Technical Report

NREL/TP-6A2-47312

December 2009

Carbon Taxes: A Review of 

Experience and Policy Design 

Considerations

Jenny Sumner, Lori Bird, and Hillary Smith
National Renewable Energy Laboratory

1617 Cole Boulevard, Golden, Colorado 80401-3393

303-275-3000 • www.nrel.gov

NREL is a national laboratory of the U.S. Department of Energy

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Operated by the Alliance for Sustainable Energy, LLC

Contract No. DE-AC36-08-GO28308

Technical Report

NREL/TP-6A2-47312

December 2009

Carbon Taxes: A Review of 

Experience and Policy Design 

Considerations

Jenny Sumner, Lori Bird, and Hillary Smith

Prepared under Task No. SAO9.2034
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Acknowledgments

This work was funded by the U.S. Department of Energy’s (DOE’s) Strategic Planning and 

Analysis Division of the Office of Energy Efficiency and Renewable Energy (EERE). The 

authors would like to thank David Rogers, Rebecca Garland, and Carla Frisch of DOE for their 

support of this work. In addition, the authors would like to thank the following reviewers for 

their thoughtful comments: Pelle Magdalinski, Swedish Environmental Protection Agency; 

Robert Noel de Tilly, Quebec Ministry of Sustainability, Environment, and Parks; Timo 

Parkkinen, Finnish Ministry of the Environment; Sarah Van Pelt, City of Boulder; and Jeffrey 

Logan, Robin Newmark, Daniel Steinberg, and Laura Vimmerstedt of NREL. In addition, we 

would like to thank the following individuals who provided helpful information and clarification 

of individual carbon tax policies: Brian Bateman, Bay Area Air Quality Management District;

Anne Foy, Ministry of Finance in British Columbia; and Nick Hatherall, United Kingdom 

Climate Change and Energy Branch. Finally, the authors would also like to thank Mike Meshek 

of NREL for his editorial support.
iv

Executive Summary 

State and local governments in the United States are evaluating a wide range of policies to 

reduce carbon emissions, including, in some instances, carbon taxes. Carbon taxes have existed 

internationally for nearly 20 years.

This report reviews existing carbon tax policies both internationally and in the United States. It 

also analyzes carbon policy design and effectiveness. Table ES-1 summarizes the carbon tax 

rates, annual revenue collected, and revenue distribution methods of existing and proposed 

carbon tax policies.

While each carbon tax is designed to meet the needs of the implementing jurisdiction, the 

implementation of all carbon taxes involves design considerations such as which sectors to tax, 

where to set the tax rate, how to use tax revenues, what the impact will be on consumers, and 

how to ensure emissions reduction goals are achieved. 

Carbon taxes are most commonly placed on gasoline, coal, and natural gas. There are large 

differences among tax rates across various jurisdictions. The highest rates are paid in Sweden 

($105 per metric ton CO2), while the lowest rates are paid in the Bay Area Air Quality 

Management District (BAAQMD) in California ($0.045 per metric ton CO2). How jurisdictions 

set tax rates depends on what outcomes they are trying to achieve; higher rates can induce 

behavior change, while lower rates may be more appropriate to generate funds for carbon 

mitigation programs. Some jurisdictions, such as Sweden, allow industries to pay a reduced tax 

rate.

Revenue from carbon taxes can be distributed in several ways. Some jurisdictions (e.g., Boulder, 

Quebec, BAAQMD) use the revenue for carbon mitigation programs. Other jurisdictions (e.g., 

United Kingdom, British Columbia, France’s proposed policy) return carbon tax revenue to 

customers. Sweden and Norway use carbon tax revenues to fund general government budgets. 

Finland’s carbon tax also is directed to the general government budget, but it is accompanied by 

a cut in income tax. In some cases, carbon tax revenues have been redirected to low-income 

consumers to minimize impacts.

While carbon taxes are often touted as the more economically efficient means of addressing 

carbon emissions, they may not ensure a set level of emissions reductions. Carbon taxes can be 

designed so that tax rates increase automatically if emission reductions are not met, though this 

practice has not been fully implemented to date. 

Emission reductions that are due to carbon taxes can be difficult to measure. Some jurisdictions 

have quantified reductions in overall emissions, while other jurisdictions have examined impacts 

that are due to programs funded by carbon tax revenues. 

Carbon tax policies can also be integrated with other carbon policies to maximize greenhouse gas 

(GHG) reductions. In Europe, countries implementing a carbon tax also operate within the 

European Union’s Emissions Trading Scheme. Other complementary policies such as Norway’s 

tax on hydrofluorocarbons (HFCs) and perfluorocompounds (PFCs) can address different GHGs.
v 

Table ES-1. Overview of Carbon Tax Policies

Country/ 

Jurisdiction

Start 

Date

Tax Rate

($USD unless noted otherwise)

Annual

Revenue

Revenue

Distribution

Finland 1990 $30/metric ton CO2 (€20) $750 million 

(€500 million) 

Government budget; 

accompanied by independent 

cuts in income taxes 

Netherlands 1990 ~$20/metric ton CO2 in 1996 $4.819 billiona

(€3.213 billion)

Reductions in other taxes; 

Climate mitigation programs

Norway 1991 $15.93 to $61.76/metric ton CO

(NOK 89 to NOK 345)

$900 million 

(1994 estimate)

Government budget 

Sweden 1991 Standard rate: $104.83/metric ton CO2

(910 SEK) 

Industry rate: ~$23.04/metric ton CO2

(~200 SEK)

$3.665 billion 

(25 billion SEK)

Government budget 

Denmark 1992 $16.41/metric ton CO2 (90 DKK) $905 million Environmental subsidies and 

returned to industry

United 

Kingdom

2001 $0.0078/kWh for electricity; $0.0027/kWh 

for natural gas provided by gas utility; 

$0.0175/kg for liquefied petroleum gas or 

other gaseous hydrocarbons supplied in a 

liquid state; and $0.0213/kg for solid fuel

$1.191 billion 

(£714 million)

Reductions in other taxes

Boulder, CO 2007 $12-13 per metric ton CO2 $846,885 Climate mitigation programs

Quebec 2007 $3.20 per metric ton of CO2 (C$3.50) $191 million 

(C$200 million)

Climate mitigation programs

British

Columbia 

2008 $9.55 per metric ton of CO2 in 2008 (C$10), 

increasing $4.77 (C$5) annually to $28.64 

(C$30) in 2012

$292 million

(C$306 million)

Reductions in other taxes

BAAQMD, 

California 

2008 $0.045 per metric ton of CO2eb $1.1 million 

(expected)

Climate mitigation programs

France proposed $24.74 per metric ton of CO2 (€17) $4.499 billion 

(€3 billion)

expected

Reductions in other taxes

CARB, 

California 

proposed $0.155 per metric ton CO2e in FY 2010-11, 

dropping to $0.09 per metric ton CO2e in 

2014

$63.1 million 2010-

2013; $36.2 million 

starting in 2014,

expected

Climate mitigation programs

a

 Revenue in the Netherlands is from all environmentally related taxes, of which carbon taxes are the clear majority.

b

 CO2e is carbon dioxide equivalent. 

