment in physical capital in a dynamic model rather than in a static model. This result implies that optimal environmental tax should be determined by dynamic analysis if we take into account both economic growth and the environment. Finally, we investigate the effect of environmental tax on trade, and it shows that the environment-friendly industry has comparative advantage over the pollution-intensive industry in terms of price competitiveness in a trade sector. So, the reconstruction of industrial structure in the direction of a clean and environment-friendly way is important for both protecting the environment and maintaining the international competitiveness in a trade sector. In the empirical part of this paper, we analyze the effect of the pollution abatement expenditure on R&D, patent, and trade balance, because we cannot analyze the effect of environmental taxes directly, most of which have not yet been established. Empirical results show that the pollution abatement expenditure does not have significant effect on the international competitiveness in industry and trade sectors. These results, however, do not deny the 'Porter Hypothesis' that environmental regulation enhances productivity and competitiveness in the long-term perspective, because of limited data. In order to examine the positive effect of environmental tax on industry and trade, we suggest to use the long-term data in the future for the in-depth analysis in this area.