Understanding Carbon Tax: A Guide to Environmental Responsibility

TEMPO.CO, Jakarta - Governments implement carbon taxes as an environmental measure, setting a price per unit of carbon emissions to address the environmental impact. According to a World Bank report, carbon pricing is a globally acknowledged strategy to account for the external costs of greenhouse gas (GHG) emissions.

Axel van Trotsenburg, Senior Managing Director of the World Bank, emphasized the significance of carbon pricing, stating that it has the potential to be a powerful tool in reducing emissions.

But, what exactly is carbon tax? This article will give a comprehensive idea about carbon tax and how it works in affecting the economy.

What is Carbon Tax?

Carbon tax is regarded as a type of Pigouvian tax in which businesses or individuals must pay certain amounts of tax due to engaging in activities that create massive side effects for society including its environment.

By implementing carbon tax, governments aim to reduce the consumption of fossil fuels including oil, gasoline, coal, and natural gas. These fuels pose threats toward the environment by heating up the atmosphere that leads to a larger issue such as global warming.

Carbon tax regulations focus on taxing major fossil fuel providers in the supply chain. This approach enables costs to be transferred downstream from oil companies to consumers. Therefore, carbon tax may affect the fuel prices at the pump across the economy, taking into accounts utility bills and services.

Benefits of Carbon Tax

Reducing carbon emissions, mitigating climate changes, encouraging clean energy adoption as well as generating revenue are among the benefits of carbon tax implemented by the governments.

The primary purpose of enforcing carbon tax is to curb the consumption of fossil fuels in hope to reduce GHG emissions throughout the large scale of the economy. Carbon tax also promotes the shifts to a more clean energy adoption.

Carbon Tax Countries

There are approximately 37 countries implementing carbon taxes to date. Interestingly, the United States is not part of them. Some countries like Uruguay, Liechtenstein, Switzerland, and Sweden have fairly high carbon taxes.

Uruguay is named as the country with the highest carbon tax, set at around US$167 per metric ton of CO2. Despite this distinction, the tax only covers about 5% of the country’s greenhouse gas emissions, a relatively small percentage considering its position at the top of the list.

Liechtenstein follows suit with the highest carbon taxes globally as of 2024. Today, its carbon tax is priced at  US$132.12 per metric ton of CO2. The country’s carbon tax successfully generated $5 million in revenue in 2022.

Switzerland is ranked third with its carbon price costing US$130.81 per metric ton of CO2. Aside from carbon tax, Switzerland has enforced ETS back in 2008. As of 2023, the price for ETS in the country is at US$93.81.

Sweden as a part of the Nordic countries has the highest carbon tax in 2024 with the price costing at US$127 per metric ton of CO2. The country’s carbon tax rate has tripled since it was first enforced back in 1991.

Editor's Choice: 10 Countries with Highest Carbon Tax in the World

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