2
vi

Table of Contents

List of Figures ........................................................................................................................................... vii

List of Tables ............................................................................................................................................. vii

1 Introduction........................................................................................................................................... 1

2 Carbon Tax Design Considerations.................................................................................................... 3

Tax Base.....................................................................................................................................3

Tax Rate .....................................................................................................................................4

Revenue Distribution .................................................................................................................5

Impact on Consumers ................................................................................................................6

Ensuring Emissions Reductions.................................................................................................7

3 Carbon Taxes Implemented Since 1990............................................................................................. 8

Finland—1990 ...........................................................................................................................9

The Netherlands—1990.............................................................................................................9

Norway—1991.........................................................................................................................10

Sweden—1991.........................................................................................................................11

Denmark—1992.......................................................................................................................12

United Kingdom—2001...........................................................................................................13

Boulder, Colorado—2007........................................................................................................14

Quebec, Canada—2007 ...........................................................................................................15

British Columbia, Canada—2008............................................................................................16

Bay Area Air Quality Management District, California—2008..............................................17

France—Proposed....................................................................................................................17

California Air Resource Board—Proposed .............................................................................18

4 Effectiveness of Carbon Taxes ......................................................................................................... 19

Evaluation of Emissions Benefits of Carbon Taxes ................................................................19

Benefits of Programs Funded by Carbon Tax Revenues.........................................................21

Program Evaluation and Adjustments to Carbon Tax Levels..................................................21

5 Integration of Taxes and Other Carbon Policies............................................................................. 22

6 Conclusions and Observations......................................................................................................... 23

References................................................................................................................................................. 25

Bibiliography ............................................................................................................................................. 29
vii

List of Figures

Figure 1: Carbon tax rates................................................................................................................5

Figure 2. Swedish CO2 tax rate, SEK per kilogram CO2, nominal figures....................................11

Figure 3. Swedish carbon tax revenues..........................................................................................12

List of Tables

Table ES-1. Overview of Carbon Tax Policies................................................................................v

Table 1. Major Taxed Sectors in Existing and Proposed Carbon Tax Systems ..............................4

Table 2. Overview of Carbon Tax Policies......................................................................................8

Table 3. Norwegian Carbon Tax Rates, 2007................................................................................10

Table 4. Danish Energy and CO2 Tax on Various Fuel Types......................................................13

Table 5. United Kingdom Climate Change Levy Rates as of April 1, 2009 .................................14

Table 6. Estimated Emissions Reductions in Jurisdictions with Carbon Taxes............................20
1

1 Introduction

Carbon taxes have existed internationally for nearly 20 years. In the early 1990s, carbon taxes 

emerged in northern European countries, with Finland being the first nation to adopt a carbon tax 

in 1990. Subsequently, the Netherlands (1990), Norway (1991), Sweden (1991), and Denmark 

(1992) implemented carbon taxes. More than a decade after the first carbon tax, in 2001, the 

United Kingdom began its Climate Change Levy. 

Interest in federal carbon policy has recently increased in the United States. The U.S. House of 

Representatives passed H.R.2454 “The American Clean Energy and Security Act of 2009”

(“Waxman-Markey bill”) in June 2009, and the U.S. Senate introduced S.1733 “Clean Energy 

Jobs and American Power Act” (“Kerry-Boxer bill”) in September 2009. While recent federal 

policy has focused on carbon cap and trade policies, Congress introduced three carbon tax bills 

in 2009.

1

As a policy mechanism, carbon taxes have been extensively compared to carbon cap and trade 

systems. In terms of economic efficiency, carbon taxes are expected to generate more net 

benefits than a cap and trade system, which is inherently inflexible. The Congressional Budget 

Office (CBO) surveyed current literature and estimated that the net benefits of a tax could be 

roughly five times those of an inflexible cap with no banking, borrowing, or other cost 

containment mechanisms (CBO 2008). One benefit of a carbon tax is that it continuously 

encourages emissions reductions, whereas a cap and trade system only encourages reductions to 

the point of the cap. Further, taxes are straightforward to administer and less subject to gaming. 

Taxes are also viewed as beneficial because the price is known, in contrast with a cap and trade 

system, which can create volatile prices, because of the unpredictable nature of supply, demand, 

and regulatory conditions (Nordhaus 2008). Also, taxes create revenue, which can be used to 

address distributional inequities by returning it to low-income consumers. 

Proposals vary, but each taxes fossil fuel production and imports between $10 and $15 

per short ton of carbon dioxide (CO2)in the first year and creates plans to increase the tax over 

time. 

However, the primary criticism of taxes is that they do not necessarily ensure a certain level of 

emissions reductions as emissions caps do. Carbon taxes are often viewed as less politically 

acceptable than cap and trade systems. Despite the distinctions often made between the two 

policies, a pure carbon cap and trade system could be modified to address benefits that carbon 

taxes provide. A carbon cap and trade system could allow banking and borrowing of allowances

or other cost containment mechanisms, thus decreasing price volatility. It could also raise 

revenue—by auctioning allowances—and distribute the revenue to low-income consumers. A 

review of the first compliance period of the European Union’s Emission Trading Scheme (ETS) 

found that the program evolved “surprisingly well” and was able to establish a transparent price 

on tradable CO2 emission allowances (Ellerman and Joskow 2008).

In the most recent wave of carbon taxes, state and local governments have become more active

in adopting taxes as either a complement to federal policies or a reaction to lack of federal 

 1 Representative Stark (D-CA) introduced H.R.594 “Save Our Climate Act of 2009” in January 2009, 

Representative Larson introduced H.R.1337 “America’s Energy Security Trust Fund Act of 2009” in March 2009, 

and Representative Inglis (R-SC) introduced H.R.2380 “Raise Wages, Cut Carbon Act of 2009” in May 2009. 
2

leadership. In 2007, Boulder, Colorado and Quebec, Canada introduced carbon taxes, and in 

2008, British Columbia, Canada, and the Bay Area Air Quality Management District

(BAAQMD) in California began implementing carbon taxes. France and the California Air 

Resources Board (CARB) proposed carbon taxes in 2009. 

There is also increasing interest in combining carbon taxes with other carbon mitigation policies. 

Carbon cap and trade systems may not cover all sectors or may be more difficult to implement in 

sectors without point sources (e.g., transportation); therefore, carbon taxes may be designed to 

work in conjunction with other carbon policies. For example, the recently proposed French 

carbon tax is designed to cover sectors not addressed by the European Union’s ETS.

This paper discusses considerations in the design of carbon taxes and reviews experience 

implementing carbon taxes domestically and internationally. It also discusses the effectiveness of 

these policies and difficulties measuring impacts. Measures of effectiveness can vary by 

jurisdiction and specific policy goals. While all carbon taxes at their core are designed to reduce 

CO2 or GHG emissions, some taxes may be aggressive in their efforts to encourage changes in 

behavior and consumption patterns, while others may be implemented at more modest levels to 

generate revenues to support the expansion or cost effectiveness of low-carbon technologies. 

Effectiveness has been evaluated based on (1) aggregate carbon emissions reductions in the 

jurisdiction, (2) emissions reductions that are due to the tax, and (3) emissions reductions from 

programs implemented with tax revenue. 
3

2 Carbon Tax Design Considerations

Carbon taxes place a value on CO2 and other GHG emissions, thus internalizing some portion of 

the costs associated with their environmental impact. While all carbon taxes inherently provide 

this function, policy goals may vary. Carbon taxes serve primarily to reduce GHG emissions by 

placing a cost on emissions, but can also raise revenues to provide funding for carbon mitigation 

programs or create market signals for consumers. Policy design considerations associated with 

implementing carbon taxes include determining the tax base, which sectors to tax, where to set 

the tax rate, how to use tax revenues, how to assess the impact on consumers, and how to ensure 

the tax achieves emissions reduction goals.

Tax Base

To implement carbon taxes, governments must decide which fuels or sources to place the tax. 

Most commonly, carbon taxes are placed on gasoline, coal, and natural gas. Some governments, 

however, exempt certain industries from carbon taxes or allow those industries to pay lower tax 

rates. 

Governments must also decide whether to place the tax on upstream or downstream sources of 

emissions. Taxing upstream sources may provide an administratively efficient method of tax 

collection, while taxing downstream sources such as electricity consumption may provide a more 

direct signal to consumers. Although this debate is not the focus of this paper, it is important to 

recognize the potential effects of taxing upstream versus downstream sources when designing a 

carbon tax.

When considering which sectors to tax, some governments may also be limited by their 

jurisdictions. For example, the BAAQMD has authority to control air pollution for non-vehicular 

stationary sources, thus the primary sectors taxed include petroleum refineries, power plants, 

cement plants, and landfills. Table 1 summarizes the major fuels or sources on which current 

carbon taxes are applied in the 12 jurisdictions described in Section 3. 
4

Table 1. Major Taxed Sectors in Existing and Proposed Carbon Tax Systems Finland Netherlands Norway Sweden Denmark United Kingdom France Quebec British Columbia Boulder, CO BAAQMD, CA

CARB

Natural gas √ √ √ √ √ √ √ √ √

Gasoline √ √ √ √ √ √

Coal √ √ √ √ √ √

Electricity √ √ √ √ √ √

Diesel √ √ √ √

Light and heavy fuel oil √ Light 

only √ √ √ √

Liquified petroleum gas 

(LPG) √ √ √ √

Home heating oil √ √ √

Permitted facilities √ √

Tax Rate 

As shown in Figure 1, carbon tax rates vary across jurisdictions, in part due to their function. 

