All about Carbon Tax

Carbon Tax:

·         A carbon tax is an environmental tax levied on the carbon content of fuels.

·          It is a form of carbon pricing. Carbon is present in every hydrocarbon fuel (coal, petroleum, and natural gas) and is released as carbon dioxide (CO₂) when they are burnt.

·          CO₂ is a heat-trapping ”greenhouse” gas(GHGs).

·         Scientists have pointed to the potential effects on the climate system of releasing GHGs into the atmosphere.Since GHG emissions caused by the combustion of fossil fuels are closely related to the carbon content of the respective fuels, a tax on these emissions can be levied by taxing the carbon content of fossil fuels at any point in the product cycle of the fuel.

·         Carbon taxes offer a potentially cost-effective means of reducing greenhouse gas emissions.

·          From an economic perspective, carbon taxes are a type of Pigovian tax.

·          They help to address the problem of emitters of greenhouse gases not facing the full (social) costs of their actions.

·         Carbon taxes are aregressive tax, in that they disproportionately affect low-income groups. The regressive nature of carbon taxes can be addressed by using tax revenues to favour low-income groups.