How Carbon Tax Works on Fuel
The carbon content of fuels is well-established by chemistry. Burning one litre of petrol (gasoline) produces approximately 2.28 kg of CO₂; diesel produces ~2.65 kg/litre; LPG ~1.63 kg/litre. A carbon tax converts these physical emission factors into a per-litre cost:
Per-litre carbon cost = Carbon tax rate (€/tonne CO₂) × Emission factor (tonne CO₂/litre)
At €50/tonne — roughly the midpoint of current EU national carbon tax rates — this yields:
- Petrol: €50 × 0.00228 = €0.114/litre
- Diesel: €50 × 0.00265 = €0.133/litre
- LPG: €50 × 0.00163 = €0.082/litre
The OECD Taxing Energy Use database publishes effective carbon rates for all OECD countries, broken down by fuel type — the best cross-country comparison available.
Carbon Tax vs. ETS: Two Ways to Price Carbon
Carbon taxes and emissions trading systems (ETS/cap-and-trade) both put a price on carbon but differ in important ways:
| Feature | Carbon tax | ETS / cap-and-trade |
|---|---|---|
| Price certainty | Yes — fixed rate | No — price floats with allowance market |
| Quantity certainty | No — emissions depend on response | Yes — cap sets total emissions |
| Pump price predictability | High | Variable |
| Examples | Sweden, Canada, Ireland, Germany | EU ETS, EU ETS2 (2027), California |
The World Bank Carbon Pricing Dashboard tracks every active carbon tax and ETS globally. The ICAP ETS Map covers emissions trading systems specifically. For the EU's approach — including the new ETS2 that will cover road transport from 2027 — see our news article on carbon tax and fuel prices.
Major Carbon Taxes in Practice
Sweden — the world benchmark
Sweden introduced its carbon tax in 1991 — one of the world's first. The 2024 rate is SEK 1,330/tonne CO₂, equivalent to approximately €117/tonne. At this rate, the carbon component alone adds ~€0.27/litre to petrol. Sweden combines the carbon tax with a reduced energy tax on fuels, so the combined effective rate is very high but the carbon component is explicit. The Swedish Tax Agency (Skatteverket) publishes the current rates.
Canada — the federal backstop
Canada's federal carbon pricing system has a backstop carbon price applied in provinces without equivalent provincial systems. The rate reached CAD 80/tonne CO₂ in April 2024, adding approximately CAD 0.176/litre to petrol (~€0.12). The rate is legislated to reach CAD 170/tonne by 2030. Environment and Climate Change Canada explains the system, which also provides a rebate to households.
Germany — the newcomer
Germany introduced its national carbon pricing system (nEHS) for transport and heating fuels in January 2021 at €25/tonne, rising to €45/tonne in 2024 and scheduled to reach €65/tonne by 2026. This adds approximately €0.10/litre to petrol at the 2024 rate. The German Emissions Trading Authority (DEHSt) administers the system.
A carbon tax is levied in addition to existing fuel excise duties, not instead of them. In Sweden, both apply — making Swedish petrol among Europe's most expensive even before the standard VAT. See our excise duty entry and VAT on fuel entry for the full stack.
Carbon Tax vs. Fuel Excise: What's the Difference?
Both are per-litre taxes, but their basis and purpose differ:
- Fuel excise duty is typically a fixed rate per litre, set to raise revenue for roads and general budgets. It doesn't explicitly vary with carbon content — a litre of high-sulphur fuel pays the same as low-sulphur.
- Carbon tax is explicitly proportional to CO₂ content. It creates a gradient that favours lower-carbon fuels (LPG, ethanol blends) over higher-carbon ones (diesel), and can be designed to become revenue-neutral through household rebates.
The IEA World Energy Outlook 2023 models scenarios where a global carbon price of USD 130/tonne in advanced economies and USD 90/tonne in emerging markets by 2030 is consistent with the 1.5°C pathway. The gap between these model levels and current implementation underscores how much further carbon pricing policy has to travel.
Frequently Asked Questions
What is a carbon tax on fuel?
A levy per tonne of CO₂ that will be emitted when the fuel burns. Since CO₂ content per litre is fixed by chemistry (~2.28 kg/litre for petrol), the per-litre cost is rate × emission factor. At €50/tonne: +€0.114/litre petrol, +€0.133/litre diesel. The OECD Taxing Energy Use database shows effective carbon rates by country and fuel type.
What is the difference between a carbon tax and an ETS?
A carbon tax fixes the price per tonne (price certainty). An ETS caps total emissions and lets price float through trading (quantity certainty). Both appear in pump prices — the World Bank Carbon Pricing Dashboard tracks all active instruments. The EU uses ETS (including the new ETS2 for transport from 2027); Sweden and Canada use carbon taxes.
Which countries have the highest carbon tax on fuel?
Sweden (~€117/tonne), Switzerland (~€124/tonne), Finland (~€88/tonne), and Norway (~€85/tonne) top the list. Canada's federal backstop reached CAD 80/tonne (€55) in 2024 and is legislated to rise to CAD 170 by 2030. See the full ranking in the OECD Taxing Energy Use database.