Two Perspectives on Implementation of Carbon Tax Tackling Climate Change: A Literature review

Abstract

The international community has been continuously discussing carbon tax as a means to tackle climate change. In July 2021 came the announcement of the European Union's Carbon Border Adjustment Mechanism (CBAM). Many countries have expressed their concerns over its impact on their economies. This article reviews a total of ten articles, including eight journal papers, one policy paper and one news article, related to the implementation of carbon tax. Two distinct perspectives over carbon tax can be discerned from this literature review. One sees that the introduction of carbon taxes can help to mitigate climate change. Another sees it leading to negative economic ripple effects, acting as a new kind of tax-free barrier. The CBAM policy itself is still just beginning to be implemented, so no one is sure how the outcome of its implementation will affect each country's economic structure. Neither is it clear how to do a detailed estimation without first knowing to what extent implementation of carbon tax would harm economic structure within developing countries, as well as the potential countermeasures and responses of each country. This review hopes to contribute to further studies in order to better understand the impact of carbon tax and carbon emissions reduction, in consideration of each country's economic structure and feature, can help countries prepare for its implementation.