Carbon taxation: two decades of experience and future prospects

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Twenty years ago the first European countries started to introduce CO2 taxes. Since then countries all over the world followed or are showing interest in making use of carbon taxation as part of their climate change policies. One of the key features of carbon taxation is their design that differs widely between countries, not only with regard to the tax rates, but also in the way they work in conjunction with existing energy taxes and in terms of the scope of energy products covered. Now, the political discussion has moved ahead and carbon pricing – either being implemented in the form of CO2 taxes or tradable permit systems – is very high on the policy agenda, in particular as a consequence of the Stern report on the effects of climate change. Furthermore, carbon pricing is today regularly endorsed as an important policy instrument in the context of fiscal consolidation strategies and as a cornerstone in the transition to a green economy. The focus of this article is to shed light on the use of CO2 taxes following the experiences gained over the last 20 years since the first CO2 taxes have been implemented. The other policy measure in the context of carbon pricing is the EU ETS; however, ETS is still a rather new instrument, implying that the experience is rather limited, in particular when compared with the rich knowledge of CO2 taxes.

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