The carbon price is a tax on energy sources that emit carbon dioxide.

The idea is that emitters of carbon pollution caused by the burning of fossil fuels, including coal and petroleum, will pay per tonne of carbon they release into the atmosphere. This is widely thought of as the most effective and least costly mechanism to reduce carbon output and thereby slow global warming.

Why a carbon tax?

Putting a price on carbon is the most environmentally effective and cheapest way to cut pollution.

Putting a price on the carbon pollution will create incentives to develop and use technologies that reduce carbon emissions, by investing in clean technology or finding more efficient ways of operating.

Households and individuals will take into account the price of carbon pollution in their personal decisions, including the cars they buy and the appliances they use.

How would it affect me?

Households, small businesses and other organisations will have no direct obligations under the carbon price.

Some businesses will pass on the carbon price, leading to modest rises in prices. 

Which other countries have a carbon tax?

Finland: introduced the world’s first carbon tax in 1990. Initially the tax exempted few industries and fuels.

In 2010 Finland’s price on carbon was €20 per tonne of CO2. Natural gas has a reduced tax rate, while peat was exempted between 2005-2010.

Taxation of liquid fuels and coal takes account of both their energy content and carbon dioxide emissions, and also emissions into the local environment that have adverse health effects.

The Netherlands: the Netherlands levies a general fuel tax on all fossil fuels. Fuels used as raw materials are not subject to the tax. Tax rates are based on both the energy and carbon contents of fuels.

Sweden: in 1991 Sweden enacted a carbon tax.

With Sweden raising prices on fossil fuels since enacting the carbon tax, it cut its carbon pollution by 9 per cent between 1990 and 2006.

India: a levy on coal producers was introduced in 2010. India expected to raise $535 million from the tax, the first measure used by the subcontinent to reduce companies’ use of fossil fuels.

Norway: in 1991 Norway introduced a tax on carbon. However its carbon emissions increased by 43m per cent per capita between 1991 and 2008.

Denmark: enacted in 1992, Denmark’s carbon tax applies to all energy users, which includes the industrial sector. But industrial companies are taxed differently depending on the process the energy is used for, and whether or not the company has entered into a voluntary agreement to apply energy efficiency measures.

Denmark’s per capita carbon dioxide emissions were nearly 15% lower in 2005 than in 1990.

Switzerland: a carbon incentive tax was introduced in Switzerland in 2008. It includes all fossil fuels, unless they are used for energy. Swiss companies can be exempt from the tax if they participate in the country’s emissions trading system.

Overall, greenhouse gas emissions in Switzerland remained stable between 1990 and 2007.

Ireland: a tax on oil and gas came into effect in 2010. It was estimated to add around €43 to filling a 1000 litre oil tank and €41 to the average annual gas bill.

Costa Rica: in 1997 Costa Rica enacted a tax on carbon pollution, set at 3.5 per cent of the market value of fossil fuels. The revenue raised from this goes into a national forest fund which pays indigenous communities for protecting the forests around them.

Quebec, Boulder: The Canadian province of Quebec, and the US city of Boulder have also implemented carbon taxes.

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