Example
It places a price on covered pollution to influence economic choices.
The catch
Rates, exemptions and revenue use differ between jurisdictions.
Related terms
Greenhouse gas, 1.5°C goal, Carbon pricing, Climate justice, Conference of the Parties, CSRD
In more depth
Carbon tax, explained.
A carbon tax is simplest to collect upstream, from fuel suppliers in proportion to the carbon in what they sell, which reaches cars and boilers across the economy through a small number of tax returns. Most carbon taxes cover CO₂ from burning fuel, so methane from farms, landfills and leaking equipment usually escapes them.
The term gets stretched. Fuel duties raise the cost of emitting too, but because they are not set by carbon content, economists treat them as an implicit carbon price. A true carbon tax is one instrument within carbon pricing, alongside emissions trading, and it works best when the rate rises on a schedule investors can plan around.