History and Current Status of Carbon Taxes in Europe

History and Current Status of Carbon Taxes in Europe

1990s: Pioneer in Introducing Carbon Taxes
In 1990, Finland was the first country in the world to introduce a carbon tax. This was a pioneering policy aimed at reducing greenhouse gas emissions, improving energy efficiency, and promoting the use of renewable energy. The following year, in 1991, Sweden followed suit, and the country implemented an environmental tax reform along with a corporate tax cut to achieve a "decoupling" of CO₂ emission reductions and GDP growth. This success served as a model case for other countries to introduce carbon taxes and attracted attention in many countries.

At the same time, however, some challenges emerged with the introduction of a carbon tax. In particular, the fairness of the tax burden in energy-intensive industries and regions dependent on fossil fuels was seen as problematic, and there was opposition from industrial circles. In addition, differences in the economic structure and energy situation of each country had an impact on the tax rate setting, and the variation in responses from country to country was pointed out.

2000s: Expansion and Deepening of Carbon Taxes
In the 2000s, many European countries introduced carbon taxes or raised their tax rates. In Sweden, the standard tax rate was set at 39 euros/ton CO₂ and 20 euros/ton CO₂ for industry in 2000, and the standard rate reached 119 euros/ton CO₂ in 2016. Meanwhile, Finland also implemented an energy tax reform, using carbon tax revenues to finance income tax cuts and social security cost reductions. Such policies are highly regarded as an attempt to balance environmental protection and economic growth.

In France, there was a plan to introduce a global warming tax in 2000, but the system was revised after the Constitutional Court ruled that the tax was unconstitutional. This event highlighted the importance of legal consistency in the introduction of a carbon tax.

2010s: Increased EU-wide efforts
The 2010s saw a major step forward in EU-wide climate action: in 2011, the European Commission published "A Roadmap for Moving towards a Competitive Low Carbon Economy in 2050," a long-term plan to achieve virtually zero greenhouse gas emissions by 2050. The plan is based on the Swedish government's "Carbon Economy in 2050" plan. Based on this plan, Sweden and many other member countries have developed specific policies to achieve carbon neutrality.

After the adoption of the Paris Agreement in 2015, the introduction of carbon pricing accelerated both inside and outside the EU. The World Bank reports that 64 carbon pricing schemes will be in operation by 2020, covering 22% of global greenhouse gas emissions; the EU ETS (Emissions Trading Scheme) has been strengthened during this period, with steadily increasing CO₂ trading prices.

The 2020s: Current Status and Prospects
Entering the 2020s, Europe has set a target to reduce greenhouse gas emissions by 55% from 1990 levels by 2030 through the "Fit for 55" package Many EU member states have already introduced carbon taxes, the rates of which vary from country to country. For example, Sweden levies a tax of about 119 euros per ton of CO₂, Finland about 62 euros, France about 44.6 euros, and the UK about 19.2 euros.

In addition, in the EU ETS, the CO₂ transaction price will reach approximately 70 euros per ton of CO₂ as of January 2024, and while the cost of carbon is rising, technological innovations such as renewable energy and electric vehicles (EVs) are accelerating. Furthermore, with the introduction of the Border Carbon Adjustment Mechanism (CBAM), carbon costs are applied to imports from outside the region to ensure international equity.

Impact on Companies and Future Prospects
As a result of these policies, European companies face increasing carbon costs. The EU is aiming for virtually zero greenhouse gas emissions by 2050, and further increases in the carbon price and tighter regulations are expected. Companies will need to transition to sustainable business models, and the development and implementation of decarbonization technologies will determine their competitiveness in the future.

These trends show that Europe, as a leader in environmental policy, is playing an important role in solving international challenges.