Carbon Tax

A carbon tax puts a direct price on carbon. Because it raises the cost of fossil fuels and other high-carbon activities, it encourages businesses and households to use less energy, switch to cleaner alternatives and invest in low-carbon technology.

Finland introduced the world’s first carbon tax in 1990, and Sweden followed in 1991. Sweden’s carbon tax is among the highest in the world. Canada introduced a national carbon pricing system, although the consumer fuel charge was ended in 2025, while pricing for large industrial emitters continued.

For example, a carbon tax of 50 per tonne of carbon dioxide would add a cost to every litre of petrol or unit of gas burned, based on the emissions it produces.

Economists often favour carbon taxes because they reduce emissions where it is cheapest to do so and raise revenue that can be used to cut other taxes or support households. A carbon tax gives price certainty, but the amount of emissions reduction is uncertain, unlike a cap in an emissions trading system. Carbon taxes can be politically unpopular, especially if they raise energy costs for lower-income households.