Carbon Taxes in Europe

In recent years, several countries have taken measures to reduce carbon emissions, including instituting environmental regulations, emissions trading systems (ETSs), and carbon taxes. In 1990, Finland was the world’s first country to introduce a carbon taxA carbon tax is levied on the carbon content of fossil fuels. The term can also refer to taxing other types of greenhouse gas emissions, such as methane. A carbon tax puts a price on those emissions to encourage consumers, businesses, and governments to produce less of them. . Since then, 20 European countries have implemented carbon taxes, ranging from less than €1 per metric ton of carbon emissions in Ukraine to more than €100 in Sweden, Liechtenstein, and Switzerland.

Switzerland and Liechtenstein currently levy the highest carbon taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rate at €120.16 ($130.81) per ton of carbon emissions, followed by Sweden (€115.34, $125.56) and Norway (€83.47, $90.86). The lowest carbon tax rates can be found in Ukraine (€0.75, $0.82) and Estonia (€2, $2.18).

Carbon taxes can be levied on different types of greenhouse gases, such as carbon dioxide, methane, nitrous oxide, and fluorinated gases. The scope of each country’s carbon tax differs, resulting in varying shares of greenhouse gas emissions covered by the tax. For example, Spain’s carbon tax only applies to fluorinated gases, taxing only 2 percent of the country’s total greenhouse gas emissions. Liechtenstein, by contrast, covers more than 81 percent of its greenhouse gas emissions.

All Member States of the European Union (plus Iceland, Liechtenstein, and Norway) are part of the EU Emissions Trading System (EU ETS), a market created to trade a capped number of greenhouse gas emission allowances. With the exception of Switzerland, Ukraine, and the United Kingdom, all European countries that levy a carbon tax are also part of the EU ETS. (Switzerland has its own ETS, which has been tied to the EU ETS since January 2020. Following Brexit, the UK implemented its own UK ETS as of January 2021.)

In Finland, Ireland, the Netherlands, and Norway, the national carbon tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. overlaps with the emission base also covered by the EU ETS, leading to double taxationDouble taxation is when taxes are paid twice on the same dollar of income, regardless of whether that’s corporate or individual income. of the overlap. When national carbon taxes apply to emissions covered by an ETS, they tend to shift the emissions to sources outside of their tax base, leaving total emissions capped by ETS allowances unchanged.

Some countries apply multiple excise taxes or ETSs to sources of carbon emissions at different implicit or explicit tax rates. In these cases, the table below displays the highest applicable rate. Ideally, a carbon tax should apply to the carbon emissions of all sectors at the same rate.

Several European countries have introduced a carbon tax or an ETS in recent years. Germany and Austria have implemented carbon taxes in 2021 and 2022, respectively, that will be phased into ETSs by 2026. The autonomous region of Catalonia is considering a carbon tax at the subnational level.

2023 Carbon Taxes in Europe

Carbon Tax Rates, Share of Covered Greenhouse Gas Emissions, and Year of Implementation in European Countries (As of March 31, 2023)

	Carbon Tax Rate (Per Ton of CO2e)		Share of Jurisdiction’s Greenhouse Gas Emissions Covered (2018)	Year of Implementation
	Euros	U.S. Dollars
Austria (AT)	€32.50	$35.38	40%	2022
Denmark (DK)	€24.37	$26.53	35%	1992
Estonia (EE)	€2.00	$2.18	6%	2000
Finland (FI)	€76.92	$83.74	36%	1990
France (FR)	€44.55	$48.50	35%	2014
Germany (DE)	€30.00	$35.38	40%	2021
Iceland (IS)	€35.40	$38.53	55%	2010
Ireland (IE)	€48.45	$52.74	40%	2010
Latvia (LV)	€14.98	$16.31	3%	2004
Liechtenstein (LI)	€ 120.16	$ 130.81	81%	2008
Luxembourg (LU)	€44.19	$48.11	65%	2021
Netherlands (NL)	€51.07	$55.59	12%	2021
Norway (NO)	€83.47	$90.86	63%	1991
Poland (PL)	€13.27	$14.44	4%	1990
Portugal (PT)(a)	€23.90	$26.01	36%	2015
Slovenia (SI)	€17.30	$18.83	52%	1996
Spain (ES)	€14.98	$16.31	2%	2014
Sweden (SE)	€ 115.34	$ 125.56	40%	1991
Switzerland (CH)	€ 120.16	$ 130.81	33%	2008
Ukraine (UA)	€0.75	$0.82	71%	2011
United Kingdom (GB)	€20.46	$22.28	21%	2013
	€44.49	$48.56	37%
EU ETS(b) (For Reference)	€88.46	$96.30	38%	2005
Notes: (a) Portugal ties its carbon tax rate to the previous year’s EU ETS allowances price. (b) The ETS price displayed is provided for reference only and subject to daily changes. Real-time and historical carbon price data can be tracked using financial information tools provided by relevant exchange platforms. The carbon tax rates were converted using the EUR-USD currency conversion rate as of August 31, 2023 (USD 1 = EUR 0.9186).
Sources: The World Bank, “Carbon Pricing Dashboard,” last updated Mar. 31, 2023, https:// carbonpricingdashboard.worldbank.org/map_data; Financial Administration, Republic of Slovenia – Environmental Taxes, retrieved Aug. 31, 2023.

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