Greenhouse gas emissions—foremost carbon dioxide (CO2) but also methane, nitrous oxide, and F-gases—have been driving changes in global temperatures, imposing costs on economic, human, and natural systems. A carbon tax is a form of carbon pricing and, as a market-based approach, it is generally seen as a cost-effective way to reduce greenhouse gas emissions. The 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.
Amidst bipartisan climate negotiations on Capitol Hill, there have been renewed calls for a carbon tax. Carbon taxes have long been magnets for political controversy. But from an economic standpoint, they deserve to be taken seriously. And as with anything in tax policy, the details and design matter greatly. Federal policy analyst Alex Muresianu recently joined Jesse Solis on The Deduction podcast to talk through the history of climate tax policy, how a pro-growth carbon tax could be designed, and what its chances in DC actually are as the climate crisis worsens.
The economic theory behind such taxes is simple, but transforming the theory into a real-world policy is more challenging. You can learn more about carbon tax basics, the distributional and economic implications of a the tax, and relevant carbon policies and proposals across the globe, including those in Finland and Sweden, which were the first carbon taxes enacted in the world.
While existing carbon taxes are a step towards the right direction in addressing climate change and incentivizing reductions in emissions, there is considerable room for improvement to reach the ideal theoretical carbon tax model.
59 min read
Every policy has trade-offs, but a well-designed carbon tax has the potential to protect the environment without harming consumers, jobs, or businesses.
Our new analysis reviews the basic structure of carbon taxes, how they compare to the existing set of climate policies, and how they could fit into various pro-growth tax reform packages.
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Implemented in 1991, Sweden’s carbon tax was one of the first in the world. Since then, Sweden’s carbon emissions have been declining, while there has been steady economic growth. Today, Sweden levies the highest carbon tax rate in the world and its carbon tax revenues have been decreasing slightly over the last decade.
21 min read
Amidst bipartisan climate negotiations on Capitol Hill, there have been renewed calls for a carbon tax. Carbon taxes have long been magnets for political controversy. But from an economic standpoint, they deserve to be taken seriously. Here’s why.
The Inflation Reduction Act created numerous tax subsidy programs intended to accelerate the transition to a greener economy.
8 min read
As European countries have undertaken a series of tax reforms designed for budgetary stability, policymakers should focus on consumption taxes by making them more neutral and efficient.
15 min read
Sean Bray interviewed Dr. Sérgio Vasques, Professor of Tax Law at the Catholic University of Lisbon and former Portuguese Secretary of State for Tax Affairs, about the future of the EU tax mix.
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Taxing carbon emissions could leave decisions about reducing greenhouse gases to the market.
California levies the highest tax on gasoline at 70.9 cents per gallon (cpg), followed by Illinois at 66.4 cpg and Washington at 59.0 cpg.
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Tax Foundation Europe’s Sean Bray interviews Dr. Monika Köppl-Turyna, director of the EcoAustria Institute for Economic Research, about the future of the EU tax mix.
14 min read
In recent years, several countries have taken measures to reduce carbon emissions, including instituting environmental regulations, emissions trading systems (ETSs), and carbon taxes.
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Estimating the economic effects of different types of taxes informs policymakers about the trade-offs of raising revenue in a given way.
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Though gas taxes are intended to serve as user fees and pollution deterrents, they vary widely across states. How does your state’s burden compare?
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23 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.
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Over the next 10 years, the IRA’s energy tax credits are projected to cost north of $1 trillion, adding to the federal government’s budgetary challenges and burgeoning debt.
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At the beginning of 2024, a fee on certain methane emissions took effect. While insignificant on its own, it is the first U.S. federal-level effort to price greenhouse gas emissions to combat climate change.
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A national-level carbon price—a tax or cap-and-trade scheme placed on CO2 or other greenhouse gases—may seem distant in the U.S., especially since the Inflation Reduction Act, which included major climate policy, omitted one. However, policymakers on both sides of the aisle have been nibbling around the edges of carbon taxes.
5 min read
While existing carbon taxes are a step towards the right direction in addressing climate change and incentivizing reductions in emissions, there is considerable room for improvement to reach the ideal theoretical carbon tax model.
59 min read
In recent years, European countries have undertaken a series of tax reforms designed to maintain tax revenue levels while protecting households and businesses from high inflation.
8 min read
One prominent feature of President Biden’s agenda on the environment is to target U.S. fossil fuel producers and production with nearly $97 billion in tax increases over the next decade.
16 min read
In recent years, several countries have taken measures to reduce carbon emissions, including instituting environmental regulations, emissions trading systems, and carbon taxes. In 1990, Finland was the world’s first country to introduce a carbon tax.
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Sens. Kevin Cramer (R-ND) and Christopher Coons (D-DE) have recently introduced a bill laying the groundwork for a possible solution to the problem: a tax on the carbon content of imports. But it falls short of the optimal approach in several ways.
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The price tag of the Inflation Reduction Act’s green energy tax credits is much higher than originally thought. Among other things, the updated analysis indicates the Inflation Reduction Act does not reduce deficits after all.
6 min read
The past few years have brought a renewed push from countries across the globe to combat climate change. In the European Union, policymakers have put a timeline on their climate agenda. By 2050, the EU wants to achieve a net-zero economy. Sean Bray, director of European policy, breaks down how much it would cost to achieve this goal.