Carbon Tax
A carbon tax is a government-imposed fee on each tonne of CO₂e emitted, designed to incentivise emission reductions by making pollution more expensive.
What is Carbon Tax?
A carbon tax sets a direct price on greenhouse gas emissions. Unlike an ETS (which caps total emissions and lets the market set the price), a carbon tax fixes the price and lets the market determine the resulting emission level. Both mechanisms aim to internalise the external cost of carbon pollution.
Countries with carbon taxes include Canada, Sweden, Switzerland, and several others. The UK does not have a standalone carbon tax but achieves similar pricing effects through the Climate Change Levy (CCL), the Carbon Price Support rate, and the UK ETS. The choice between an ETS and a carbon tax is primarily a policy design question about price certainty versus emission certainty.
For businesses, a carbon tax increases the cost of carbon-intensive activities in a predictable way, making it easier to plan investments in low-carbon alternatives. Revenue from carbon taxes can be recycled through tax cuts, dividend payments to citizens, or investment in green infrastructure.
Practical Examples
Canada’s federal carbon tax reached C$80 per tonne in 2024, adding approximately 17 cents per litre to the cost of petrol and incentivising the switch to electric vehicles.
Sweden’s carbon tax of approximately €120/tCO₂e — one of the highest in the world — has been credited with driving a 27% reduction in emissions since its introduction in 1991.
A UK business evaluates the total effective carbon price it faces across the Climate Change Levy, UK ETS passthrough costs, and potential future CBAM exposure.
How Climatise Helps
Climatise quantifies emissions at a granular level, enabling organisations to calculate their carbon tax exposure under different national regimes and model the financial impact of potential policy changes.
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