Assessing the environmental effectiveness of carbon tax in the European Union using panel data analysis

Carbon Tax is an effective market-based mechanism to reduce greenhouse gas emissions; by assigning a monetary value to carbon, the carbon tax encourages businesses to reduce their emissions and to support sustainable environmental practices. This paper analyses the effectiveness of the carbon tax on emissions reductions in the EU. Carbon pricing mechanisms have evolved significantly over the past decade. This study uses historical data on carbon prices, CO2 emissions, the share of renewable energy, and socioeconomic variables to analyse how carbon taxes have influenced average annual CO2 emission reduction. The study finds that the carbon tax contributes to emission reduction by effective pricing with the help of panel data models. Findings suggest that a carbon tax aligned with better administration is essential for achieving long-term emission targets.