Environment
Carbon Tax
Definition
A tax on greenhouse gas emissions — typically on fossil fuel use — designed to incentivize emission reduction by making pollution more expensive.
Explanation
Over 40 countries have carbon pricing (tax or cap-and-trade). The EU Emissions Trading System is the world's largest carbon market. Sweden has the highest carbon tax ($130/ton). Carbon border adjustment mechanisms (CBAMs) extend carbon pricing to imports. Effectiveness depends on rate, coverage, and revenue use.