Carbon Dioxide Tax

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DEFINITION of 'Carbon Dioxide Tax'

A tax on businesses and industries that produce carbon dioxide through their operations. A carbon dioxide tax is designed to reduce the output of greenhouse gases and carbon dioxide, a colorless and odorless incombustible gas, into the atmosphere. The tax is imposed with the goal of environmental protection.

INVESTOPEDIA EXPLAINS 'Carbon Dioxide Tax'

The carbon tax policy taxes fossil fuel usage according to the amount of carbon emitted. It is also referred to as a form of carbon pricing on greenhouse gas emissions where a fixed price is set by the government for carbon emissions for certain sectors. The price is passed through from businesses to consumers. By increasing the cost of greenhouse emissions, governments hope to curb consumption, reduce the demand for fossil fuels and push more companies toward creating environmentally friendly substitutes.

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