What Is a Carbon Tax?

In countries where there is a carbon tax, businesses must pay a levy based on the amount of carbon emissions produced by their business operations. A carbon tax is designed to reduce the amount of carbon — also known as CO2 emissions.

How Does a Carbon Tax Work?

When a government implements a carbon tax, a price per ton of greenhouse gas emissions is chosen, and a company gets taxed that amount for every ton they emit or are responsible for.

What Type of Carbon Is Taxed?

Although it is called a carbon tax, usually the price is actually per ton of CO2 gas emitted. That’s because every fossil fuel has a particular amount of carbon content in it, and when burned each carbon molecule combines with two oxygen molecules and becomes CO2 gas which goes into the atmosphere.

What Is the Economic Impact of Carbon Taxation?

Since a carbon tax increases costs across the entire supply chain, everyone from extractors to consumers are incentivized to reduce fossil fuel consumption — at least in theory.

What Is the Social Impact of Carbon Emissions?

The theory around carbon pricing is that each ton of CO2 should have a price equal to the social cost of carbon. The social cost of carbon is the current amount of estimated damages over time that each ton of CO2 emitted causes today.

Who Regulates Carbon Taxes?

Carbon tax programs are regulated by federal, state, or local governments. Regulation involves setting the price per ton of carbon, deciding which entities get taxed, collecting the tax, and deciding how the revenues are spent.

Which Countries Have the Highest Carbon Tax?

Below are a few of the countries that have the highest carbon tax rates. The rates are in USD price per ton: Uruguay: $137, Sweden: $129.89, Switzerland: $129.86, Liechtenstein: $129.86, Norway: $87.61.

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