Carbon Tax, a A Pigovian Tax

Carbon atoms are present in every fossil fuel (coal, oil and gas) and are released as CO₂ when they are burnt. In contrast, non-combustion energy sources — wind, sunlight, hydropower, and nuclear — do not convert carbohydrates to carbon dioxide. Accordingly, a carbon tax is effectively a tax on the use of fossil fuels, and only fossil fuels. Some schemes also include other greenhouse gases; the global warming potential is an internationally accepted scale of equivalence for other greenhouse gases in units of tonnes of carbon dioxide equivalent.

A carbon tax is a tax on emissions of carbon dioxide and other greenhouse gases. It is an example of a pollution tax. Some economists favor carbon tax because they tax a "bad" rather than a "good", such as income. An undesirable Taxing is favoured by economists as a method to confront users with the external cost of carbon and hence it reduces emissions to efficient levels. This "carbon tax" is a direct tax on carbon dioxide, which is generated as a byproduct of the combustion of fossil fuels, among other processes. If the carbon tax equals the social cost of carbon, it is an example of a Pigovian tax.

A Pigovian tax is a tax levied to correct the negative externalities of a market activity. Pigovian taxes are named after economist Arthur Pigou (1877-1959), who also developed the concept of economic externalities. Pigovian taxes will be an efficient way to promote the public interest, and will lead to an improvement of the quality of life measured by the Genuine Progress Indicator and other human economic indicators, as well as higher Gross domestic product (GDP) growth.