Environmental Effects of Carbon Taxes: A Review and Case Study

Abstract

A carbon tax imposes additional costs on emission-intensive fuels so as to reduce emissions. The primary aim of this paper is to investigate the environmental effects of carbon taxes. First, this paper reviews existing studies which evaluated the effects of carbon taxes on carbon dioxide (CO2) emissions for different countries. The review shows that carbon taxation is an effective instrument to reduce CO2 emissions. Then, Transportation and Environment Strategy Impact Simulator (TRESIS) is used to assess the impacts of a carbon tax on car use and CO2 emissions in the Sydney metropolitan area, and results shows that it would reduce CO2 emissions by 3.7 percent and reduce car kilometres driven by 3.5 percent in 2017. Its potential economic impact in terms of revenue generated is also presented in this paper.