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carbon tax

Contributor(s): Matthew Haughn

A carbon tax is a levy charged as a penalty for the emission of greenhouse gases, caused by burning hydrocarbons.

Carbon taxes can be seen as a disincentive tax for the consumption of oil and gas energy. All fossil fuels, such as gasoline, natural gas, coal and oil, are hydrocarbons and give off carbon dioxide during combustion. Some give off methane as well.

Carbon taxes are intended to be used to correct the otherwise uncompensated costs of pollution and alleviate the associated greenhouse effect. Another goal is to make green operations more profitable by contrast.

A common alternative to carbon taxes is a cap and trade system, where those exceeding a set cap for greenhouse gases would have to buy carbon offset credits at market value from those under the cap.

In North America, Canada's British Columbia was the first to place a carbon tax on individuals, groups  and corporations.

This was last updated in January 2014

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