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A carbon tax is a fee imposed on the burning of carbon-based fuels (such as coal, oil, and gas). The primary purpose of a carbon tax is to reduce greenhouse gas emissions by making fossil fuels more expensive, thereby encouraging businesses and individuals to shift towards cleaner energy sources and reduce their carbon footprint.
The tax is usually applied at the point of fuel production or importation, and the cost is often passed down to consumers through higher prices for goods and services that rely on fossil fuels. The revenue generated from a carbon tax can be used in various ways, including funding renewable energy projects, reducing other taxes, or compensating consumers, especially low-income households, who might be disproportionately affected by the tax.
The overall goal is to incentivize a reduction in carbon dioxide emissions, thereby mitigating climate change.