Pigouvian carbon tax rate: Can it help the European union achieve sustainability?

Abstract

The aim of this paper is to argue the applicability of the Pigouvian tax on negative externalities such as carbon emissions. Our approach is based on the fierce debate between Pigou's followers and opponents from which we can underline the tax's primary flaws and advantages to enable us to propose a viable and efficient taxation system that would have a declining effect on carbon emissions. To construct a carbon-impacting tax, we propose an analysis of the fundamental rationale that led to the construction of Pigou's theory on eliminating negative externalities using taxation. Our paper tries not to defend or deny the Pigouvian view but instead to propose an improved form of tax on negative externalities such as carbon emissions. We consider that the sustainability of carbon taxation depends not only on its ability to internalise the external cost of pollution but also on its ability to enhance the transition towards sustainable sources of energy and environmentally friendly technologies.