Implementing Carbon Tax: From Rhetoric to Reality

Abstract

Climate change and rising greenhouse gas emissions are the greatest concerns facing humankind today. As part of the Paris Agreement, a number of countries have undertaken carbon reduction targets. As the overall mitigation targets under the Paris Agreement appear inadequate and ineffective to meet the gravity of the challenge, several countries have been exploring additional approaches for carbon mitigation. One option is to impose a carbon tax which is in the nature of a Pigouvian tax. In most cases, it will be a tax on carbon emissions. As imposing a carbon tax only on domestic goods can result in carbon leakage, WTO Members such as the European Union (pursuant to the 2019 European Green Deal) are proactively considering the possibility of extending such taxes to imports also. This article examines the overall design concerns of a carbon tax and its conformity with WTO covered agreements.