Higher carbon tax rates provide stronger signals to consumers to change behavior, while lower 

rates may not do much to change behavior but can provide funds for carbon mitigation programs.

Some of the highest rates are seen in Europe2

Some of the lowest rates occur in California. The BAAQMD rate is $0.045 per metric ton CO2, 

and the BAAQMD explicitly designed the tax to raise revenue to support local GHG mitigation 

programs rather than to encourage behavior change. The proposed CARB tax rate is also set 

comparatively low, at $0.155 per metric ton CO2, and is designed to generate funds for GHG 

mitigation programs.

: Sweden’s standard tax rate is the equivalent of 

$105 per metric ton CO2; however, the rate for industry is substantially less at $23 per metric ton

CO2. Norway’s tax on gasoline equates to $62 per metric ton CO2 and Finland’s tax is $30 per 

metric ton CO2. France’s proposed tax rate is modeled after the current price for CO2 allowances 

in the European Union’s ETS and is set at the equivalent of about $25 per metric ton CO2. 

 2 In this paper, unless otherwise noted, foreign currencies have been converted to U.S. dollars using contemporary 

exchange rates for the given year of revenue or expenditure. If no year of the tax or expenditure is stated, a current 

exchange rate is used. 
5

Notes: Sweden and Norway’s carbon tax rates vary depending on the taxed sector. British Columbia’s 

carbon tax was C$10 ($9.55) per metric ton CO2 in 2008 but is scheduled to increase by C$5 per year to 

C$30 ($28.64) in 2012.

Figure 1: Carbon tax rates

Revenue Distribution

Revenues from carbon taxes are directed in different ways. Revenues can be (1) directed 

specifically to carbon mitigation programs, (2) directed to individuals through measures, such as 

reductions in income taxes, or (3) used to supplement government budgets. The choice of 

revenue distribution could impact the political sustainability of the tax. 

State and local governments frequently direct carbon tax revenues to carbon reduction programs 

that they implement. Boulder, Quebec, and the BAAQMD all use revenues for carbon mitigation 

programs, and CARB has proposed to do so as well. 

Some carbon tax programs return tax revenue to customers through other means such as income 

tax reductions. The United Kingdom and British Columbia use this method, and France has 

proposed refunding revenue as well. Finland’s approach does not earmark the carbon tax 

revenue, but the tax is accompanied by independent cuts in income taxes (Parkkinen 2009). 

These “revenue-neutral” mechanisms, which are designed to change customer behavior while 

reducing other taxes, do not raise money for government general funds or emission reduction 

programs. The “double dividend” theory suggests that revenue-neutral policies create two 

benefits: a price is placed on goods that harm the environment and lowered income taxes will 

spur new employment opportunities (OECD 2001). A revenue-neutral approach can also lower 

the overall economic impacts of implementing a carbon tax (Repetto 2001). Cost savings are also 

greater when tax revenues are returned through cuts in distorting taxes (such as income taxes)

0

20

40

60

80

100

120

Sweden

Norway

Finland

France

Netherlands

British Columbia

Denmark

Boulder

Quebec

CARB

BAAQMD

Carbon Tax Rate ($ per metric ton CO2)
6

than when they are returned in lump sums. These results have been both demonstrated by 

economic theory and supported by numerical simulations. (Goulder 1995)

On the other hand, some carbon taxes, like those in Sweden and Norway, are used specifically to 

raise revenue for governments. Directing revenues to general government budgets can be easier 

to administer than funding carbon mitigation programs. However, critics say that carbon taxes 

simply are a way to raise government revenue rather than provide environmental benefits. If 

governments were to raise tax rates purely to increase revenue, the resulting tax would not be 

economically efficient—for an efficient tax, the rate should be set equal to the marginal damage 

caused by carbon emissions. An alternative approach would direct revenue to programs that 

address environmental impact through earmarking, thus limiting the incentive to raise taxes 

purely to generate more revenue. (Prasad 2008)

Impact on Consumers

When designing a carbon tax, the impact on low-income households is also a consideration; a

common criticism of carbon taxes is that they disproportionately burden low-income households. 

Several policies, including income tax reductions and credits to low-income households, can be 

used to mitigate this concern. For example, British Columbia provides a low-income “climate 

action tax credit,” a reduction of 5% in the first two personal income tax rates, and has proposed 

providing a Northern and Rural Homeowner benefit of up to $200 in 2011 (Ministry of Finance, 

British Columbia 2008). British Columbia estimated the net impact of the carbon tax and other 

associated tax cuts for two respective family types (seniors and a two-earner family of four), 

finding that the tax cuts exceed the cost of the carbon tax in both cases.

3

In France, President Nicolas Sarkozy proposed plans to return all revenues to households and 

businesses through reductions in income taxes or through issuing a “green check” (Keller 2009). 

While not explicitly addressing low-income consumers, France’s proposal would help lowincome households adapt to the carbon tax.

(Ministry of Finance, 

British Columbia 2008)

Carbon taxes impact businesses. Businesses may prefer carbon taxes to other carbon mitigation 

policies, because taxes provide a certain, long-term price signal that can be incorporated into 

projections of operating expenses, whereas prices may not be as well known with emissions 

caps. Energy-intensive industries or highly competitive industries that compete with companies 

in jurisdictions without taxes have expressed concerns about carbon taxes. To address concerns

about the impact of carbon taxes on businesses, some jurisdictions allow certain industries to pay 

reduced rates. Sweden’s reduced rate for industry is approximately $23 per metric ton CO2,

while the standard rate is $105 per metric ton CO2. In Denmark, businesses that sign an energy 

 3 In 2009, a two-earner family of four earning C$60,000 per year would pay carbon taxes of C$60 for gasoline and 

C$53 for natural gas heat and hot water, but it would receive a personal income tax reduction of C$118, thus 

receiving a net gain of C$5. These figures assume 23 miles per gallon fuel efficiency and approximately 12,400 

miles of driving per year. A senior couple earning C$30,000 per year would pay carbon taxes of C$25 for gasoline 

and C$70 for an oil furnace using 2,000 liters of heating oil per year. The senior couple would receive C$205 in 

personal income tax reduction, thus making the net gain for the couple C$110. These figures assume 19.6 miles per 

gallon fuel efficiency and approximately 4,300 miles of driving per year. (Ministry of Finance, British Columbia 

2008)
7

savings agreement with the Ministry of Transportation and Energy can pay reduced rates.

Denmark also reduced existing taxes on energy when it established a carbon tax, so that the 

effective tax rate was the same.

Ensuring Emissions Reductions

One of the key arguments against carbon taxes and in favor of emissions limits is that taxes do 

not necessarily guarantee emissions reductions. While a tax policy could be structured so that 

rates automatically increase if emissions reduction goals are not met, this approach has not been 

implemented. This may reflect the political challenges of passing a tax in the first place. In fact, 

many taxes are structured in ways to make them more politically feasible. Revenue-neutral 

policies and refunds to low-income consumers are designed to make policies more politically 

appealing. 

Some governments have increased their tax rates over time, but none has implemented a policy 

to increase automatically if emissions reduction targets are not met. British Columbia’s carbon 

tax is set to phase in over a four-year period and the government has indicated it will modify the 

tax if necessary to achieve carbon emissions goals over time; however, because the tax was only 

recently implemented, there have not been any attempts to modify the tax rate yet. Governments 

operating GHG-reduction programs may find it easier to modify programs than to raise taxes. 

Quebec publishes an annual progress report on its GHG-reduction programs. The City of 

Boulder increased rates to the maximum allowed by their ordinance and directed the additional 

revenues to implement more GHG-reduction programs. The BAAQMD has indicated that it may 

raise fees in the future, depending on the need of its Carbon Protection Program.
8 

3 Carbon Taxes Implemented Since 1990

While the first implemented carbon tax is approaching its twentieth year of implementation, 

there have been few reviews of carbon tax policies. Current literature focuses on the economic 

efficiency of carbon taxes compared to carbon cap and trade systems. This section examines 

existing carbon taxes, specifically looking at the sectors taxed, the tax rate, and annual revenue 

generated. 

