A broader view of carbon pricing: The role of general energy taxes in emission reductions

• Carbon pricing—through taxes and emissions trading—faces implementation challenges. • Implicit carbon prices are estimated by combining explicit carbon pricing and general energy taxes. • Two-way fixed effects regression is applied to panel data for 31 European countries in 2002–2018. • General energy taxes are shown to reduce emissions alongside explicit carbon pricing. • Findings highlight the need for broader, incentive-based climate policy frameworks. Carbon pricing is a key element of climate policy, but carbon taxes and emissions trading currently cover less than a quarter of global emissions. By contrast, economy-wide general energy taxes (e.g., motor fuel taxes), although not originally designed for climate purposes, can also contribute to emission reductions. Based on European tax statistics and emissions data, this paper compares explicit carbon pricing with general energy taxes, which also place a price on carbon, albeit indirectly. We apply a two-way fixed effects panel regression to a sample of 31 countries over the period 2002–2018. The results indicate that a 1% increase in explicit carbon prices and general energy taxes has, on average, led to a 0.6% and 0.9% reduction in emissions, respectively, with no statistically significant difference between their estimated impacts. Our findings confirm the importance of explicit carbon pricing, which directly targets the carbon content of fuel use and encourages a shift toward cleaner energy sources. Although less frequently discussed in the climate policy context, general energy taxes have a comparable impact on emissions, owing to their wide application and their role in promoting more efficient energy use.