Carbon taxes are widely seen as one of the most effective policy options for reducing emissions. However, the main rationale behind initially low carbon taxes is often not to reduce emissions but to generate tax revenues or meet international expectations, according to a study published in the Cell Press journal One Earth on August 13. As noted by the authors, the observations cast doubt on whether carbon taxes should always be viewed as climate policies.
"Reducing emissions is often not the primary rationale of carbon taxes in the real world," says lead study author Johan Lilliestam of Friedrich Alexander University Erlangen-Nürnberg, Germany. "A country having a carbon tax is not in itself an indication of climate policy progress, and the increasing number of carbon pricing schemes is not in itself evidence of carbon pricing being a successful climate policy instrument."
In many countries, carbon taxes are set and kept too low to strongly reduce emissions, which the authors say indicates that climate change mitigation may not be their primary rationale. In 2023, there were 25 national carbon taxes, of which 19 were initially implemented at a level below minimum benchmarks for expected emissions reduction impacts.
"Understanding the explanatory factors of such low carbon taxes is a fundamental topic in climate policy research," Lilliestam says. "Yet, to date, no multi-case study has investigated the rationales of low carbon taxes beyond binary assessments of whether or not such a tax exists."
To help fill this knowledge gap, Lilliestam's team analyzed the policy design, tax evolution, and expressed justification of all 19 national carbon taxes from countries across the world that were initially implemented below the relevant climate-effectiveness benchmark from 1990 to 2023. They found that in the first years after implementation, most initially low, national carbon taxes primarily followed non-climate rationales. For example, some policies were put in place to generate revenue to fund a general tax system reform or for non-climate spending.
Within the first 5 years after adopting policies, only Switzerland, France, and Canada showed strong evidence of within-policy sequencing, starting with a low but politically feasible tax and increasing it later once supportive coalitions became stronger and reforms became more feasible. Although several countries later increased carbon taxes—sometimes strongly—showing that within-policy sequencing does happen, such processes have been slow in the past, taking up to three decades.
The findings also revealed that 12 of the 19 countries with an initially low carbon tax still had carbon taxes below the benchmark levels in 2023, and many maintained substantial exemptions from tax eligibility. "This indicates that many carbon taxes—the way they were implemented—were not primarily or at all designed to reduce emissions," Lilliestam says. "Of the 25 national carbon tax systems that exist, almost half of the taxes remained below the threshold for significantly affecting emissions, even after several initially low carbon taxes had been ratcheted up."
One limitation of the study was that they focused on the 19 initially low, national carbon taxes, meaning that the results do not explicitly relate to emissions trading, to subnational carbon taxes, or to the 4 countries that implemented high carbon taxes above the benchmark, including Sweden and Germany. Further studies are needed to investigate the rationales behind emissions trading systems, including the rationale for the choice against a carbon tax, but also continued work to contrast the rationales of low and high carbon taxes.
"The increasing number of countries implementing carbon pricing systems is, in principle, good news, indicating that climate protection exists on political agendas across the world," Lilliestam says. "However, the mere existence of these instruments reveals little about their potential for facilitating a rapid transition to net-zero emissions, as they may be designed for other purposes. If the primary rationale of a carbon tax is not directly related to climate action, these taxes may remain low for many years still, and countries may hide behind 'we have a carbon tax' and further postpone more ambitious, urgently needed transformative climate policies."
