Finland became the first country to introduce a national carbon tax in 1990.
Finland’s measure placed a charge on the carbon content of fossil fuels, making fuels associated with greater carbon-dioxide emissions more expensive relative to lower-carbon alternatives. The policy was part of a broader effort to address climate and energy concerns through economic incentives.
A carbon tax differs from an emissions-trading system. A tax sets a price for emissions or for the carbon content of fuel, while a cap-and-trade system sets an overall limit and allows permits to be traded. Both approaches can encourage efficiency and lower-carbon technologies.
Carbon-tax design varies considerably. Some systems tax fuels upstream, while others apply charges to industrial emissions. Exemptions, rebates, revenue recycling, and interactions with other energy taxes can strongly affect the final impact on households and businesses.