Table 2. Overview of Carbon Tax Policies

Country/ 

Jurisdiction

Start 

Date

Tax Rate

($USD unless noted otherwise)

Annual

Revenue

Revenue

Distribution

Finland 1990 $30/metric ton CO2 (€20) $750 million 

(€500 million) 

Government budget; 

accompanied by independent 

cuts in income taxes 

Netherlands 1990 ~$20/metric ton CO2 in 1996 $4.819 billiona

(€3.213 billion)

Reductions in other taxes; 

Climate mitigation programs

Norway 1991 $15.93 to $61.76/metric ton CO2

(NOK 89 to NOK 345)

$900 million 

(1994 estimate)

Government budget 

Sweden 1991 Standard rate: $104.83/metric ton CO2

(910 SEK)

Industry rate: ~$23.04/metric ton CO2

(~200 SEK)

$3.665 billion 

(25 billion SEK)

Government budget 

Denmark 1992 $16.41/metric ton CO2 (90 DKK) $905 million Environmental subsidies and 

returned to industry

United 

Kingdom

2001 $0.0078/kWh for electricity; $0.0027/kWh 

for natural gas provided by gas utility; 

$0.0175/kg for liquefied petroleum gas or 

other gaseous hydrocarbons supplied in a 

liquid state; and $0.0213/kg for solid fuel

$1.191 billion 

(£714 million)

Reductions in other taxes

Boulder, CO 2007 $12-13 per metric ton CO2 $846,885 Climate mitigation programs

Quebec 2007 $3.20 per metric ton of CO2 (C$3.50) $191 million 

(C$200 million)

Climate mitigation programs

British

Columbia 

2008 $9.55 per metric ton of CO2 in 2008 (C$10), 

increasing $4.77 (C$5) annually to $28.64 

(C$30) in 2012

 $292 million 

(C$306 million)

Reductions in other taxes

BAAQMD, 

California 

2008 $0.045 per metric ton of CO2eb $1.1 million 

(expected)

Climate mitigation programs

France proposed $24.74 per metric ton of CO2 (€17) $4.499 billion 

(€3 billion)

expected

Reductions in other taxes

CARB, 

California 

proposed $0.155 per metric ton CO2e in FY 2010-11, 

dropping to $0.09 per metric ton CO2e in 

2014

$63.1 million 2010-

2013; $36.2 million 

starting in 2014,

expected

Climate mitigation programs

a

 Revenue in the Netherlands is from all environmentally related taxes, of which carbon taxes are the clear majority. b

 CO2e is carbon dioxide equivalent. 
9

Finland—1990 

Finland was the first country to adopt a carbon tax. Launched in 1990, Finland’s carbon tax is a 

separate component of Finland’s excise tax on fossil fuels used for transportation or heating. The 

carbon tax applies to gasoline, diesel, light fuel and heavy fuel oil, jet fuel, aviation gasoline, 

coal, and natural gas (Ministry of the Environment, Finland 2008a). Coal is subject to a tax of 

$73.97 (€49.32) per metric ton, natural gas is subject to a reduced tax rate of $3.02 (€2.016) per 

MWh, and liquid fuels are taxed between $0.07 (€0.05) and $0.09 (€0.06) per liter (European 

Environment Agency 2009). Commercial vessels and commercial air traffic as well as fuels used 

for electricity are exempt. Electricity is taxed, but the rate per kWh does not vary according to 

carbon content; however, a refund is available for renewable electricity. (Parkkinen 2009) 

Initially, Finland based its carbon tax purely on carbon content but modified it to include a 60% 

carbon component and a 40% energy component. The energy component was a tax based on 

energy use in MWh rather than on carbon content of the fuel. In January 1997, however, Finland 

returned to a pure carbon tax (Parkkinen 2009). The carbon tax was most recently increased by 

13% to $30 (€20) per metric ton CO2 on January 1, 2008 (Ministry of Environment Finland 

2008b). Carbon tax revenues have been approximately $750 million (€500 million) annually

(Ministry of Environment Finland 2008b). All revenue from the carbon tax in Finland goes 

directly into the general central government budget without any earmarking (Parkkinen 2009). 

In 2000, the Finnish government determined that because of the carbon tax, CO2 emissions were 

reduced by roughly 4 million metric tons of CO2 between 1990 and 1998. Four million metric 

tons of CO2 represented approximately 7% of the 57 million metric tons of emissions recorded in 

1998 (Prime Minister’s Office, Finland 2000).

The Netherlands—1990 

The Netherlands’ carbon tax began in 1990. It applies to natural gas, electricity, blast furnaces, 

coke ovens, refinery and coal gas, coal gasification gas, gasoline, diesel, and light fuel. In 1996, 

the tax rate was equivalent to $20 per metric ton CO2. 

Environmentally related taxes generate total revenue of $4.819 billion (€3.213 billion), of which 

the carbon tax is the majority (Netherlands Ministry of Housing, Spatial Planning and the 

Environment n.d.).

The Netherlands uses carbon tax revenues to reduce the general tax burden for individuals and 

businesses as well as to provide programs to reduce greenhouse gases. Part of the revenue is 

“recycled” to businesses in the form of accelerated depreciation for environmental equipment 

and tax-deductibility of energy investments (Netherlands Ministry of Housing, Spatial Planning 

and the Environment, Directorate-General for Environmental Protection, n.d.).

The Netherlands Ministry of Housing, Spatial Planning and the Environment (n.d.) estimated the 

carbon tax would reduce annual CO2 emissions 1.7 to 2.7 million metric tons annually in 2000, 

with covered sectors reducing CO2 emissions by approximately 5%. Due to an increase in the tax 

in 1999, annual CO2 emissions are projected to be reduced 3.6 to 3.8 million tons by 2010 and 

4.6 to 5.1 million tons in 2020.
10

Norway—1991

Norway’s carbon tax began in 1991. The current tax rates vary from $15.93 (NOK 89) per metric 

ton CO2 to $61.76 (NOK 345) per metric ton CO2 (Ministry of the Environment, Norway 2007). 

Taxed sectors include gasoline, light and heavy fuel oil, and oil and gas in the North Sea. The 

pulp and paper industry, fishmeal industry, domestic aviation, domestic shipping of goods, and 

the continental shelf (supply fleet) pay reduced rates. Foreign shipping, fishing in Norway, 

fishing in distant waters, and external aviation are all exempt from the tax. Table 3 shows 

Norwegian carbon tax rates by taxed sector in 2007. The tax is estimated to cover approximately 

68% of Norway’s CO2 emissions, or approximately 50% of Norway’s GHG emissions 

(UNFCCC 2006).

Table 3. Norwegian Carbon Tax Rates, 2007

Tax rate – US$ (NOK)

per liter oil and petrol, kg. 

coal and coke or Sm3 gas)a

Tax rate - NOK ($) per 

metric ton CO2

Petrol (gasoline) $0.14 (0.80 NOK) $61.76 (345 NOK)

Fuel oil

Light fuel oil, diesel $0.10 (0.54 NOK) $36.34 (203 NOK)

Heavy fuel oils $0.10 (0.54 NOK) $30.79 (172 NOK)

Mineral oils, lower rate

Light fuel oil, diesel $0.05 (0.28 NOK) $18.80 (105 NOK)

Heavy fuel oils $0.05 (0.28 NOK) $15.93 (89 NOK)

Use of gas in Norway

Natural gas $0.08 (0.47 NOK) $35.98 (201 NOK)

LPG $0.11 (0.60 NOK) $35.80 (200 NOK)

Continental shelf

Light fuel oil, diesel $0.14 (0.80 NOK) $53.70 (300 NOK)

Heavy fuel oils $0.14 (0.80 NOK) $45.65 (255 NOK)

Natural gas $0.14 (0.80 NOK) $61.22 (342 NOK) a Sm3 refers to a standard cubic meter.

Norway directs carbon tax revenues to general government accounts. With this revenue and 

revenue from offshore drilling licenses, Norway has financed a special pension fund that 

contained $373 billion, or nearly $80,000 for every Norwegian, at the end of 2007 (Turner 

2008). 

Norway has received negative press because its GHG emissions increased by 15% from when it 

implemented a carbon tax in 1991 to 2008. Others justify the increase in GHG emissions by 

noting that Norway also experienced an increase in gross domestic product of 70% since 1990. 

