The History and Current Situation of Carbon Tax in Europe

The History and Current Situation of Carbon Tax in Europe

1990s: The Introduction of Carbon Tax
In 1990, Finland became the first country in the world to introduce a carbon tax. This pioneering policy aimed to reduce greenhouse gas emissions, improve energy efficiency, and promote the use of renewable energy. The following year, Sweden followed suit and implemented environmental tax reforms alongside corporate tax reductions. These measures achieved a "decoupling" of CO₂ emissions reduction and GDP growth, serving as a model for other countries considering the implementation of carbon taxes.

However, challenges emerged with the introduction of carbon taxes. In particular, fairness in tax burdens was an issue for energy-intensive industries and regions dependent on fossil fuels, leading to opposition from the industrial sector. Differences in economic structures and energy circumstances among countries also influenced tax rate settings, highlighting inconsistencies in implementation.

2000s: Expansion and Deepening of Carbon Tax
In the 2000s, European countries expanded and raised carbon tax rates. Sweden set its standard tax rate at 39 euros/ton CO₂ and industrial rate at 20 euros/ton CO₂ in 2000, with the standard rate increasing to 119 euros/ton CO₂ by 2016. Finland also reformed its energy tax system, utilizing carbon tax revenue to fund income tax reductions and social security contributions, thus balancing environmental protection with economic growth.

In France, plans to introduce a climate change mitigation tax in 2000 were halted after being declared unconstitutional by the Constitutional Court, emphasizing the importance of legal consistency in carbon tax implementation.

2010s: Strengthened EU-Wide Initiatives
The 2010s saw significant progress in EU-wide climate change measures. In 2011, the European Commission released "A Roadmap for Moving to a Competitive Low Carbon Economy in 2050," outlining a long-term plan to achieve net-zero greenhouse gas emissions by 2050. Following this roadmap, many member states, including Sweden, developed concrete policies to achieve carbon neutrality.

After the adoption of the Paris Agreement in 2015, the introduction of carbon pricing accelerated globally. According to a World Bank report, as of 2020, 64 carbon pricing systems were operational worldwide, covering approximately 22% of global greenhouse gas emissions. During this period, the EU ETS (Emissions Trading System) was also strengthened, with CO₂ trading prices steadily increasing.

2020s: Current Status and Prospects
In the 2020s, Europe adopted the "Fit for 55" package, aiming to reduce greenhouse gas emissions by 55% compared to 1990 levels by 2030. Many EU member states have already introduced carbon taxes, with rates varying by country. For example, Sweden imposes approximately 119 euros/ton CO₂, Finland about 62 euros/ton CO₂, France 44.6 euros/ton CO₂, and the UK 19.2 euros/ton CO₂.

The EU ETS saw CO₂ trading prices reach approximately 70 euros/ton in January 2024, while technological innovation in renewable energy and electric vehicles (EVs) accelerated. Additionally, the introduction of the Carbon Border Adjustment Mechanism (CBAM) applied carbon costs to imported goods, promoting international fairness.

Impact on Businesses and Future Outlook
These policies have increased carbon costs for European companies, particularly energy-intensive industries facing challenges in maintaining competitiveness. On the other hand, investments in renewable energy have grown, creating new market opportunities. The EU aims to achieve net-zero greenhouse gas emissions by 2050, with further increases in carbon pricing and regulatory tightening expected. Companies must transition to sustainable business models, with decarbonization technologies playing a critical role in shaping future competitiveness.

These developments underscore Europe's leadership in environmental policy and its crucial role in addressing international challenges.