DEFINITION of 'Energy Tax'

A surcharge on fossil fuels such as oil, coal and natural gas. The purpose of an energy tax is to give businesses and consumers an incentive to use alternative energy sources, such as solar and wind power, and to raise revenue for the government in order to finance public spending. Some environmentalists believe energy taxes are necessary to reduce the greenhouse gas emissions that are theorized to cause global warming. Opponents of energy taxes warn of their unintended consequences, like an increase in the price of virtually everything that will reduce individuals' and families' disposable income.


Energy taxes can exist in a number of forms, from regulations that require automakers to reduce cars' carbon dioxide emissions to surcharges on electricity bills. President Obama's fiscal year 2010 budget included a cap-and-trade energy tax.

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