(Abboud 2008)

Industrial efficiency gains in Norway may have been achieved because of the carbon tax. 

Emissions per unit of production were 22% lower in 2003 than they were in 1991, but since 

1996, emissions per unit of production have been steady or even rising slightly. Norwegian 

officials recognize that the carbon tax is not the only factor contributing to changes in industrial 
11

efficiency. Other factors that impact industrial efficiency include general technology 

improvements and the use of more mature petroleum fields, which provide increased energy per 

unit of production. (Ministry of the Environment, Norway 2005a)

Norway’s carbon tax has promoted technology innovation in the form of carbon sequestration. In 

1996, StatoilHydro, the company operating the Sleipner gas field, began developing a CO2-

sequestration project, storing CO2 under the sea floor. The project, which cost approximately 

$200 million, has saved the company approximately $60 million in carbon taxes each year and 

has stored approximately 1 million metric tons of CO2 annually since 1996 (UNFCCC 2006, 

Abboud 2008). However, even though the company has increased the efficiency of its 

operations, its total emissions have increased because of expansions in drilling (Abboud 2008). 

Sweden—1991

In 1991, Sweden initiated a carbon tax of $44.37 (250 SEK) per metric ton CO2. Industries, 

including manufacturing, agriculture, co-generation plants, forestry and aquaculture, pay a lower 

proportion of the general level (Ministry of Sustainable Development, Sweden 2005a). As shown 

in Figure 2, Sweden modified rates such that industry paid only $11.28 (80 SEK) per metric ton

while other consumers paid $45.15 (320 SEK) per metric ton in 1993. The standard rate was

$55.57 (370 SEK) per metric ton in 1996, and between 1999 and 2003, the standard rate rose to 

$104.83 (910 SEK) per metric ton while the rate for industry leveled off at approximately $23.04

(200 SEK) per metric ton.

Figure 2. Swedish CO2 tax rate, SEK per kilogram CO2, nominal figures

Source: Swedish Environmental Agency and Swedish Energy Agency, 2007

Revenue from Sweden’s carbon tax was relatively steady from 1993 to 2000 then gradually 

increased from 2000 to 2004 (Figure 3). It generated approximately $3.65 billion (25 billion 

SEK) annually in 2005, 2006, and 2007 (Swedish Tax Agency 2008a).4 Sweden directs the tax 

revenues to the general government budget.5

 4 Actual numbers: 25.810 billion SEK in 2005; 24.743 billion SEK in 2006; and 25.088 billion SEK in 2007. 

5 Pelle Magdalinski (Swedish Environmental Protection Agency), personal communication, December 9, 2009.
12

Figure 3. Swedish carbon tax revenues

Source: Swedish Environmental Agency and Swedish Energy Agency, 2007

Several studies in Sweden have attempted to assess CO2 emissions. The Swedish Ministry of the 

Environment estimated that CO2 emissions fell about 15% between 1995 and 1990 because of 

the tax (Johansson 2000). In terms of overall emissions, Sweden saw GHG emissions fall by 

almost 9% between 1990 and 2006. In December 2008, Sweden reported that GHG emissions 

have fallen by more than 40% since the mid-1970s. (Ministry of the Environment, Sweden 2008) 

Denmark—1992

Denmark’s tax on CO2 passed in 1991 and took effect in May 1992. Fossil fuels are subject to 

both an energy tax and a CO2 tax. When the CO2 tax passed, it included a subsequent decrease in 

the energy tax to maintain the overall tax rate. Table 4 shows Danish energy and CO2 tax on 

various fuel types. The initial tax rate of $16.91 (100 DKK) per metric ton CO2 was reduced to 

$16.41 (90 DKK) per metric ton CO2 in 2005. With the decrease in the CO2 tax in 2005, the 

energy tax increased to maintain the overall tax rate (Speck et al. 2006). In 2008, the carbon tax 

rate remained at $16.41 (90 DKK) per metric ton CO2 emissions (Ministry of Taxation, Denmark

2008). In 2008, the revenues from the CO2 tax were approximately $905 million. 
13

Table 4. Danish Energy and CO2 Tax on Various Fuel Typesa

1985 1990 1996 2000 2002 2005

Light fuel oil 

(EURcent/l)

Energy tax 4.61 22.4 20.25 23.21 24.63 25

CO2 tax 3.67 3.62 3.63 3.23

TOTAL TAX 4.61 22.4 23.92 26.83 28.26 28.23

Heavy fuel oil 

(EURcent/kg)

Energy tax 5.11 25.2 22.56 26.16 27.72 28.09

CO2 tax 4.35 4.29 4.31 3.9

TOTAL TAX 5.11 25.2 26.9 30.45 32.03 31.99

Natural gas 

(EURcent/nm3

)

b

Energy tax 0.14 21.47 27.19 27.42

CO2 tax 2.99 2.95 2.96 2.69

TOTAL TAX 3.13 24.42 30.15 30.11

Pit coal 

(EURcent/kg)

Energy tax 1.62 9.8 11.69 17.44 19.25 19.49

CO2 tax 3.26 3.22 3.23 2.96

TOTAL TAX 1.62 9.8 14.95 20.66 22.47 22.45

Source: Speck et al. 2006 a Tax rates expressed in national currencies have not been increased since 2002 with the result that 

current tax rates in real terms are slightly lower than they were in 2002. b The unit nm3 represents a normal cubic meter.

In Denmark, approximately 40% of tax revenue is used for environmental subsidies, while the 

other 60% is returned to industry. The government provides an approximately 25% reduction of 

the tax if a company signs an energy savings agreement with the Ministry of Transportation and 

Energy. Per capita emissions in Denmark were reduced by 15% from 1990 to 2005 (Prassad 

2008). Industrial emissions were also estimated to decrease by 23% during the 1990s, after 

adjusting for growth and market-induced industry restructuring (Enevoldsen 2005).

United Kingdom—2001

The UK Climate Change Levy (CCL) began in 2001. It imposes a tax on electricity, natural gas 

supplied by a gas utility, liquefied petroleum gas or other gaseous hydrocarbons supplied in a 

liquid state for heating, and solid fuel (e.g., coal and coke, lignite, semi-coke of coal or lignite, 

and petroleum coke). CCL rates only apply to industrial and commercial energy supplies to the 

industrial, commercial, agricultural, public and service sectors (UK Department of Energy and 

Climate Change 2009). The CCL was designed to encourage businesses to become more energy 

efficient and reduce GHG emissions. Table 5 shows the average CCL rates as of April 1, 2009 

by fuel type.
14

Table 5. United Kingdom Climate Change Levy Rates as of April 1, 2009

Sector Tax rate

Electricity $0.0078 (£0.00470) per kWh

Natural gas as supplied by a gas utility $0.0027 (£0.00164) per kWh

Liquified petroleum gas (LPG) or other gaseous hydrocarbons 

supplied in a liquid state, for heating

$0.0175 (£0.0105) per kg

[$0.0012 (£0.00076) per kWh]

Solid fuel, e.g., coal and coke, lignite; semi-coke of coal or 

lignite; and petroleum coke

$0.0213 (£0.0128) per kg

[$0.0027 (£0.00164) per kWh]

Source: Hatherall, 2009

CCL revenues in 2006-2007 were $1.191 billion (£714 million), far less than the approximately

$2.25 billion (£1.35 billion) required to offset a 0.3% cut in National Insurance Contributions6

that was implemented with the CCL to make the policy revenue-neutral.

7

A study by Cambridge Econometrics (2005) estimated that by 2010 the CCL would reduce 

energy demand by approximately 15% (12.8 million metric tons) in the commercial and public 

sectors (Her Majesty’s Treasury 2008:101). 

As a result, industry as 

a whole has not faced higher taxes; instead, the tax burden as a whole has been reduced because 

the cut in National Insurance Contributions is greater than the carbon tax (UK Department of 

Energy and Climate Change 2009). The CCL was estimated to generate approximately $1.167 

billion (£700 million) in 2007-2008 and in 2008-2009 (Her Majesty’s Treasury 2008).

Boulder, Colorado—2007

Boulder, Colorado, a city of approximately 100,000 people located northwest of Denver, adopted 

a carbon tax via a ballot initiative in 2006. The tax, collected by the investor-owned utility, took 

effect in April 2007.

