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Carbon tax


A tax directly linked to the level of carbon dioxide (CO2) emissions. This is an example of a Pigouvian tax designed to correct a negative extemality, in this case the excess accumulation of CO2 in the atmosphere which may have negative effects on the environment. In the UK the national tax on fossil fuels used in electricity generation, referred to as the carbon price support, was introduced in April 2013.


Reference: Oxford Press Dictonary of Economics, 5th edt.