DEFINITION of 'Carbon Dioxide Tax'

A carbon dioxide tax is a tax on businesses and industries that produce carbon dioxide through their operations. The 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.

BREAKING DOWN 'Carbon Dioxide Tax'

A tax designed to mitigate or remove the negative externalities of carbon emission, a carbon dioxide tax is a type of Pigovian Tax. Carbon is found in every kind of hydrocarbon fuel (including coal, petroleum and natural gas) and is released as the harmful toxin carbon dioxide (CO2) when this kind of fuel is burned. COis the compound primarily responsible for the "greenhouse" effect of trapping heat within the Earth's atmosphere, and is therefore one of the primary causes of global warming. 

Government Regulation

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 in 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. A carbon tax is a way for a state to exert some control over carbon emissions without resorting to the levers of a command economy, by which the state could control the means of production and manually halt carbon emissions.

Examples of Carbon Taxes

Carbon taxes have been implemented in a number of countries around the world. They take several different forms, but most amount to a straightforward rate of taxation per ton of hydrocarbon fuel used. The first country to implement a carbon tax was Finland, in 1990. That levy currently stands at $24.39 dollars per ton of carbon. The Finnish were quickly followed by other Nordic countries; Sweden and Norway both implemented their own carbon taxes in 1991. Starting at a rate of $51 per ton of CO2 used in gasoline (the tax would later decrease considerably), the Norwegian tax is among the most stringent in the world. 

Failed Carbon Taxes

Most forms of carbon taxation have been deployed successfully, but Australia's failed attempt from 2012-2014 stands in stark contrast. The minority Green party was able to broker the carbon tax during a period of political stagnation in 2011, but the tax never garnered the support of either of the main parties in Australia, the left-leaning Labor Party (who reluctantly agreed to the tax to form a government with the Greens) and the center-right Liberals, whose leader Tony Abbott spearheaded the 2014 repeal. Like most economic initiatives to combat climate change, carbon taxes remain highly controversial.

RELATED TERMS
  1. Carbon Trade

    An exchange of credits between nations designed to reduce emissions ...
  2. Carbon Credit

    A permit that allows the holder to emit one ton of carbon dioxide. ...
  3. Emissions Reduction Purchase Agreement ...

    A transaction that transfers carbon credits between two parties ...
  4. Kyoto Protocol

    An international agreement that aims to reduce carbon dioxide ...
  5. Carbon Disclosure Rating

    A numerical score that indicates the level of reporting of a ...
  6. Green Levy

    A tax imposed by a government on sources of pollution or carbon ...
Related Articles
  1. Trading

    Carbon Trading: Action Or Distraction?

    These credits claim to allow buyers to reduce their carbon footprints. Find out how.
  2. Small Business

    Can Business Evolve In A Green World?

    Learn how global warming is starting to heat up America's corporate climate.
  3. Investing

    The Basics of FuelCell's Cost Share Carbon Reduction Project (FCEL)

    Discover how FuelCell Energy's carbon capture project with the Department of Energy works and how it could lead to cleaner air and huge profits.
  4. Insights

    The 5 Countries That Produce the Most Carbon Dioxide (CO2)

    Learn about the top five countries, China, the United States, India, Russia and Japan, that are the largest contributors to carbon dioxide emissions.
  5. Investing

    The Largest Oil Companies Make a Pledge to Climate Change

    Here is how ten of the world's largest oil companies prepared for the UN climate change summit happening in Paris this month.
  6. Investing

    NB SRI Team In Support of Limiting Methane Emissions

    On March 10, 2016, the US and Canada announced that the two countries would aim to cut methane (CH4) emissions in the oil and gas sector by 40-45% over the next decade.
  7. Insurance

    5 Investment Risks Created By Global Warming

    Climate-change deniers and believers alike would be wise to prepare for the worst.
  8. Taxes

    Do Tax Cuts Stimulate The Economy?

    Learn the logic behind the belief that reducing government income benefits everyone.
  9. Taxes

    The History Of Taxes In The U.S.

    The number of taxes that we now consider a given did not always exist. Find out how they arose.
  10. Taxes

    Use Tax Vs. Internet Sales Tax: How Are They Different?

    Learn about the differences between a use tax and an Internet sales tax. Find out about transactions in which the taxes apply, and to whom they apply.
RELATED FAQS
  1. What is the carbon trade?

    The carbon trade came about in response to the Kyoto Protocol. Signed in Kyoto, Japan, by some 180 countries in December ... Read Answer >>
  2. What's the difference between the marginal tax rate system and a flat tax?

    Find out about the difference between marginal tax rates and flat taxes. Gain insights on both systems and the arguments ... Read Answer >>
  3. What are the differences between regressive, proportional and progressive taxes?

    Understand the differences between the most common tax systems including regressive taxes, proportional taxes and progressive ... Read Answer >>
  4. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Answer >>
  5. What is the difference between a state income tax and a federal income tax?

    Learn the difference between state income tax and federal income tax based on tax rates, deductions, tax credits and taxable ... Read Answer >>
  6. Is progressive tax the same thing as marginal tax rate?

    Learn how a marginal tax rate is a form of a progressive tax rate. Learn the pros and cons of such a tax policy and who may ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center