Rates are set based on kilowatt-hour (kWh) use of electricity, with residents initially paying 

$0.0022 per kWh, commercial customers paying $0.0004 per kWh, and industrial customers 

paying $0.0002 per kWh (City of Boulder 2009a). In August 2009, the tax increased to the 

maximum rate allowed by the tax ordinance: $0.0049 per kWh for residents, $0.0009 per kWh 

for commercial customers and $0.0003 per kWh for industrial customers (City of Boulder 

2009a). The rates are equivalent to approximately $12-13 per ton of CO2. The ordinance exempts 

the portion of electricity that Boulder residents can voluntarily purchase as utility-provided wind 

power through Xcel Energy (Boulder Revised Code 3-12-2). 

 6 National Insurance Contributions are mandatory contributions paid by employees and employers on earnings, and 

by employers on certain benefits-in-kind provided to employees. 7 Nick Hatherall (United Kingdom Climate Change and Energy Branch), personal communication, September 18, 

2009.
15

Tax revenues were $846,885 in 2008 and are expected to peak at $1,609,000 in 2010 then 

decrease to $1,203,000 in 2012 as fossil fuel use decreases.

8

The City of Boulder uses its carbon tax revenue to fund a climate action plan that promotes 

energy efficiency in homes and buildings, renewable energy, and reductions in vehicle miles 

traveled.

The tax is set to expire on March 

31, 2013. Extension of the tax would require voter approval.

Boulder developed a set of guiding principles to evaluate its carbon reduction programs. Each 

program must both maximize GHG reductions and be cost effective. The city measures cost 

effectiveness in tax dollars spent per GHG ton reduced. Programs must also include a reasonable 

expectation for private investment and payback time. (City of Boulder 2009a)

Boulder’s goal is to reduce GHG emissions to a level that is 7% below the level of 1990 

(1,478,534 metric tons CO2e9

) by 2012,10

• Renewable energy activities: approximately 60,000 metric tons CO2e in 2008

and it measures the success of the carbon tax in terms 

of meeting this goal. Boulder estimated emission reductions because of its climate action 

strategies as follows: (City of Boulder 2009b)

• Transportation: 33,000 metric tons CO2e annually 

• Energy efficiency programs: approximately 6,700 metric tons CO2e in 2008.

Quebec, Canada—2007

Quebec implemented its carbon levy in October 2007. The carbon levy is $3.20 (C$3.50) per 

metric ton of CO2. The level is readjusted every year based on the volume of sales.

11

According to Torys Climate Change Bulletin (2007), the carbon levy is expected to raise $191 

million (C$200 million) annually as follows:

The rate 

varies for each fuel, with the gasoline levy at $0.0076 (C$0.008) per liter, diesel fuel at $0.0086 

(C$0.009) per liter, propane at $0.0048 (C$0.005) per liter, and coal at $7.64 (C$8.00) per metric 

ton. 

• $65.87 million (C$69 million) from gasoline producers

• $76.37 million (C$80 million) from diesel and heating oil producers

• $41 million (C$43 million) from electricity and natural gas producers

• $6.68 million (C$7 million) from coal and propane producers. 

Quebec deposits its carbon tax revenue into a “green fund,” which supports reductions in GHG

emissions and improvements to public transportation. GHG-reduction measures—with the 

largest projected reduction in or avoidance of GHG—include (Quebec 2008):

 8 Sarah Van Pelt (City of Boulder), personal communication, October 9, 2009. 9 Boulder performs GHG accounting in metric tons of carbon dioxide equivalent (CO2e) 10 Sarah Van Pelt (City of Boulder), personal communication, October 9, 2009. 11 Robert Noel de Tilly (Senior Policy Advisor), Quebec Government, personal communication, October 8, 2009.
16

• Requiring manufacturers of light-duty vehicles to meet a GHG-emissions standard 

starting in 2010

• Improving the energy efficiency in the transport of merchandise

• Financially supporting the capture and incineration or valorization of landfill gas

• Supporting manure processing and biomass

• Supporting research and innovation for carbon sequestration.

Quebec’s 2006-2012 carbon mitigation action plan, Quebec and Climate Change—A Challenge 

for the Future (Quebec 2008), recommends 26 actions to reduce GHG emissions and adapt to 

climate change. The plan also is supported by C$350 million from the federal trust fund for clean 

air and climate change. In total, the plan is expected to reduce GHG emissions by 14.6 million 

metric tons by 2012 (Quebec 2008). GHG-emission reductions from programs funded by the tax 

are estimated at 11.2 million metric tons by 2012.

12

The government publishes an annual progress report, which enables it to refocus program 

priorities if necessary to meet its goals (Quebec 2008). It is unclear whether the government may 

choose to raise the carbon tax as part of this review process.

If GHG emissions held steady at 2005 levels 

of 92 million metric tons, this would represent a decrease of approximately 12%.

Quebec quantified GHG-reduction measures in terms of their reduction potential and total costs 

for the period 2006-2012. The following policies and programs are expected to be most cost 

effective (Quebec 2008):

• Blending a minimum of 5% ethanol in fuel by 2012

• Reducing industrial emissions

• Financially supporting landfill gas incineration or use

• Supporting manure processing and energy use from biomass.

British Columbia, Canada—2008

British Columbia, Canada launched its carbon tax in July 2008. The tax is applied primarily to 

transportation fuels, natural gas, and fuels used in industrial processes. It began at a level of 

$9.55 (C$10) per metric ton CO2 and increases $4.77 (C$5) per metric ton CO2 annually until 

reaching a level of $28.64 (C$30) per metric ton of CO2 in 2012. 

In 2008, the carbon tax was estimated to be an additional $0.0223 (C$0.0234) per liter of 

gasoline. The tax will increase to approximately $0.0637 (C$0.0667) per liter in 2012. Natural 

gas is taxed at $0.47 (C$0.50) per GJ, and coke is taxed at $23.74 (C$24.87) per metric ton

(European Environment Agency 2009). After being phased in, the government may adjust the 

tax rate depending on whether its GHG emissions targets are being met, the impacts other carbon 

policies are having, the actions other governments are taking, as well as general advice being 

offered by its Climate Action Team (Ministry of Finance, British Columbia 2008).

 12 Robert Noel de Tilly (Senior Policy Advisor), Quebec Government, personal communication, October 8, 2009.
17

The tax base includes fuel used to generate heat for households and industrial processes such as 

producing cement and drying coal. In addition, the carbon tax applies to road, rail marine, and air 

transportation within British Columbia. Inter-jurisdictional transportation is exempt from the 

carbon tax. 

Carbon tax revenues for the 2008-2009 fiscal year were $292 million (C$306 million). The tax is 

expected to raise $531 million (C$557 million) in the 2009-2010 fiscal year, $714 million

(C$748 million) in the 2010-2011 fiscal year and $911 million ($955 million) in the 2011-2012 

fiscal year.13

British Columbia provides a combination of tax rebates in order to make its carbon tax revenueneutral. The government provides a personal income tax rate cut, a low-income “climate action 

tax credit,” a small business rate cut, a general corporate tax rate cut, and industrial and farm 

property tax cuts. In addition, British Columbia distributed a one-time check for C$100 to 

residents in June 2008.

14

The effects of British Columbia’s carbon tax are still unknown because the tax was only recently

implemented. However, it was estimated that the tax would reduce emissions by 3 million metric 

tons annually by 2020 (Ministry of Finance, British Columbia 2008).

Bay Area Air Quality Management District, California—2008

The Bay Area Air Quality Management District (BAAQMD) incorporates nine counties of the 

San Francisco Bay Area. The BAAQMD established a carbon fee in July 2008, and in June 

2009, it was increased by 3% to $0.045 per metric ton of carbon dioxide equivalent (CDE). The 

fee applies to GHG emissions from BAAQMD permitted facilities. The BAAQMD establishes 

the cost of implementing GHG reduction programs and then sets the rate by dividing the cost by 

the total amount of GHG emissions from BAAQMD permitted facilities (Bateman 2009). 

Approximately 780 facilities are subject to the fee (Bateman 2009). 

