Carbon Tax Explained

Carbon Tax pic

Carbon Tax
Image: carbontax.org

Legal executive Michael Mundaca is the co-director of the National Tax Department at Ernst & Young (EY) in Washington, D.C. The former Assistant Secretary for Tax Policy at the U.S. Treasury Department, Michael Mundaca holds an LLM from the University of Miami and a JD from the University of California, Berkeley.

In recent years, the carbon tax has become an increasingly prominent discussion point among policymakers. Also known as the carbon dioxide tax or CO2 tax, the carbon tax is a fee levied on entities that use fossil fuels, and is generally based on the amount of carbon dioxide released into the atmosphere. Because the carbon content of a fuel is in general proportional to the amount of carbon released when the fuel is burned, carbon tax collectors generally tax the fuel itself.

Governments typically use carbon tax systems because they can be relatively simple to implement and can further important policy goals. However, a carbon tax provides no guarantee of emissions reductions, as companies that are willing to pay the tax need not cut back on their burning of fossil fuels. Nevertheless, even though this may be the case, a carbon tax provides a revenue stream for governments while creating an incentive for alternative fuels development.

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