Is the European Carbon Tax Really Effective?

Abstract

In the current debate about the introduction of a carbon tax in Europe, attention is devoted to the comparison between costs and benefits of the carbon tax. In particular, numerous articles analyse the effects of the European carbon tax on GDP growth, prices, and income distribution. This paper takes a different point of view. It focuses on the effectiveness of the carbon tax in reducing carbon dioxide emissions. There is no evidence that a European carbon tax can succeed in significantly curbing CO2 emissions. By contrast, there is evidence that other policy instruments can best attain the objective of protecting the international environment from global warming. This paper explores the conditions under which a carbon tax can effectively be used to reduce CO2 emissions, and proposes an environmental policy mix which is likely to add further effectiveness to emission taxation.