The GHG fee raises revenue for BAAQMD Climate Protection Program projects related to 

stationary sources. Funded activities include completing and maintaining a regional GHG

emissions inventory, supporting local efforts to reduce GHG emissions from stationary sources, 

developing regulatory measures for GHG emissions from stationary sources, reviewing GHGrelated documents, addressing climate issues in the California Environmental Quality Act, and 

performing administrative activities such as updating databases and invoicing (BAAQMD 2008).

The fee is expected to raise $1.1 million for the BAAQMD (Bateman 2009). It may be raised in 

the future based on the funding needs of the BAAQMD Carbon Protection Program. 

France—Proposed

In September 2009, French President Nicholas Sarkozy proposed a carbon tax of $24.74 (€17) 

per metric ton of CO2 on fossil fuels such as gasoline, gas, and coal (Sarkozy 2009). Sarkozy 

proposed that the tax would not apply to electricity, saying that France’s electricity is primarily 

carbon free (approximately 80% nuclear and approximately 10% hydroelectric). In addition, the 

 13 Anne Foy (British Columbia Ministry of Finance), personal communication, September 17, 2009. 14 Anne Foy (British Columbia Ministry of Finance), personal communication, September 17, 2009.
18

electric sector is covered by the EU’s ETS. The proposed price is based on the current market 

price for CO2 emissions permits through the EU (Keller 2009). 

The tax would add $0.07 (€0.045) for each liter of diesel, $0.06 (€0.04) for each liter of gasoline, 

and $0.006 (€0.004) for each kWh of natural gas consumed (Keller 2009). Sarkozy (2009) 

expects the tax to raise $4.499 billion (€3 billion). Tax rates are expected to increase over time;

however, the level of increase has not been presented.

The proposal indicated that the tax would be accompanied by a reduction in taxes for households 

and businesses or repaid through a “green check” (Keller 2009). 

California Air Resource Board—Proposed

The California Air Resources Board (CARB), under the authority of California’s Assembly Bill 

32 (AB 32), the Global Warming Solutions Act of 2006, adopted a carbon fee in September 2009 

and is in the rulemaking process to institute the fee (CARB 2009a).

The CARB staff proposal for the fee would cover 85% of California’s GHG emissions through

regulation of approximately 350 sources, including large natural gas distributers and large users 

of natural gas, producers or importers of gasoline or diesel fuel, facilities that combust coal and 

petroleum coke, refineries, cement manufacturers, and electricity importers and in-state 

generating facilities (CARB 2009b). 

The preliminary proposed costs for the fee in fiscal year 2010-2011 are $0.155 per metric ton

CO2 equivalent. CARB established the fee by calculating the revenue requirement to implement 

GHG reduction programs, and then dividing by the estimated GHG emissions by covered 

sectors. The fee was not designed to place a value on carbon high enough to change behavior but 

rather to provide a continuous funding source to implement AB 32.

The fee is expected to raise $63.1 million during the first three years of implementation, in part 

to cover loans the programs have received in fiscal years 2007-2008, 2008-2009, and 2009-2010. 

The fee is proposed to be reduced to $0.09 per metric ton of CO2 in 2014—after loans are paid

off—and generate an estimated $36.2 million per year thereafter.

The fee is not designed to change purchase behavior but would fund the administration, 

implementation, and enforcement of GHG emission reduction measures in the AB 32 scoping 

plan, which was designed to help California meet its GHG reduction goals (CARB 2008). In this 

way, the CARB fee more closely represents an administrative cost-covering fee than a traditional 

carbon tax. The polluting entity in this system is paying to cover the costs to administer a 

program to regulate emission. (See Ekins 1999)
19

4 Effectiveness of Carbon Taxes

While the primary purpose of carbon taxes is to reduce GHG emissions, most existing carbon 

policies introduce no processes or specific requirements to evaluate policy effectiveness in 

reducing emissions, although some attempted to assess their effects. Determining the overall 

impacts of a carbon tax can be challenging because many factors can affect overall carbon 

dioxide emissions, including economic growth levels and other programs designed to address 

environmental impacts.15

Evaluation of Emissions Benefits of Carbon Taxes

Even so, measurement, tracking, and program evaluation are important 

to determine the impact of the policy, especially if emissions reductions are the ultimate goal. 

Jurisdictions have used a variety of metrics to determine the emission benefits of carbon taxes. 

One of the most rudimentary metrics for measuring carbon tax effectiveness is overall reductions 

in GHG emissions that can be tracked using GHG emissions inventories at the national or local 

level. This metric is flawed in that it captures not only the carbon tax effects but also the effects 

of other carbon mitigation polices and exogenous variables such as the level of economic 

growth. While this metric lacks precision, jurisdictions can use it to evaluate whether they are 

meeting overall GHG reduction goals and to determine whether policies, including carbon taxes,

should be modified accordingly. 

Examining the effects of a carbon tax alone on GHG emissions would provide a more precise 

estimation of policy effectiveness. Many governments model the effects of a carbon tax acting 

alone during the implementation phase of the tax. For example, in the United Kingdom, 

according to a modeling study by Cambridge Econometrics (2005), the Climate Change Levy 

would reduce energy demand by approximately 15% (12.8 million metric tons) in the 

commercial and public sectors by 2010 (Her Majesty’s Treasury 2008:101). However, 

determining the actual impact of a tax in isolation of other factors is often difficult, and most 

evaluations have not attempted to do so. Because of the lack of common evaluation practices, it 

is difficult to compare the effects of policies across jurisdictions. Table 6 summarizes evaluations 

of either carbon emissions levels or program effectiveness that jurisdictions have conducted to 

gauge the impact of carbon taxes. For example, Sweden’s emissions were reduced by almost 9% 

between 1990 and 2006, while in Denmark, per capita emissions were reduced by 15% between 

1990 and 2005.

 15 Evaluation may be easier to implement for taxes designed to raise revenues to implement specific carbon 

reduction programs.
20

Table 6. Estimated Emissions Reductions in Jurisdictions with Carbon Taxes a

Unless otherwise noted, decreases in emissions represent total emission reductions, not emission 

reductions that are due to a carbon tax.

Jurisdiction Start 

Date Change in CO2 Emissions Source

Finland 1990 Emissions were 7% lower in 1998 than they would have 

been without a tax.

Prime Minister’s Office, 

Finland (2000)

Netherlands 1990 Emissions were expected to be reduced by 1.7 to 2.7 

million metric tons C02 annually in 2000. In covered 

sectors, emissions were expected to be reduced by 

approximately 5%.

Netherlands Ministry of 

Housing, Spatial 

Planning and the 

Environment (n.d.)

Norway 1991 Emissions increased by 15%—and GDP increased 70%—

from 1991 to 2008.

Abboud (2008)

Sweden 1991 Emissions were reduced by about 15% from 1990 to 1996 

because of the carbon tax.

Emissions decreased by 9% from 1990 to 2006.

Emissions decreased by more than 40% from the mid1970s to 2008.

Johansson (2000)

Ministry of the 

Environment, Sweden 

(2008)

Denmark 1992 Emissions decreased by 15% per capita from 1990 to 

2005.

Prassad (2008)

United 

Kingdom

2001 Emissions decreased by more than 58 million metric tons 

CO2 from 2001 to 2005.

Emissions are expected to be reduced by 12.8 million 

metric tons CO2 per year (15% of commercial and public 

sector energy demand) in 2010 because of the Climate 

Change Levy.

Cambridge 

Econometrics (2005)

cited in Her Majesty’s 

Treasury (2008:101)

Boulder, CO 2007 Emissions in 2007 and 2008 decreased from 2006 levels.

Greatest reductions due to programs funded by the carbon 

tax:

• Renewable energy activities (60,000 metric tons CO2e)

• Transportation (33,000 metric tons CO2e)

• Energy efficiency (6,700 metric tons CO2e)

City of Boulder (2009b

Quebec 2007 Emissions were expected to be reduced by 11.2 million 

metric tons C02 by 2012 due to the carbon tax.

Quebec (2008)

British 

Columbia

2008 GHG emissions were expected to be reduced emissions by 

up to 3 million metric tons CO2 annually in 2020 due to the 

tax.

Ministry of Finance, 

British Columbia (2008)

a BAAQMD implemented a carbon tax in 2008 and is tracking data but has not issued a report.

