Carbon tax

A carbon tax is a <a href="/facts/Tax/8cXNkA00">tax</a> levied on the <a href="/facts/Carbon_emissions/Cu9nXPHE">carbon emissions</a> from producing goods and services. Carbon taxes are intended to make visible the hidden <a href="/facts/Social_cost_of_carbon/5uPw2vPI">social costs of carbon emissions</a>. They are designed to reduce <a href="/facts/Greenhouse_gas_emissions/Cu9nXPHE">greenhouse gas emissions</a> by essentially increasing the price of <a href="/facts/Fossil_fuel/BPgxAqB7">fossil fuels</a>. This both decreases demand for goods and services that produce high emissions and incentivizes making them less <a href="/facts/Emission_intensity/NwSbRERk">carbon-intensive</a>. When a fossil fuel such as <a href="/facts/Coal/83kV3qxg">coal</a>, <a href="/facts/Petroleum/IQV0bHVd">petroleum</a>, or <a href="/facts/Natural_gas/9MYQ7NAP">natural gas</a> is burned, most or all of its carbon is converted to CO2. Greenhouse gas emissions cause <a href="/facts/Climate_change/rEN4BDE7">climate change</a>. This <a href="/facts/Negative_externality/hGgw7gtT">negative externality</a> can be reduced by taxing carbon content at any point in the product cycle.
In its simplest form, a carbon tax covers only CO2 emissions. It could also cover other <a href="/facts/Greenhouse_gas/HXaHqrT8">greenhouse gases</a>, such as <a href="/facts/Methane/kBHneYnh">methane</a> or <a href="/facts/Nitrous_oxide/Jvys91lI">nitrous oxide</a>, by taxing such emissions based on their CO2-equivalent <a href="/facts/Global_warming_potential/tgTbpwbJ">global warming potential</a>. 
Research shows that carbon taxes do often reduce emissions. Many economists argue that carbon taxes are the most efficient (lowest cost) way to <a href="/facts/Climate_change_mitigation/GgkoeWMk">tackle climate change</a>. As of 2019<a href="https://en.wikipedia.org/w/index.php?title=Carbon_tax&action=edit">[update]</a>, carbon taxes have either been implemented or are scheduled for implementation in 25 countries. 46 countries have put some form of <a href="/facts/Carbon_price/HDyXWRvY">price on carbon</a>, either through carbon taxes or <a href="/facts/Carbon_emission_trading/8EzKjxEw">carbon emission trading</a> schemes.
Some experts point out that a carbon tax can negatively affect public welfare, tending to hit low- and middle-income households the hardest and making their necessities more expensive (for instance, the tax might drive up prices for, say, petrol and electricity). Alternatively, the tax can be too conservative, making "comparatively small dents in overall emissions". To make carbon taxes fairer, policymakers can try to redistribute the revenue generated from carbon taxes to low-income groups by various fiscal means. Such a policy initiative becomes a <a href="/facts/Carbon_dividend/Bn784zs4">carbon fee and dividend</a>, rather than a plain tax.

A carbon tax as well as carbon emission trading is used within the <a href="/facts/Carbon_price/HDyXWRvY">carbon price</a> concept. Two common economic alternatives to carbon taxes are tradable permits with <a href="/facts/Carbon_offsets_and_credits/WcHDkyKE">carbon credits</a> and <a href="/facts/Subsidy/W9lLudyn">subsidies</a>.

Carbon tax open-in-new

Carbon tax