France and CARB each proposed but have not implemented a program.
21

Benefits of Programs Funded by Carbon Tax Revenues

The impacts of programs funded by specific carbon mitigation measures can be quantified to 

determine program effectiveness. With such program evaluations, governments administering 

carbon taxes can change the rate or shift funds to programs that are more effective at reducing 

emissions. For example, each year the City of Boulder evaluates programs funded through its 

carbon tax. In July 2009, the Boulder City Council approved an increase in the carbon tax level 

and targeted the additional revenue at expanding program offerings, including energy efficiency 

improvements and mass transit programs. (City of Boulder 2009a). 

Estimating the impacts of individual programs funded through a tax may be easier than 

estimating the impacts of the tax itself, as most programs are targeted toward specific reductions 

that typically can be measured. For example, it is possible to calculate the cost per metric ton of 

CO2e emissions over the lifetime of the project. Boulder used such a metric and found that 

energy efficiency programs provided the most cost effective programs. However, reductions 

from some programs, such as education and outreach, may be difficult to quantify. 

Program Evaluation and Adjustments to Carbon Tax Levels

Linking a carbon tax level to the achievement of emissions goals emphasizes the need for 

accurate emissions tracking and evaluation. Ideally, the methodology for measuring emissions 

would be clearly articulated before the tax is implemented. Some jurisdictions, such as countries 

that are signatories to the United Nations Framework Convention on Climate Change, may 

already be completing greenhouse gas inventories. 

Most carbon taxes were not designed to adjust depending on emissions levels. In British 

Columbia, however, the government specified that future changes in the tax rate will depend on 

whether GHG emissions targets are being met, the impacts other carbon policies are having, the 

actions other governments are taking, as well as general advice being offered by its Climate 

Action Team (Ministry of Finance, British Columbia 2008). Because the tax is new, this 

evaluation and adjustment have not yet been implemented. 
22

5 Integration of Taxes and Other Carbon Policies

A government trying to achieve GHG reductions in its entire economy may implement a carbon 

tax in conjunction with complementary policies. Taxes can be an attractive option for addressing 

emissions that might be difficult to regulate through other mechanisms such as cap and trade or 

command and control regulation. For example, Norway’s carbon tax covers about 68% of CO2

emissions, which represents more than half of its total GHG emissions. By comparison, 

Norway’s participation in the EU’s Emission Trading Scheme (ETS) covers 35%-40% of its 

GHG emissions (Ministry of the Environment, Norway 2008). In addition to its carbon tax, 

Norway implemented a tax on the import and production of other GHGs including HFCs and 

PFCs, which have high global warming rate potentials. Emissions from these sources are 

expected to be cut in half because of this tax (Ministry of the Environment, Norway 2005b).

Carbon taxes have generally been limited to certain sectors of the economy. For example, carbon 

taxes in Sweden address the energy and transport sectors but rely on other GHG-reduction 

strategies to reduce overall GHG emissions. Sweden has added cross-sectoral instruments such 

as participating in the EU’s ETS, investing in research and development and local programs, and

developing policies to addresses the waste sector (Ministry of Sustainable Development, Sweden 

2005b). 

Like Sweden, Finland participates in the EU’s ETS. Businesses are subject to both the ETS and 

the carbon tax, but to date Finland has allocated emissions allowances under the ETS free of 

charge (Parkkinen 2009). Finland has also developed building code regulations, waste 

management policies, and CO2-based rates for vehicle registration taxes and annual vehicle taxes 

(Parkkinen 2009).

In the United Kingdom, businesses subject to the Climate Change Levy (CCL) can sign climate 

change agreements with the government to reduce emissions, and after achieving targets, can 

receive an 80% reduction in the CCL. One way businesses can meet their targets is through 

purchasing allowances through the EU’s ETS (UK Department for Environment, Food and Rural 

Affairs 2005).

France has also looked to the EU’s ETS to set its tax rate. President Sarkozy’s proposed carbon 

tax would initially be set at the same level as the current market price for carbon in the ETS. The 

proposed tax would apply to oil, gas, and coal but not industries already participating in the ETS

(BBC News 2009).
23

6 Conclusions and Observations

Federal, state, and local governments are increasingly interested in instituting carbon taxes as a 

mechanism for addressing GHG emissions. While a handful of taxes were implemented in 

Europe in the early 1990s, few were adopted in the interim until a resurgence of interest on the 

part of local and state governments in recent years. Since 2007, new carbon taxes have been 

implemented in parts of Canada and the United States, while a number of others have been 

proposed. 

Policy designs for carbon taxes vary according to the jurisdiction’s policy goals. Some carbon 

taxes have been designed to encourage behavior changes and represent cost increases to fuel use 

as much as $30 per metric ton CO2 or more. Other carbon taxes have been designed to raise 

revenues for specific carbon mitigation programs and, in some cases, are implemented at levels

that are not likely to drive behavioral changes. 

The use of revenues derived from carbon taxes varies considerably. Half of the taxes 

implemented to date return revenues to the government or entities subject to the tax to offset the 

burden, while the rest use revenues to fund either specific carbon mitigation programs or 

government budgets. Some policies apply a portion of revenues for each purpose. 

Carbon taxes have been—and can be—used to address emissions from sectors that may not be 

easily addressed through cap and trade policies because of concerns about the point of regulation 

or emissions tracking. For example, non-stationary sources such as vehicle emissions can be 

difficult to address through a cap and trade system. Taxes have been most commonly applied to 

natural gas, gasoline, coal, electricity, and fuel oils.

Some carbon taxes target specific gaps and address areas not supported through other activities. 

As a result, carbon taxes can be integrated with other carbon policies in complementary ways. 

Efforts to evaluate the effectiveness of existing carbon taxes have been limited. Some studies 

assessing carbon emissions levels in countries that instituted taxes in the early 1990s show 

overall GHG emissions reductions, with some as high as 15%. However, these studies have 

generally not attempted to account for the impact of other carbon mitigation policies. Most 

recently implemented carbon taxes emphasize evaluation and estimating impacts, but their 

effectiveness remains to be seen. 

While it is possible to track and adjust tax levels over time to meet emissions goals, few 

jurisdictions have implemented such practices. British Columbia designed its new carbon tax

with tracking and adjustments in mind, but the tax is so new, there has been no practical 

experience adjusting the tax level to meet emissions goals. Remaining to be seen are whether 

raising carbon tax levels entails political difficulties and how progress toward emissions goals 

will be evaluated; however, taxes designed with tracking and adjustments in mind hold promise 

as another means of achieving GHG emissions reduction goals. 
24

Many questions still exist for future consideration.

• While carbon policy has seen greater interest at the federal level in the United States, to 

what degree will state and local governments pursue carbon taxes as a means for 

mitigating climate change?

• How would current and proposed carbon taxes in the United States interact with regional 

or federal cap and trade policies?

• When a carbon tax is set at a rate high enough to impact consumer behavior, how does 

the point of regulation affect consumer awareness? If the tax is imposed on upstream 

sources and consumers do not see a direct correlation between their consumption and the 

level of the tax they pay, they may be less likely to change consumption behavior. 

Boulder’s tax appears on consumers’ utility bills, but carbon taxes in other jurisdictions 

may not be directly visible to the consumer. 

• As carbon accounting and carbon registries become more advanced, will carbon taxes 

include life-cycle emissions of sources?
25

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F1147-E(10/2008)

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Carbon Taxes: A Review of Experience and Policy Design 

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State and local governments in the United States are evaluating a wide range of policies to reduce carbon emissions, 

including, in some instances, carbon taxes, which have existed internationally for nearly 20 years. This report reviews 

existing carbon tax policies both internationally and in the United States. It also analyzes carbon policy design and 

effectiveness. Design considerations include which sectors to tax, where to set the tax rate, how to use tax revenues, 

what the impact will be on consumers, and how to ensure emissions reduction goals are achieved. Emission 

reductions that are due to carbon taxes can be difficult to measure, though some jurisdictions have quantified 

reductions in overall emissions and other jurisdictions have examined impacts that are due to programs funded by 

carbon tax revenues.

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United States; carbon taxes; carbon tax; carbon policies; carbon policy; states; state government; local governments; 

carbon emissions; emission reductions; carbon policy design; tax sectors; tax rates; tax revenues; carbon tax rates; 

effectiveness; gasoline; coal; natural gas; Boulder, Colorado; California; Denmark; Finland; France; Netherlands; 

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